Bentham IMF employs a talented cadre of legal counsel, many of whom have left law firms—and billable hours—to focus on helping our company make critical litigation investment decisions.
Our legal counsel work closely with our investment managers to vet litigation, advise on financing decisions, and help manage investments in our portfolio. They help prepare the term sheets for deals and prepare and propose investments to our Investment Committee for vetting. In other words, they are key contributors in the process Bentham uses to decide how to deploy its financing dollars.
To find out more about their work, we recently spoke with several of Bentham’s legal counsel—Ronit Cohen in New York, John Harabedian in Los Angeles, Amy Geise in Houston, Sarah Jacobson in New York and Connor Williams in Los Angeles—about the investment process, how their jobs differ from being a law firm associate, and the unique challenges and opportunities of working in litigation funding.
Part one in this two-part “From Billables to Bentham” series focused on the day-to-day aspects of being a legal counsel for Bentham IMF. Part two below focuses on how our legal counsel collaborate with Bentham’s investment managers to make deal decisions, and the strategies they employ to objectively evaluate cases for investment.
Tell us about collaborating with investment managers (IMs) on investment decisions.
Cohen: In my experience, Bentham IMs and legal counsel work together to arrive at investment decisions. The key is to uncover all the weaknesses in a case. No one benefits from putting a case over the line that has insurmountable weaknesses. It has not been a challenge to get one another to see eye to eye; we are all similarly motivated and the environment here is congenial.
Harabedian: It’s truly a team process where the IM and the legal counsel are jointly performing diligence on the case.
Geise: In many ways, the investment manager/legal counsel dynamic is like the partner/associate dynamic at a law firm. As the legal counsel, you dig into the case merits to identify its legal and factual strengths and weaknesses, while the IM focuses on bigger-picture aspects of the deal, like reaching transaction terms and satisfying Bentham’s internal requirements. However, our processes aren’t siloed; we regularly discuss our progress and update each other regarding our thoughts on the deal. It’s helpful to have us focused on different aspects of the deal, because then we’re able to effectively reach a decision that adequately accounts for all relevant factors.
Jacobson: Everyone comes to the table with slightly different background and experience, and it’s beneficial in evaluating our investments to strategize with one another and utilize our collective experiences to help make critical investment decisions.
Williams: What’s great about our model is that, as a legal counsel, you’re involved with every step of the process—not just one piece of legal analysis, or preparing a couple deal documents—so you get to know potential matters pretty intimately, and the investment managers encourage that involvement. You end up being a resource for each other, which is very helpful.
What strategies do you use to avoid getting too attached to a deal?
Geise: I just keep in mind that this isn’t a volume business. There’s a reason Bentham is a stable, long-term industry player: We are comfortable passing on deals that don’t meet our investment criteria. There is a lot of enthusiasm surrounding the litigation funding industry now, and I’m glad to be part of a company that maintains its focus on the long-term stability of our portfolio.
Cohen: It does happen sometimes that we get very far along with a claimant or a lawyer before the deal falls through for whatever reason. It can be difficult (especially when you are the one charged with delivering the bad news), but it helps to remember that there may be other options for the claimant. Another funder may pick up the deal, or a positive ruling may better position the claimant to return for a second look.
Harabedian: Once you write up a case for the Investment Committee, it’s hard not to become attached to a deal. But there is a fine line between presenting an investment opportunity to the Committee, and advocating for it, and I always try to err on the side of the former.
Williams: I try to start by imagining the worst possible outcome of the proposed case, so I don’t get starry-eyed about it. Then I try to dig in and see if I can convince myself that won’t happen. If I can do that, then I figure I can convince other people, too.
What is it like participating in the Investment Committee (IC) calls, and how important is our multi-step, deal-vetting process?
Harabedian: One of the most interesting parts of our jobs is taking part in the IC calls. When you’re presenting a case, it feels a lot like an oral argument before a judge or appellate panel, which is invigorating and challenging. But as an observer/listener on the IC calls, you learn so much—not only about the investment, but also how the minds of seasoned attorneys and former judges think through legal and factual issues. That helps in preparing and presenting future opportunities to the IC.
Cohen: Investment Committee calls can sometimes be very heated and go on for hours, which of course can be stressful, but, nonetheless intellectually rewarding, and commercially invaluable. It is important that people with distance from the nitty gritty review the materials as a last check.
Geise: Investment Committee calls can be a high-pressure experience. Usually you have a good sense of the hot-button issues the IC is concerned about before the call, but sometimes they home in on issues that you don’t expect. Ultimately, though, it’s good to know that the deal has been scrutinized and approved by so many senior decision makers within the company. We view our investment decisions as a company responsibility, rather than the sole responsibility of the legal counsel who proposed the investment.
Williams: This may sound strange, but I was surprised by the amount of people we pull in to help with diligence on matters. Generally, I find it helps to clarify my own thinking to talk through issues, and there’s no shortage of people around (whether it’s the investment manager on the deal, outside counsel, or just someone else in the office) who are happy to engage.
Would you describe the experience of learning how to structure a deal? What do you know now about the economics of the law that associates and partners would benefit from knowing?
Harabedian: Skin in the game. The key to structuring a fair deal that makes sense for all parties is to ensure that each party has invested a material amount of resources into the case and is similarly situated. This will hopefully eliminate any free-rider problems or irrational behavior down the road.
Geise: The biggest thing firm lawyers need to understand is that a funder needs to see potential damages that are sufficient to sustain a healthy recovery for the claimant, the lawyers, and the funder. For Bentham, this usually requires a 10:1 damages to investment ratio. Because our minimum investment is typically $1 million, this translates to cases that involve $10 million plus in damages.
Jacobson: This has certainly been the biggest learning curve for me, moving from a strict litigation job to a business/litigation role, and learning the economics of an investment. I think this is something that a lot of big law lawyers gloss over, since the relevant inquiry is often “can the client pay the bills” and not “at the end of the day, do the economics of this litigation make sense?”
Williams: There can be a middle ground where the client, the lawyer, and the funder all benefit from an investment. “Does that middle ground exist in this case?” is a good starting question, even if the answer ends up being “no.”