• Legalist, a government receivables startup, saw a boost as DOGE slashed contracts.
• The lender provides gap financing for vendors awaiting payouts from the federal government.
• As contractor payments hang in limbo, Legalist's loans are a temporary solution.

From the moment he became de facto head of the Department of Government Efficiency, Elon Musk seemed intent on carving up the federal bureaucracy like a Thanksgiving turkey. Thousands of federal employees were laid off, entire departments folded, and contracts worth billions of dollars were scrapped.

That mayhem created a lucrative opening for one startup.

In the first half of this year, Legalist, a San Francisco lender founded by one of tech billionaire Peter Thiel's fellows, extended more than $100 million to dozens of government contractors scrambling for cash. Founder Eva Shang says that's about twice what it deployed in the three years since launching its government business.

The company has doubled its origination team to meet demand, Shang said, and closed $40 million from new investors in June to expand the strategy.

Legalist is best known as a litigation funder. It uses algorithms to scan court dockets, backs cases it thinks are likely to win, and takes a cut of any settlement.

In 2022, at the urging of an investor tied to a university endowment, it branched into "government receivables," providing upfront cash to contractors for goods or services they've already delivered but haven't yet been paid for. Legalist takes its cut when the government eventually settles up.

That sideline became a profit center under the Trump administration, as contract terminations, stop-work orders, and spending freezes choked off cash for contractors.

DOGE says it's canceled about $58 billion in contracts, while a recent Politico analysis said that number was inflated by "accounting tricks" and claims that couldn't be verified. The White House defended DOGE's math, but Politico said it could identify $1.4 billion in money that was actually clawed back from contractors through July.

The White House did not immediately respond to a request for comment from Business Insider.

Federal rules let contractors recover money when policy shifts derail their work — either by adjusting the contract if the pause drove up costs, or by settling up if the job is canceled.

But in the meantime, those contractors have bills to pay, creating a billion-dollar opportunity for private credit lenders like Legalist and its largely regional competitors. (Shang says the company targets an interest rate of at least 12%, above the cost of capital at traditional banks.)

Legalist now has over 50 borrowers. One is a privately held international developer that incurred nearly $200 million in debt for services already rendered after Trump's sweeping freeze on foreign aid payments. Another is a manufacturer of aerospace engine parts that contracts with both the Department of Defense and private-sector clients.

In March, the Pentagon moved to slash over $580 million in programs, grants, and contracts.

Where Musk's cost-cutting frenzy whipped the contracting world into a maelstrom, Legalist has ridden the wave to new heights. Call it a DOGE bump.

Earlier this year, a group of foreign aid groups sued the Trump administration for refusing to spend billions of dollars that Congress had budgeted for federal grants and other programs. Federal judges then ruled to block parts of the funding freeze from taking effect.

An appeals court has now allowed the freeze on foreign aid payments to stand, not because the withholding is lawful, but because the plaintiffs did not have the legal standing to sue. (The decision doesn't alter federal rules letting contractors recover their costs, says Brian Rice, general counsel of Legalist.)

Shang says the ruling is unlikely to affect Legalist's pipeline. That's because the lawsuit pertains to federal grants and other programs, not the contracts that Legalist funds against.

"Some of the grants that Trump canceled, he's well within his right to cancel," she said.

The decision does, however, seep uncertainty into Legalist's world — a dynamic that could keep up demand for its advances, even as it makes collecting on them murkier.

Have a tip? Contact this reporter via email at [email protected] or Signal at @meliarussell.01. Use a personal email address and a non-work device; here's our guide to sharing information securely.

Nearly 800,000 doses of mpox vaccine pledged to African countries working to stamp out devastating outbreaks are headed for the waste bin because they weren't shipped in time, according to reporting by Politico.

The nearly 800,000 doses were part of a donation promised under the Biden administration, which was meant to deliver more than 1 million doses. Overall, the US, the European Union, and Japan pledged to collectively provide 5 million doses to nearly a dozen African countries. The US has only sent 91,000 doses so far, and only 220,000 currently still have enough shelf life to make it. The rest are expiring within six months, making them ineligible for shipping.

"For a vaccine to be shipped to a country, we need a minimum of six months before expiration to ensure that the vaccine can arrive in good condition and also allow the country to implement the vaccination," Yap Boum, an Africa CDC deputy incident manager, told Politico.

Read full article

Comments