Generating Multi-Million Dollar Revenues with Funding

The Scenario
Consider a scenario in which a company is considering whether and how to pursue two commercial litigation claims, each of which could result in multi-million-dollar judgments. Each would require an investment of $2 million for attorneys' fees plus $250,000 in costs, and each could result in a recovery of $20 million.
Case 1
$20M Potential Recovery
$2m attorneys' fees
$250,000 costs
Case 2
$20M Potential Recovery
$2m attorneys' fees
$250,000 costs

Regardless of the potential upside either claim has, the company has only $1.25 million to spend pursuing cases. The law firm they want to hire for the litigation wants to be paid 50% of its fees and all out-of-pocket costs throughout the cases, in exchange for a 20% contingency fee. Absent outside resources, the company's capital constraints would only allow it to pursue one case.

Legal Budget
 
The Funding Proposal
The company approaches Bentham IMF seeking the $2 million needed to hire the law firm on a partial contingency. While returns vary by the deal, assume here that Bentham commits to provide the capital in exchange for a 20% return from the total recoveries. Bentham asks the company to cover the $250,000 in costs per case, to have some “skin in the game” and appropriately align incentives between all parties.
Case 1
$1M invested by Funder for 20% of recoveries $1M services invested by law firm for 20% of recoveries $250,000 invested by company for 60% of recoveries
Case 2
$1M invested by Funder for 20% of recoveries $1M services invested by law firm for 20% of recoveries $250,000 invested by company for 60% of recoveries

The Upside of Using Funding
The capital positions the company to hire the firm and maximize the value of both claims, as well as potentially earn $23.5 million in recoveries ($24 million in recoveries in two cases, after paying returns to the funder and the law firm, less the company's investment). If the company opts instead to use its entire $1.25 million contentious matter budget to hire the firm to handle only one case, it only stands to potentially earn $14.75 million in recoveries ($20M in recoveries, less the company's $1.5M investment in the case and a $4M return to the law firm).

Using Bentham's funding also reduces the company's financial risk – from $1.5M to just $250,000 in costs per case - since returns to Bentham and the law firm in each case are contingent on successful resolution of the respective matter. This means that pursuing the cases with funding costs the company $750,000 less and creates the potential for it to earn $8.75M more in net revenues ($23.5M v $14.75M).