Preserving Company Solvency While Protecting Key Assets

The Scenario
Consider a scenario in which a company’s growth has been undermined by a larger competitor, and its lawyers have advised that the company has a strong theft of trade secrets claim against the competitor worth $100M. However, the case will take 3 years and cost $8M in attorneys’ fees plus $500K in costs to pursue.

The company requires $1M in working capital to fund its business each year (for $3M total). Its current financial condition is such that there are no assets against which banks are willing to lend.
Trade Secret Claim
$100M Potential Recovery
$8m attorneys’ fees
$500,000 costs
3 years expected duration
Working Capital Needs

$3M per year for 3 years

The law firm that the company wants to hire to handle the case will not take it on full contingency, but is willing to take it on partial contingency and be paid only 50% of its fees and all out-of-pocket costs throughout the case. The company faces the prospect of financial ruin if it abandons the claim.

The Funding Proposal
The company approaches Bentham IMF to explore financing options that will position it to hire the law firm. While returns vary by the deal, assume here that Bentham offers funding in the amount of $7.5 million - $4M for the attorneys’ fees, $500K of costs plus $3 million in working capital - in exchange for 25% of the recoveries. Bentham’s return – for the entire investment, including the working capital – and a 20% return to the law firm – are both contingent on a successful result in the case.

Investment Return - Protecting Key Assets

The Upside of Using Funding

The company assumes no financial risk in this scenario, yet a successful result could earn it $58 million in net revenue after paying returns to Bentham and the law firm ($100 million recoveries, less 45% returns to Bentham and the law firm and accounting for the $3 million working capital investment from the funder). Additionally, the working capital provided by Bentham gives the company the breathing room it needs to avoid bankruptcy and focus on its business throughout the course of the litigation.