As chief risk officer at Validity Finance, Dave Kerstein brings unparalleled knowledge and experience in helping companies and law firms mitigate litigation risks with creative and innovative funding models. During his 15 years at Gibson Dunn, Dave successfully litigated complex commercial disputes on behalf of plaintiffs and defendants. Having invested over $200 million in litigation finance across hundreds of cases, Dave has one of the best track records in funding in the USA.
What made you choose to leave Gibson Dunn for a career in litigation finance?
I became interested in the litigation finance space when I accidently bumped into it while I was litigating the Chevron v Ecuador matter at Gibson Dunn. Litigation funding was really nascent at the time but it was fascinating to me. I did a lot of research to learn more about it and realised it would be a great way to use my litigation skills in more of a business entrepreneurial setting. This transition to work at the intersection of the legal and financial industries was something I had been contemplating for some time. I was fortunate enough shortly after that to be introduced to Ralph Sutton, who was CIO of Bentham IMF at the time. I joined the team at Bentham in 2014 and in 2018 we founded Validity.
What types of cases does Validity Finance provide funding for?
Validity invests in a wide variety of commercial litigation from breach of contract, trade secret misappropriation, international arbitration, appeals – basically any kind of subject matter you can think of in the commercial litigation space. We really like to invest in cases where there is a compelling story, a good guy versus bad guy story where we can help a party that has suffered a wrong. The threshold for the amount of capital we commit starts at about $2 million and could be many multiples of that depending on the case. We prefer to invest in business-to-business litigation. Our core mandate is to invest in US litigation or international arbitration.
Are there are any types of cases you would like to see more of?
I’d love to see more commercial breach-of-contract matters between sophisticated, deep-pocketed entities. Litigation finance has traditionally been thought of as a tool to fund Davids in David-versus-Goliath-type cases. However, we increasingly hear from Goliaths or their lawyers who are facing battles with other Goliaths. In these scenarios, funding is a tool not only to support access to the courts, but as another finance option that can help Big Law and large corporations manage costs, promote predictability in budgeting or revenue, and mitigate or share risk.
What are the biggest challenges facing the litigation finance market at present?
Education. Even though litigation finance has been around a lot longer than when I first discovered it or first joined the industry six years ago, I think we are still educating the market about how funding can be beneficial to law firms and clients. A lot more people know about it now but a lot still don’t. And I think in a recent survey, almost 25 per cent of lawyers who know about funding still don’t understand how it works. There’s a lot of confusion out there between what commercial funders versus consumer funders do. With more education, I think funding will be more widely understood as a beneficial tool for clients and lawyers and we will be able to have a greater impact on helping make a difference in the legal system overall.
How has the market changed in recent years as jurisdictions around the world have increasingly permitted third-party funding?
I definitely think it has become more commonplace – especially in big disputes and in some key practice areas such as international arbitration. Larger and larger firms are increasingly considering or using litigation finance whereas when I first started in the space those firms were not even thinking about it. Also larger and larger companies that are well capitalised are interested in exploring funding even though they may have the capital available to fund the case on their own. They’d rather use their capital to make their widgets and grow their businesses than use it for litigation.
What advice would you give to a lawyer looking to get involved in funding?
I would advise them to speak to as many funders as possible to get a perspective on the different type of companies and opportunities that are out there. I would advise them to attend as many conferences and seminars, and there are lots of them now, to have an opportunity to network with funding professionals and to dig in and learn about the space as much as possible and possibly write on it. There are a lot of interesting issues that you could write about to show your interest in the space by writing an article about one of the emerging topics within the space.
If you could do anything with your career other than litigation finance, what would it be?
Either being the general manager of the Mets or the business manager for the rock band Phish.