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Commercial litigation funding is financing provided to companies, individuals and law firms secured by the value of legal claims. It is typically provided on an interest-free basis, with repayment plus a return due from recoveries earned from successful resolution of the claims. Get the answers on five commonly-asked questions about litigation finance.
Commercial litigation funders typically fund large-scale disputes involving commercial litigation, arbitration, intellectual property infringement and theft, bankruptcy and other types of disputes involving businesses. Some funders also finance whistleblower claims. Understand the types of claims commercial litigation funders will and will not finance.
Litigation funding helps claimants afford the high cost of litigation. Claimants typically use it to pay counsel fees and litigation costs. Access to plentiful capital affords claimants more leverage against opponents throughout litigation and during settlement negotiations. Funders staffed with former trial lawyers may also prove helpful during strategic decision making related to the case. Learn more about how litigation funding optimizes litigation outcomes.
While each case presents a unique set of issues, professional funders at a minimum look for the following in any investment opportunity:
  1. a cogent liability theory supported by documentary evidence, indicating strong prospects of success;
  2. a sound damages theory (and the evidence to support it), which would lead to sufficiently large damages that the dispute is highly likely to resolve producing sufficient proceeds to cover (i) the funder’s return, (ii) the lawyers’ contingency stake (if any), and (iii) enough remaining for the claimant to retain a healthy share of any award or settlement; and
  3. a high likelihood of collectability should the matter proceed to judgment.
Learn more about the criteria funders use to evaluate cases for financing.
Reputable litigation funders put each potential investment through a rigorous vetting process, which typically takes 30 to 45 days. This process usually includes meeting with the party seeking funding, reviewing relevant documents, and possibly hiring outside experts (especially if the case revolves around a highly-specialized area of law). Here is a list of items we consider when reviewing a legal matter (or group of legal matters) to determine whether it is suitable for investment.
Portfolio funding is financing provided to companies, individuals and law firms secured by the value of multiple legal claims. A strong portfolio of cases enables funders to reduce their risk and improve returns by cross-collateralizing their investments across several cases at once. Here are five ways portfolio funding benefits firms, corporate law departments or both.
Litigation funders are not interchangeable. Parties seeking funding should look for a funder that has both the track record and financial resources to serve as a trusted advisor and a partner who can go the distance with them throughout the case. Also important is selecting a funder that does not typically end up in litigation relating to matters it finances. Learn how to evaluate litigation funders.
Yes—on the front end. Reputable litigation funders propose bespoke financing terms for each deal and negotiate to arrive at terms that suit all parties to that particular deal. Of course, when terms are being negotiated, each side always has the option to “stand firm” once their bottom line has been reached. On the funder’s side, it may not be willing to negotiate returns below a certain amount based on the perceived risk in the investment. On the side of the party interested in obtaining funding, it may simply not agree to accept the funder’s proposed terms—and so no deal is struck. All parties should understand, however, that once terms are reached and a funding agreement is signed, it is a legally binding contract like any other, and terms are unlikely to be changed down the line. Here’s what you need to know before signing a term sheet with a funder.
It depends. The risk associated with each individual dispute is different based on a number of factors, and so every deal is different. But in general, returns typically (but not always) increase over time as the funder continues to invest risk capital in the litigation. There is no single way to establish up front what an acceptable return will be if a funded dispute is successful, and approaches vary widely. But returns are often calculated as a multiple of the disbursed funding amount, a percentage of the litigation proceeds, or the greater of the two. Understand how funder returns and priority typically work in litigation finance.
Parties seeking funding should beware of terms proposing that the funder take a multiple of the committed funding amount (as opposed to the amount deployed as of the date of any resolution). Alarm bells should also ring if a funder is seeking exclusivity in a transaction prior to proposing specific terms for the claimant’s specific dispute (e.g., when exclusivity is sought at the NDA stage). Here are tips on other unfair terms to watch for when closing a funding deal.