Naples Global LLC, a hedge fund based in the United States, has partnered with LegalPay, an Indian third-party lawsuit funding startup, to create a fund to assist local entrepreneurs involved in disputes with their investors, including private equity firms.
They’ve agreed to form a special purpose vehicle (SPV) to assist cash-strapped founders in resolving issues with their investors through litigation, arbitration, and other means.
“Since most founders are first-generation entrepreneurs, they lack the financial muscle to assert their legal rights,” said LegalPay CEO Kundan Shahi. “The idea behind this product is to create a level playing field for those disgruntled founders so that they don’t give up on their legitimate rights due to financial constraints.”
Before paying up to 5 crore to a case’s legal fees, LegalPay will examine each issue and its risk-reward ratio.
“Our growing investor community continues to remind us that the demand for alternative investments is increasing and now we need to go outside the USA. LegalPay and their leadership team fit that category perfectly as they are creating a lucrative asset class in India/Asia,” said Kerry Morris, partner, Naples Global LLC. “We are looking forward to expanding our asset allocation as we grow our US business and service new international markets.”
The fund has committed to invest $5 million (about Rs 37 crore), with the option to enhance the amount. In the United States and other developed economies, Naples Global’s business model looks to have worked. According to persons familiar with the situation, the hedge fund has decided to test the waters in India as Indian entrepreneurs grow in size and scope. However, due to non-disclosure agreements made with its clients, it is unable to comment on the situation, they claimed.
The news comes at a time when entrepreneurs like Ankiti Bose of Singapore-based B2B e-commerce company Zilingo and Ashneer Grover, co-founder of BharatPe, are at odds with investors.
However, the SPV to be set up by Naples Global and LegalPay will focus on smaller startups where founders have strong cases but face financial constraints to fund their disputes.
Such funds finance founders’ litigation costs. Subsequently, the founders can either pay back along with predetermined interest or they will have the option to give away a portion of the equity in the startup to the fund. Confidentiality agreements bind most such agreements.
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