How can litigation finance help lawyers and their clients achieve business and litigation objectives? Who are the parties involved? What are the steps in the funding process? What are the various investment structures? What is the role of litigation finance firms in case strategy? What is the difference between consumer and commercial lawsuit funding? How can third-party funding promote access to justice?
Litigation Finance Basics
F. Nicholas Franano on Start-Ups Protecting Intellectual Property
Lee Drucker
A good start to a conversation about how entrepreneurs can best protect their intellectual property when raising capital or entering into joint ventures.
http://medcitynews.com/2015/04/top-tips-healthcare-startups-protect-intellectual-property/
Read MoreThis entrepreneur nearly lost his company. Here’s how litigation finance helped him fight back.
Lee Drucker
As much as the landscape for biotechnology startups has changed over the last decade, one thing that hasn’t changed is this: Intellectual property is the beating heart of a business. But as more parties get involved in funding early-stage development of new technologies, locking down and protecting the rights to intellectual property has also become…
Read MoreLake Whillans Investment Featured in MEDCITY News
Lee Drucker
An in depth article about a fabulous entrepreneur and promising cancer therapy almost derailed by impropriety. This was one of Lake Whillans’ first investments:
http://medcitynews.com/2015/03/entrepreneur-nearly-lost-company-heres-litigation-finance-helped-fight-back/
Read MoreLitigation Finance & Private Equity
Lee Drucker
About a month ago, I discussed the venture capital landscape, and why litigation funders are attractive partners for VCs and VC-backed companies in need of resources to adequately defend their businesses. A similar, but distinct, phenomenon exists in private equity.
Private equity firms (which invest in a broader class of companies and employ a wider array of value generating techniques than venture capital) share some common characteristics that make litigation finance a useful product within the industry.
Read MoreAbove The Law Interview with Lake Whillans
Lee Drucker
We recently sat down with above the law to discuss how we found our selves in the legal claim finance business and answer some questions about the industry:
http://abovethelaw.com/2015/02/a-conversation-with-the-founders-of-lake-whillans-litigation-finance/
Read MoreVenture Capital & Litigation Finance
Lee Drucker
Venture capitalists invest in early stage growth companies, typically in high technology industries, such as biotechnology, energy, or IT. While many of these investments go on to become Tesla, Amazon, or the next life-saving pharmaceutical, about 65% of venture financings return 0-1x. Many of these investments fail simply by virtue of the high-risk nature of…
Read MoreLake Whillans Featured in Crain’s New York
Lee Drucker
Lake Whillans was recently featured in an article in Crain’s New York on the role of litigation finance in helping small and mid-size companies to receive justice when victimized by larger companies. Link to the article after the jump.
Read MoreOpportunities for Entrepreneurial Litigators in Biglaw
Lee Drucker
The so-called rainmakers in biglaw firms throughout the country have traditionally built high-end business litigation practices by cultivating relationships with the largest corporations and their general counsel, clients that generally were less financially constrained and thus more likely to accept the hourly rate billing structure over the long course of complex litigation. With the advent of litigation finance, and firms such as Lake Whillans, entrepreneurial litigators at large firms have a new path to building sustainable high-end litigation business that is attractive to biglaw firms. Rather than the more traditional focus on companies with relatively unconstrained litigation budgets and strong balance sheets, entrepreneurial litigators at large firms have begun to realize that litigation financing affords them the opportunity to build practices by targeting companies with often severe financial constraints but meritorious claims, often against larger companies, requiring complex and expensive litigation. Lawyers in biglaw that have had experience in third party funded cases find that litigation finance can overcome the common practical constraints that have made biglaw often resistant to contingency fee arrangements, reduced or capped fees with success premiums.
Those constraints flow from a number of challenges facing large law firms:
Read MorePortfolios of Legal Claims
Lee Drucker
In our last post we discussed the analysis a CFO might undertake when considering whether to raise capital for a litigation. We touched upon the fact that many companies do not have a portfolio of litigation – a fact which makes it difficult to mitigate the risk of investing in a legal claim. Today, we will focus on that insight and dive more deeply into idiosyncratic risk and the value of diversification.
Generally speaking, an investor must be compensated for the time value of money and risk. The risk that an investor must be compensated for is the risk that the return on an asset will be lower than the expected return. While any investment in a litigation has substantial risk, the vast majority of that risk is what would be termed in modern portfolio theory as “idiosyncratic risk.” Idiosyncratic risk is asset-specific risk that has little or no correlation with the market. This risk can therefore be substantially mitigated or eliminated through adequate diversification. By contrast, “systematic risk” (in modern portfolio theory parlance) is risk that is inherent to the entire market or an entire market segment, and cannot be mitigated through diversification. To illustrate the difference between these two types of risk, idiosyncratic risk manifests if a company suffers a major factory closure due to a natural disaster (in which case the price of its stock will likely decline while the rest of the market remains unaffected) while systematic risk manifests if the global economy slows down (in which case the price of a company’s stock will likely decline, but so will the price of the larger market).
Read MoreFinancial Analysis of Litigation Funding
Lee Drucker
The emergence of litigation finance has enabled CFOs to better manage and finance a once dormant asset – potential litigations. Many of the companies that we finance are emerging businesses with promising new products that have the ability to transform an industry. Businesses such as these are often characterized by a high ROI (return on investment) and a constrained budget (often having recently raised capital from the venture community). Imagine that the wrongful conduct of a third party has damaged such a business, and the company now faces the prospect of an expensive and lengthy litigation if it is to secure compensation. Before litigation finance, the decision might well have been between bringing litigation or not – now the decision is between self-financing or third party financing.
In order to determine which option is preferable, the CFO would likely attempt to value the potential litigation. In an older post (which you can find here), we discussed the framework for valuing a litigation. For the sake of simplicity let us assume that the expected damages are $30 million, and the chances of losing the case are estimated to be 30% – therefore the estimated value is $21,000,000.
Next, the CFO would likely attempt to calculate the cost of monetizing the asset. In order to estimate the true cost of allocating capital to the litigation, a CFO might undertake the following analysis:
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