Legalist cofounders Eva Shang and Christian Haigh. Y Combinator It's a startup idea that looks like it's ripped straight from the headlines.

This summer, Forbes revealed that tech luminary Peter Thiel had secretly been backing Hulk Hogan's lawsuit against Gawker. It was a wake-up call that people could fund a lawsuit bent on destroying a business — and that it's perfectly legal to do so.

A new startup, Legalist, is looking to make money from the practice of bankrolling lawsuits. The startup plans to fund those that it calculates has a chance to win.

But Eva Shang, its cofounder, told Business Insider that it's not looking to become Peter Thiel in startup form — even though Shang is a Thiel Fellow, meaning that she took a $100,000 investment from Thiel's foundation to build Legalist.

"That's the kind of thing we're staying away from here," Shang said.

In a presentation at Y Combinator's Demo Day on Tuesday, Shang argued that litigation funding is poised to become an "explosive asset class." The startup has funded one lawsuit for $75,000 and expects a return of over $1 million once the case is over. That money will then be reinvested in other lawsuits, and the process will repeat itself.

"It's a niche field that you don't really think about," Shang said.

Legalist is only going to focus for now on business-tort cases. She used an example of a small bakery that had a water pipe burst in 2014 and has been locked in a lawsuit since then. The insurance company is trying to drag it out, she said, and with money running out, a lawyer could look to Legalist for help funding the remainder of the case.

"We're funding commercial business, SMBs," Shang said.

Most cases will require between $50,000 and $500,000 from Legalist, and the company will negotiate for up to 50% of the settlement.

The company wants to stay away from the "ambulance chaser" stereotype, and Shang said that it will not be involved with personal-injury claims. It won't be a business of handing out money to people to get them to sue, but rather helping cases that are already underway reach a just conclusion, Shang argues.

"That's why litigation financing has had such a bad name before," Shang said.

The key to Legalist's success will be in its algorithm that calculates the odds of winning the case and the time scale in which it would finish.

Before it switched to litigation financing last month, Shang and her cofounder, Christian Haigh, spent the first half of the year working on a legal-analytics startup. Their original idea was to pull case records and calculate this information for lawyers, but then they realized that they could use it to help small businesses instead, Shang said.

The company weighs factors like the judge, court type, lawyer involved, and facts about the case to assess the likelihood of success. Certain indicators, like how many cases a judge has on his or her plate, can give Legalist a rough estimate on how long the case will take. A judge's track record in similar cases can also point to the likely outcome.

Right now, the cases are coming in to Legalist through its network of lawyers who had signed up to use the original analytics service. All of the money going toward a case is coming straight from their bank accounts.

It's a risky bet on a burgeoning field, but Shang says that the money works out. For every $1 spent in the average litigation-financing case, $1.40 is reaped, she claims.

Whether that's money well-spent or not in the already-litigious business climate is another debate entirely.