It’s 2019, and litigation finance is going to play prominently in the legal industry this year. Lawyers and claimholders increasingly desire the utility and flexibility of what litigation finance can offer. As demand for litigation funding has increased, so too has the number of litigation funders in the market. Some funders (like Lake Whillans) focus exclusively on litigation financing, while others have added litigation finance investments as part of a larger investment portfolio. The field has matured to the point that Chambers & Partners ranked litigation funders in the U.S. and U.K. last year. (Lake Whillans as a firm, and Lake Whillans co-founder Boaz Weinstein individually, each were ranked among the top bands in the 2018 Chambers rankings).
So if you are a claimholder, a lawyer seeking funding for your client or firm, or law firm management trying to differentiate between funders, how should you be analyzing the options? We suggest there are key differences among funders that you can use to compare:
- Preferred Investment Type: Funders vary in the types of cases they invest in, both with respect to claim type and forum, and may exclude certain types of claims. Lake Whillans invests in most commercial cases, including breaches of contract, breaches of fiduciary duty, business torts, trade secret misappropriation, antitrust, and investor-state disputes. We do not fund patent claims. We invest in single cases as well as portfolios (including law firm portfolios). We will fund litigation or arbitration pending in the U.S. or Canada, as well as international arbitration.
- Preferred Investment Size: Funders often have a minimum and maximum investment size. Our typical investment ranges between $1.5-$10 million for single cases, and larger amounts for portfolios. (We are willing to consider investments of smaller or larger amounts under the right circumstances.) The size of the investment we are willing to make depends on the quantum of damages, likely settlement scenarios, the current posture of the matter, and other factors. Understanding your capital needs before you approach a funder can help you find the right one.
- Required Risk Allocation Between Funder, Claimholder, and Counsel: Some funders prefer not to bear all the risk of the litigation and require the claimholder and counsel to “take risk.” For the claimholder, that means using its own capital to pay at least some portion of the fees and expenses. For counsel, that means taking a contingent stake (i.e., upon success, the firm earns a percentage of the proceeds, fixed fee, or multiple on unrealized fees) in lieu of some portion of its ongoing fees. Distributing the risk this way may not be feasible or desirable for every claimholder or its counsel, so it’s important to understand if risk-sharing is among a funder’s requirements. (While we are open to transactions that involve risk-sharing, Lake Whillans does not require it.)
- Reserved Capital: Litigation can take several years so you will want to be sure that the financier is able to make good on its commitments in the future. Ask whether the funder currently has sufficient committed capital to fully fund the investment? What percentage of the budget will the funder hold in reserve? (Lake Whillans reserves 100% of its committed investment amounts).
- Right to Exit Funding: Speaking of getting to the finish line with resources in place, you should understand whether and under what conditions the funder can stop funding the litigation. For example, some funders may contract for a right to exit if there is a material negative change in the litigation (negative discovery, adverse ruling, etc.). These terms can leave the claimholder and counsel in a difficult place. In general, we underwrite our investments with those risks in mind, and commit to fund our investments to final resolution as defined for the particular investment.
- Control Over Litigation or Settlement: Some funders may contract for direct or indirect control over the litigation or settlement. For example, while a funder may not have the authority to accept or deny a settlement offer, there may be terms that increase the cost of the funding if offers deemed reasonable by the funder are rejected. (Lake Whillans does not include provisions of this sort in its funding contracts.)
- Other Points of Comparison: There are other differentiators that may play a role in choosing among funders. Some examples include whether the funder requires exclusivity while it’s conducting diligence (Lake Whillans does not), the speed at which a funder can arrive at a decision (we generally conduct our diligence within 30-45 days after reaching agreement on the economic terms), the funder’s experience with the transaction type and with the subject matter, and the funder’s flexibility in structuring the deal to meet the needs of the claimholder and its counsel. Finally, it’s important to find the “right fit” when partnering with a funder. Size up potential funders during the first few phone calls to see if the people on the other end are those you trust to share the ups and downs of litigation.
Applying a relatively short list of criteria, it’s possible to choose efficiently the right funder(s) to approach for your matter. We’ve created this spreadsheet for you to keep track of your options, which we hope you will find useful. We also encourage you to reach out to discuss our approach, the industry or specific opportunities.