Frequently Asked Questions
What is litigation finance?
Litigation finance, often called litigation funding or third-party funding, describes the provision of capital to a claimholder in exchange for a portion of the proceeds from a legal claim (whether by settlement or award) where recourse is limited to the proceeds of the claim at issue.
What is distressed venture capital?
Distressed venture capital is funding that can be used to support a company when it has been wrongfully damaged by the actions of a former partner or competitor.
How does litigation financing work?
The litigation finance firm provides funds in exchange for an agreed-upon portion of the proceeds of the claim, with recourse generally being limited to the claim. The funder earns a return only if the claim is successful; if it is not, the claimholder pays nothing. This concept is similar to a lawyer taking a case on a contingency fee except that litigation finance firms can provide capital beyond the costs of litigation, which a law firm cannot do. In some cases, the funder can buy all or a portion of the claim.
What problems does litigation finance solve?
Commercial litigation finance enables a company to better manage and finance legal claims. High-value commercial litigations and arbitrations can be very expensive. Without the capital that litigation financing companies are able to provide, a party with a meritorious claim might have to forego a legal claim entirely due to cost. Or it might have to prosecute it less than optimally or settle for a lower amount than warranted because it cannot afford to continue the litigation or arbitration. Parties with deeper pockets often use the disparity in resources to their advantage by drawing out the process or otherwise making it more expensive in hopes of winning a battle of attrition.
Why choose litigation financing?
There are many reasons that a company may choose to seek litigation financing, for example, when:
- A company suffers harm, but lacks the financial resources to hire its preferred lawyers to pursue the case,
- The expense and uncertainty of litigation becomes difficult to endure, due to changed circumstances or litigation fatigue,
- General counsel has a portfolio of affirmative claims, but is unable to garner the necessary budget to pursue them,
- A company wishes to hedge litigation risk by offloading some or all of the expense of litigation, or
- A company needs, or prefers, to monetize commercial claims to efficiently raise capital for corporate purposes.
Are there restrictions on the uses of the capital obtained through litigation financing?
Litigation finance can be used for a variety of purposes beyond the fees and expenses associated with a litigation or arbitration. Funder’s capital can be used for debt service, operational needs, hedging risk or other non-litigation needs the claimholder may have.
What kinds of claims to does Lake Whillans underwrite?
Lake Whillans invests in meritorious commercial claims with realistic damages in excess of $20 million that are prosecuted by premier lawyers. These claims may be in litigation, arbitration, or insolvency proceedings.
How long does it take from initial discussion to funding?
Every business and every claim is different, and we provide more accurate timetables once we have more information about your claim. However, generally speaking, the process typically takes approximately 30-45 days.
What investment terms does Lake Whillans typically require?
We embrace a flexible approach and do not follow a one size fits all model to investment terms. In some situations we ask for return of capital plus a percentage return of net proceeds, where the percentage will vary depending on the size of the investment, the damages to investment size ratio, and time to return. In other cases, a percentage return does not make sense for us or the claimholder and we ask for return of capital plus a fixed dollar amount. In some cases, we invest directly in the company.
What is Lake Whillans’ process like? What would happen if we contacted you?
nitial discussions: An initial discussion about the general parameters of the claim is the first step in the funding process. If the claim fits within our target investment profile, we review relevant documents and develop an investment proposal. We routinely enter into nondisclosure agreements related to these discussions to ensure confidentiality for the claimholder. This typically takes 1-7 days.
Due diligence: Once we have agreed on the economic terms, there is a due diligence phase to verify support of the claim. At the outset of this process, we provide a due diligence outline that identifies the areas of focus, informs the claimholder and counsel of what needs be covered in the due diligence process, and serves as a checklist to see how we are progressing. This phase typically takes 20-45 days depending on the complexity and stage of the claim as well as the responsiveness of the claimholder and counsel. We make this determination as early as possible to avoid unnecessary burden on both claimholder and counsel.
Investment documentation: Finally, we circulate transaction documents for the claimholder and counsel to finalize, and execute.
Release of funds: Once the transaction is closed, the funds become available for distribution, including any initial distributions for previously incurred litigation costs or non-litigation cash outs. Going forward, the costs and expenses of the litigation will be paid as they become due. Lake Whillans reserves 100% of the facility at closing, so there will be no unexpected shortfalls for the claimholder.
Is there any difference in arbitration claim valuation?
We fund both litigation and arbitration domestically and internationally. The diligence process is largely the same for both types of investments.
How does litigation finance differ from litigation funding?
These terms are generally synonymous. We generally use the term “litigation finance” because our capital can be used for more than simply funding lawyer’s fees and litigation expenses, but litigation financing is also often referred to as litigation funding, legal finance or third-party funding in the arbitration context.
How does Lake Whillans decide whether to finance a claim?
We generally evaluate four aspects of the claim:
- Likely duration of the litigation process: The shorter the likely duration, the more valuable the litigation asset. We invest in claims at all stages.
- Damages to investment ratio: Generally, the greater the likely damages, the more valuable the claim and the smaller the percentage of proceeds that will be needed in consideration of the investment.
- Probability of success on the merits: Litigation is inherently uncertain. We finance only claims that, in our estimation, have at least a 60% chance of success. The more information available to establish liability and damages, the more valuable the claim and the better pricing a claimholder can expect to receive.
- Other variables including ones that affect ability to collect damages from the defendant.
What factors tend to help demonstrate the likelihood of winning?
Factors that increase the likelihood of success include
Documentary evidence supporting the case narrative and damages;
Strong witnesses, and
How is Lake Whillans paid?
We receive an agreed upon portion of the proceeds of the claim. If a claim is unsuccessful, we are owed nothing. We accept the risk that some claims will fail and rely on a robust underwriting process to ensure that we win significantly more than we lose.
Where does the name Lake Whillans come from?
In early 2013, as we were preparing to launch what would become Lake Whillans, the market for investing in legal claims was virtually non-existent in the United States. The notion that legal claims could emerge as a new asset class had yet to be explored.
At the same time, American researchers were attempting to be the first to successfully excavate samples from a subglacial lake in Antarctica known as “Lake Whillans.” On January 28, 2013 the team announced that they had reached the lake’s surface having drilled 2,600 feet through the ice above. Their efforts revealed an ecosystem thriving without energy from the Sun for possibly as long as one million years – the first discovery of its kind. The expedition offered a glimpse as to what may be the largest unexplored ecosystem on Earth (making up 9% of the world’s land area).
When we founded the company (less than one month after the Lake Whillans discovery), we named the business after the lake and the ecosystem that it embodied. We believed that legal claims, like the ecosystem found at Lake Whillans, were an asset class hiding just beneath the surface, waiting to be pioneered.