Trends in the Formation of New Credit Funds

Adam Torres and Neil ODonnell discuss credit funds.

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Show Notes:

What are the current trends in the formation of new credit funds? In this episode, Adam Torres and Neil ODonnell, Managing Partner at Legal Scale LLP, explore credit funds. Neil will also be participating in the Venture Debt Conference hosted by DealFlow events.

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About Niel ODonnell

Neil ODonnell is the originating partner of Legal Scale LLP. Neil’s practice focuses on fund and SPV formation and private transactions. Neil received his J.D. and M.B.A. from Cornell University and his B.S. and M.S.E. in biomedical engineering from Johns Hopkins University. During high school, Neil worked within the U.S. House of Representatives as a Congressional Page.

About Legal Scale LLP

Legal Scale is a law firm that specializes in providing bespoke legal services to emerging businesses, lenders, funds and investors. Their attorneys bring a high level of experience and expertise to a wide range of corporate transactions, including venture debt and structured debt, fund formation, equity financing, mergers and acquisitions and corporate governance. We work closely with our clients to provide sophisticated legal analysis, streamlined execution and unparalleled personal attention. Legal Scale works with innovative companies, investors and lenders in industries like fintech, e-commerce and SaaS, helping them secure financing or deploy capital and navigate complex legal challenges to drive growth and create value.

Full Unedited Transcript

 Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest in the show, just head on over to mission matters.com and click on Be Our Guest to Apply. All right, so today I have Neil O’Donnell on the line. He’s managing partner over at Legal Scale LLP.

Neil, welcome to the show. Happy to be here. Thank you so much. Alright, Neil, I’m feeling like it’s a legal scale, LLP day over at Mission Matters. I know I had the other co-founder on, on earlier today, Maha Rashid. And let me tell you, we had, we had a ball. I’m sure you, I’m excited to get in on your side of, to talk about your practice as well.

And here’s some of those stories, the deals you’re working on the trends. And really just have some fun today. So a lot for us to cover here. And just, just to get us started, we’re gonna start with what we like to call our mission matters minute. So, Neil, at Mission Matters, our aim and our goal is to amplify stories for entrepreneurs, executives and experts.

That’s what we do. Neil, what mission matters to you? The mission that matters to me is, is to get transactions done. I think that we’re, we’re coming through an interesting time where a lot of law firms are, are charging ever higher rates and doing more and more complex transactions. But there’s a time within the market when legal fees just really are impeding transactions from coming together, or attorneys are more interested in.

Breaking the wheel, then helping the wheel go faster. At legal scale, we really try our, our mission, our, our goal is always to make sure that we’re helping deals get done. That comes in the form of sometimes lowering our rates or figuring how to be more efficient on this transaction can come in the form of introducing a potential lender with a potential borrower or an investor with a fund.

And so our goal seek within, within every, every deal that we do, is to get that deal done and get it done efficiently. Yeah, that’s great. Love bringing mission-based individuals on to share, you know, why, why they do what they do, how they’re doing it, and what we all learn from it. And in this case, how to get deals done, man.

So good stuff. Appreciate it. To, just to kick this off, I understand that yourself and and the other co-founder will be work attending the venture Debt conference 2025 over on the East Coast. And I know you were referred over to Phil deal flow event. Guys, so big shout out to them and I. Think correct me if I’m off on this, Neil.

You, you’ve been supporting the conference and attending and things like that since inception. Am I off on that? That’s correct. We’ve gone to the Venture debt conference for the last two years. We’re going this year. We are a silver sponsor. Deal flow puts on excellent events including venture debt.

We’re truly lucky to have a great conference. Like the Venture Debt Conference in New York. There previously weren’t a lot of New York based debt conferences. There, there were others in Miami. Mm-hmm. There’s, there’s a large one in, in Vegas. But to have a large debt conference here in New York. Is extraordinary and it, this conference is actually relatively unique too, so kudos to, to deal flow for finding so many excellent borrowers.

At this conference, it’s a, it’s a fantastic event. It’s our favorite event of the year. Mm-hmm. What keeps you coming back? First and foremost, we are a, a venture debt. We first got started working with funds that, that did a number of debt products including venture debt. It is a unique space for us because there is the need for sophisticated legal work.

But also to make sure that you’re balancing that with efficiency so that both the borrower and the lender can bear the cost and expense and that they understand the product. Right? And so we, we really like venture debt. We like it as a product. We, we do a lot of it as, as a firm. And furthermore, if you go to SFA, which is spectacular conference, or a BS East, another fantastic conference, there’s no shortage of a very, very large lender there, but there’s fewer borrowers.

So for, for us to, to be able to find. A conference that caters to access for people that might be looking at a credit instrument for the first time is fantastic because then we can go into our role as council from, from day one, from hour one, from the first meeting and the first handshake at the conference.

And so I, we made it sincerely when the, the makeup of the deal flow Venture Cadet conference is different and is much better for our firm. In terms of meeting really, really interesting, innovative borrowers very early in their lifecycle. Yeah. I wanna get a little bit more into your background, Neil.

How did you get started and like what attracted you to this field in general before we get into legal skill? Like how, how did you get started? That’s a great question. I, and I appreciate it. So my both of my parents are attorneys. My sister is an attorney. We all do different work. I, I always understood and appreciated the personal power of being an attorney and, and advising clients.

And I, I remember seeing my dad get up at 5:00 AM and, and sit at our kitchen table and, and, and do work. And so I, I, I was incept into being a, a lawyer from, from very young. And, and my parents got in law school. That’s awesome. Whenever somebody comes on and tells me I don’t, whatever their parent lineage is, when everybody kind of does the same thing, I gotta know.

What was it like in the holidays? Like holidays? Yeah, that’s right. In the, what was it? Like, invite me over right now. What was it like dinner table? My parents, my parents loved the law and they would talk about law school constantly because they had, most of their friend group was, was from law school.

They, they had gone to the University of Pittsburgh for law school and they loved it. Mm-hmm. Holidays are. Extraordinarily fun because my mom loves a holiday, ex exempting being an attorney or anything else. And there, there are conversations around the most recent Supreme Court decision or anything else.

My, my sister really is, is an ex, is an excellent constitutional lawyer. Mm-hmm. And she is, you know, very, very bright and focuses on things that are on the, you know, front page of whether it’s the Wall Street Journal, the New York Times. Really focused on items that, that, that have been relevant even lightly in terms of voting rights and other items.

My, my dad is a personal injury lawyer. My mom does estates and trusts, and of course I focus on credit funds. And so it’s a very disparate group. I’m, I’m talking more about the, but this is section of the Wall Street Journal than the front page. It, it, it’s a fantastic time and we’re all using, what I like about it is that.

We’re using the law in different ways, but all at the goal of helping people and, and in, in my way, the way of helping people is to get these, these excellent and mutually beneficial transactions done. Man, that’s fun. When, when, when you picked your, when you picked your focus, what was that conversation like?

Ultimately it was pretty cool. I’m guessing like, ’cause you have so many different, I appreciate sides of this. I appreciate it. They were, my parents were thrilled. I was going to law school. I went for a JD MBA, which was very helpful in terms of. Making sure that we could add value to clients and yeah, I, I’d always had an interest in business and investing as, as well as the law.

Mm-hmm. They were thrilled. And Cornell Law School’s, J-D-M-B-A program was an extraordinary way to get up to speed. They actually have a three year JD, a program, so it wasn’t as though I was in school for four years or even longer. Mm-hmm. And. It was a fantastic outcome. So they, they were thrilled. They were happy with the decision.

It combined a lot of my interest and I, I get to work you know, sometimes 12 or, or 13 hours a day, but I’m, I’m tap dancing to work just like Warren Buffett would say. So I, I, I really, I really like it and my, my parents in different niches or, or working the same hours and, and equally as satisfied with, with, with your career.

That’s an amazing what an amazing family. Shout out, shout out to mom and dad out there who that’s right. Made this happen Right to, for those kids. Love. It’s exactly right. Appreciate it. It’s a great story. Let’s switch it up a bit here. I do wanna go into legal scale. Maybe just start at the beginning, legal scale.

Why, why found legal scale in the first place? So what was the idea or the thesis that made this thing to where it’s like, you know, I’m gonna spend some time on this. This is my thing. So I, I, first, when I left Cornell, I worked at Davis Polk as, as does my, my partner on legal scale. Rashid. We had an excellent time there.

It was an extraordinary place to learn what we call like corporate legal hygiene. Oh, were both of you together there? You worked together there, correct? We were actually both, we were both JD MBAs at Cornell Law School. We both worked at Davisville. Oh, so you’ve known each other back since then? Since, since college.

Correct. We since, since law school, since since the, the, the first, the first, excuse me. Yes. Uhhuh one L year. And it was fantastic. You know, we absolutely loved working at Davis Polk. I got to work in two groups, one on the capital markets distribution side, another within the, the restructuring group, both of which are, are, were excellent training for, for what we’re doing now.

And also got to work on investment management matters and other matters that are now the principal tenets in my practice. Mm-hmm. What I saw on, on the other hand was that there were, because I had an interest in business, a number of dynamic and interesting funds that were coming together. Mm-hmm.

Sometimes they were even just investment clubs at inception. For, for example, one of our clients at 90 started as an investment club, then put together its first fund and now has grown to, to several billion a we’re really lucky to work with them, but that was the really characteristic and, and iconic of, of a.

Large trend, which was that private credit was growing. These dynamic asset managers knew how to apply credit in a different way. Mm-hmm. That was potentially more accretive than traditional investments. And so upon seeing that I wanted to assist those firms, and the best way to do so was to put out my own shingle at legal scale.

Mm-hmm. And, you know, especially once Maha came on board, I could combine, combine my fund’s expertise with her expertise in deploying funds from that investment vehicle into private credit investments. What was that? A lot, a lot of entrepreneurs, a lot of executives that watch this show. What was that like, that moment when you decided I’ll use your words to, to hang that shingle?

Like what was that like and go out, ’cause that’s I’m getting nervous over here just thinking about it. There was some level of, of risk of, of course, in, in doing it always, always initially very low overhead. Of course, it was just myself and a paralegal m had came on board and, and the rocket ship really took off.

Yeah. The idea that I had was that I was gonna learn much more about client acquisition and meeting client’s needs that I would’ve had at a large law firm, and that thesis was immediately true. So I was uniquely. Blessed in order to be able to one, take that risk. Then two, to find too many other attorneys.

And right now we have 15 attorneys on the platform. We’re actually adding two more in the next two weeks. Congratulations, really. Thank you so much. But we found other growth-minded entrepreneurship minded attorneys that are, that are trying to do the same thing. It’s, it’s of course about adding clients.

It’s of course about doing business, but the fundamental thing. On the, that we’re looking for from, from each attorney that joins us is experience and expertise, but also the desire to take ownership of your own career. And that’s what I had from the very moment that I stepped off the Davis Cold Platform and started my own firm.

Yeah. Talk a little bit more about, about your particular practice area in the company or in the firm. Talk a little bit more about that. Of course. So I, I form funds that, that’s, that’s my primary practice. We, we, we help investment managers with day-to-day decisions and then mission critical items.

Sometimes that’s the wind down a rollover of the funds. Even more common. It is the launch of a new hedge fund. Mm-hmm. Private credit or private equity vehicle. And we do that every day. We’re right now in the midst of. Six or seven fund launches, one of which is a very large hedge fund, which will be private credit funds that focuses on both.

It’s called a fast-paced, slow pay structure, so it, it is fund formation across the gamut, and that is a matter of working with the investment manager, tailoring the product and the investment manager needs, and then of course, making sure that it works within the broader market for landing limited partners and investors onto that investment vehicle.

Now, what type of managers and or investors are you working with? So is it like, who, who’s typically a good fit to work with your firm in this space, in your, for your practice in particular, ideal asset managers for us, f first and foremost, before we even got into, you know, numbers or anything else, we’re, we’re, we’re looking for asset managers that are dynamic, that are innovative, that are looking at, at new and interesting deals.

And the reason why is that both myself and my partner are JD MBAs and we love business and, and the time at which we do our best work is when we understand. The thesis behind the funds, the model behind a transaction, and that’s been really helpful for us in the midst of our own careers. In addition to that dynamism, we’re also looking for asset managers that, of course, have enough scale so that we can do interesting work for them.

Time and time again, we’re often looking for. Managers that can grow alongside of us. And so most of the managers that we have might have one half or two thirds money from large institutional investors. Mm-hmm. And what that signals to us is that they can continue to grow, that they have a nexus of interest of interested investors, that if the asset manager performs, and of course we’re betting like everyone else, that they will Yeah.

That the. The next fund will be larger than, than the first fund, and then the third fund larger than the second. And so that’s been really helpful for us in terms of making sure that the clients that we’re adding one, can leverage our expertise, and two, will continue to grow alongside of us because that results in the best relationships and, and true economies of scope.

Yeah. Talk to about some of the credit deals that you’re working on, or like, how, how do you ensure that you’re working on interesting credit deals? Like, talk to me about that. So I think one item that’s been really helpful is that there’s synergies across our practices. Mm-hmm. And so one transaction that comes to mind that was from last year involved a company that, that purchased a large software business.

The company was based in Boston, and as, as was this, the software business for them, we launched an SPV that was dedicated to the, to the purchase. And that was an item that I, that I led. We also worked on several corporate items, including a fresh equity investment. We raised new debt in order to take over the business.

Mm-hmm. And there were a number of items for an existing debt facility. All of all those debt items led is my partner. And so that was just a fantastic transaction for us where by virtue of coordinating with, with a business that took over the software company Mad Wire, we got to leverage each practice, each domain of the firm and what we focus on.

And that’s why really clients come to us. It was a complex transaction that span numerous groups. I frankly think that we had, we did a much better job than any large law firm would’ve done, and the reason is because we closely aligned between seven or eight associates on our platform to make sure the fund was stood up on time and, and had its a clear expiration of the investment thesis on behalf of the purchase of Mad Wire that there was, people understood the equity and all debt investments, and so that coordination and synergy across our practices is why clients use us.

Mm. That would seem like a competitive advantage there. Am I, am I off on that or appreciate that? That’s exactly right. It’s, it’s a key competitive advantage of ours. And when you’re going to a boutique law firm like ours mm-hmm. Because of our expertise in financing transactions, complex mission, critical financing, gen transactions get done and they get done more quickly than if a large law firm had been engaged.

Yeah. Talk to me about some like what kind of trends that you’re seeing right now just in, in fund formation and credit in general, like, talk to me about that. So credit funds, the first trend is, is simple growth There. There’s been a lot of liquidity behind credit funds, and we’ve stood up more credit funds in the second half of 2024, and.

Until 2025 than, than we’ve done in the past. And so we’re lucky we’ve grown our funds team by virtue of, of growth and interest. Now, is that at your, would you say that’s at, I know at your firm that’s the case, but would you say in the industry as a whole, it’s going up and growing at the moment, or the industry is also growing?

Yeah. We’ve gone to SF Vegas for the last three years, which, which is the largest private credit conference in the United States. Mm-hmm. SF Vegas is, has markedly grown, even in just the three years that we’ve been there. I’d say it’s probably grown. 30 or 40%. So as a category, private, private credit has truly grown and we expect that growth to continue.

The reason why is that there’s a number of tailwinds. There could be changes to the tax code that are helpful with greater equalization between ordinary income that comes off of a credit instrument versus capital gain that comes off of a a, an equity instrument. There’s just more focus on this category from insurance companies and, and, and other.

Prospective investors. And so we’re seeing more funds and larger funds be put together for, with, within the private credit space. Yeah. And you said you, and you think that’ll continue, right? At least for the next you know, I think so. Yeah. We’re, we’re not seeing, we’re. There’s a famous economist, Herbert Stein that said, if something can go on forever, it will stop.

Of course there, but we’re How do you get to at tribute? That one? Of course. Good, right? Yeah, exactly. It’s, it’s fantastic. Actually, Ben Stein from, from Ferris Bueller’s dad was, was Herbert Stein, and it’s one of my favorite economic laws, I think. So there will be, we’re yet to see though the ingredients of anything that would, that would slow the growth of.

The last six months have the, the trend has actually gone faster and, and we’re, we’re seeing more activity. We’re also seeing it across more markets as well. We’re doing a lot of transactions in, in Latin America, both. Mm-hmm. The principally of Mexico and Columbia. We’re, we’re doing a number of transactions in Asia and in Europe, so mm-hmm.

We’re, it really runs the gamut and from, from our perspective, private credit funds that are amassing more capital will be putting more money behind private credit deals that are. Well suited and tailored to the, to the clients. Yeah. So on like a traditional bank facility as well. The positive outgrowth of this for borrowers would be that they could get more money on more tailored, better suited terms that suit, that fit their business.

Amazing. Well, Neil, this has been a lot of fun having you on the show today and getting, and getting some updates on what’s going on in your world and also getting ready for this Venture Debt conference 2025. That being said, I mean what’s next? What’s next for you? What’s next for legal scale and, and the team?

What’s next for us is, is continued growth. Myself and my partner have a bi entrepreneur for entrepreneur mentality, and for us that means finding, you know, excellent people to put on the platform. Yeah. We endeavor to keep growing within these niches of fund formation and credit work, and I would say unabashedly that our endeavor is to grow a much larger firm from here.

Like I said, we’re gonna have 17 people on the platform as at the end of this march as, as, as of the end of March. And then we’re, we’re looking forward to adding even more associates. We, we foresee having a. 50 or, or 60 person firm by 2030 and every, every day is steering the shift towards that awesome outcome.

Come on, man. I love that the entrepreneurial spirit is alive. How, how do, how do people follow up? How do they connect with, with you and your team now? Perfect. So everyone can reach out to us at contact@legalscale.com. My email is the same as my name, neil@legalscale.com. That’s the principle way that we.

Interface with, with any sort of inbounds which is fantastic. I would say if, if anyone else wants to reach out to myself and my partner too, where we constantly receive inbounds through LinkedIn and other platforms. Overall the goal for us is to. Make sure we’re growing the ecosystem. If people feel as though they don’t have a fund right now, or they don’t have a transaction in mind, but they just wanted to ping us for what we’re even seeing in the market as it’s a continuation of this interview, I’m here for that.

The goal seek for this is we’re seeing growth, we’re seeing activity, and we wanna foment even more. Perfect. And for everybody watching, just so you know, we’ll definitely put the links in the show notes, so you can just click on the link and head right on over. And speaking to the audience. If this is your first time with Mission Matters and you haven’t done it yet, hit that subscribe or follow button.

This is a daily show. Each and every day we’re bringing you new content, new ideas, and hopefully new inspiration to help you along the way on your journey as well. So again, hit that subscribe or follow button. And Neil, man, thanks again for coming on. So much for having me. Big fan of the show. Thank you.