How ArbiLex is bringing AI to the multi-billion dollar litigation finance industry

Legal cases are all unique in some ways. But can people use data to better predict their outcomes? Isabel Yang, founder of the AI-driven, litigation finance platform ArbiLex believes so.  

Yang recently told 500 Global that early in her career she built statistical models to help policymakers in developing countries make decisions. So, when she later learned the concept of litigation finance in law school, she said her “statistics brain immediately turned on.” 

“What was fascinating to me — and so obvious to a statistician — is that you need to look at data to quantify risk and returns, but this wasn’t happening for litigation finance,” Yang said. 

According to Yang, the cases that her Cambridge, Massachusetts-based startup predict to have a higher chance of success end up winning more often. 

“That means there’s something about a case that’s predictive, and that insight can be utilized when making an investment decision,” she said.

Roland Osborne, a Principal at 500 Global who’s worked closely with Yang and the ArbiLex team, said “investors are always looking for the elusive sector that has yet to be modernized.” 

“I find it absurd that unlike other financial markets, quantitative risk analysis and Modern Portfolio Theory hasn’t yet found its way into the litigation finance space,” Osborne said. “After meeting Isabel I knew we may be looking at what could be the next quant revolution. And, I believe that she is the kind of founder who has what it takes to pull off this type of new market creation.”

Here’s more from our recent conversation with Isabel Yang. This interview has been edited for brevity and clarity. 

Tell us more about ArbiLex and what you offer? 

Isabel Yang: ArbiLex is building data science and AI solutions for the practice of litigation finance. 

When there’s a new lawsuit, we use statistical methods to predict the outcome of that lawsuit. And to build that model, we look at historical data sets and see how similar lawsuits have turned out. Our core product is an AI-driven rating system for legal cases.

Who are your customers?  

IY: The most obvious, near-term go-to-market strategy is to offer our analytics as a subscription service to litigation finance funds. These are asset managers whose sole mandate is to invest in lawsuits. So, they care about having predictive insights at the deal sourcing stage to add a more data driven approach to their origination process. 

Going forward, we do anticipate we can build relationships with law firms to expand some of our offerings on the platform. 

What’s the market potential? 

IY: Globally, an estimated $800 billion is spent on legal fees annually. Currently, less than 5% of that legal spend is financed by a third party — meaning, by litigation finance. 

So, even if litigation finance only penetrated a little bit more into the legal industry, it could potentially unlock tens or hundreds of billions of dollars of liquidity per year. 

I think the reason this hasn’t happened at a greater scale is because there just hasn’t been a data-driven price discovery platform. This asset class has been doing business in the dark for decades. 

Do you think individuals could one day participate in litigation finance? 

IY: When this asset class is mature enough, it’s a big hope of mine that we can create a peer-to-peer platform where individual accredited investors can invest alongside institutional investors who have been investing in lawsuits for decades. 

We’ve seen this over and over again in illiquid, high valued, private asset classes. They go through a trajectory of being a cottage industry — whose insights and capital returns are held on tightly by insiders — to a place where data scientists and innovators start to build price discovery platforms that enable broader participation. 

As a result of more capital participation, more deals, smaller deals, more diverse deals start to become available. And then, it becomes possible to develop a more passive investment strategy, like an index fund. You’ve seen the same trajectory in venture capital, private equity, and real estate. I think the same can happen to litigation financing. 

You went through the 500 Global Flagship Accelerator Program. What were your key takeaways? 

IY: As a solo founder building in a niche space, it can be pretty lonely. But 500 has this curated community of innovators from around the world, many of whom are doing something niche in industries that are less obvious to others. At the same time, they also managed to keep the cohort to a smaller size, so I could actually build these organic relationships. 

I think having that balance of access to a community while keeping the program exclusive enough so I could cultivate genuine friendships and partnerships — to me, that’s irreplaceable. And I think very few VCs actually have the scale, the platform, and the founder empathy to pull that off. It’s so unique to 500. 

I also think 500 is good at acknowledging that, at the end of the day, authenticity is the core to selling both to investors and to your potential customers. The playbook that works for a white-boy SAAS founder, doesn’t necessarily work for an Asian, female, introvert, solo founder, who also happens to be a nerd, like me. 

500 sees diversity and differences as a strength, not a weakness. They’re not trying to feed you a cookie cutter playbook. Instead, they let you actually find your real voice.