2021 Litigation Finance Survey Report

Published by: Lake Whillans & Above The Law

Welcome to the findings report for the fifth annual Lake Whillans/Above the Law litigation finance survey. Since 2017, our findings map a trajectory of ever-increasing awareness and acceptance of the practice of third-party litigation funding. Our 2020 findings signalled a watershed in the field’s development, with every category of lawyers reporting a significant uptick in firsthand experience with litigation finance, and near-unanimity among such respondents concerning their willingness to use litigation finance again.

This year’s findings — our first since the onset of the global pandemic — buttress this narrative and demonstrate that claim monetization, financing of claimholders, and capital for law firms are powerful solutions for the challenges faced by companies as they creatively adapt to this “Next Normal.” Two-thirds (65.7%) of our respondents indicated that they have firsthand experience working with a litigation finance firm. While this represents a slight decline from last year’s 69.8%, it indicates that the gains in reported experience were not a temporary spike. A look at this metric since the inception of this survey:

Other highlights include:

  • A solid majority (72%) of respondents stated that litigation finance has become more relevant to their practice in the last year.
  • Among respondents with firsthand experience of litigation finance, an overwhelming majority (86.4%) reported that they would use it again.
  • Roughly 80% of experienced respondents would recommend litigation finance to others.

Read on for our full findings.


Respondent Breakdown:

 


Question Breakdown:

 

Do you have firsthand experience working with a litigation finance firm?

 

The recent substantial increase in levels of reported firsthand experience appears to be holding steady.


Firsthand Experience By Firm Size

 

Consistent with our 2020 findings, the largest proportion of firsthand experience was reported by attorneys at firms with 51-100 attorneys and the smallest proportion was reported by attorneys at firms of 500+.

Firsthand Experience By Industry

 

Respondents practicing in the telecommunications and technology industries reported the most firsthand experience, each at 80%. This signals a slight decline for telecom and slight increase for tech compared with 2020.
Those in the consumer products industry reported the least firsthand experience, slightly behind the energy industry.


Would you use litigation finance again?

Asked of those with firsthand experience

 

 

Although it represents something of a retreat from last year’s overwhelming proportion of positive responses (99.36%), willingness to be repeat clients of litigation finance remains strikingly high.


Would you recommend litigation finance to others?

Asked of those with firsthand experience

 

Only 11% of respondents reported that they would not recommend litigation finance to others. The majority of respondents (70%) stated that they would strongly recommend litigation finance to others. 19% stated that they would recommend litigation finance with “some reservation.”


Does anyone in your firm or company have experience working with a litigation finance firm?

Asked of respondents without firsthand experience themselves

 

63% of this respondent group reported that others at their organization have had experience working with a litigation finance firm. This represents a slight uptick from last year’s finding, which itself was a threefold increase over previous findings.


Who was the main driver of the decision to seek litigation financing?

 

 

In-house counsel

 

 

Law firm partner

 

 

Since the advent of this annual survey, one consistent finding, year over year, has been the marked divergence of perspective between in-house counsel and law firm partners regarding the main driver of the decision to seek litigation financing.  Essentially, each category of attorney is significantly more likely to identify their own peers as the main driver.  In-house counsel are more likely to credit in-corporate legal departments; law firm partners are more likely to credit law firms.

This year’s findings reinforce that dynamic, although interestingly this year law firm partners were more likely to acknowledge the leading role of in-house legal departments in driving the process. 27% of partners named corporate legal departments as the main drivers, an increase of more than 10 percentage points over 2020.


What was the strongest motivation for seeking litigation finance?

 

Consistent with earlier findings, lack of funds for legal fees/expenses was the strongest motivation for seeking litigation finance.  Fees/expenses were identified by 49% of respondents, up 5 percentage points over last year.

For both in-house counsel (44%) and law firm partners (52%), the strongest reported motivation was lack of funds, with hedging risk of litigation as the secondary motivation for both groups.


In your experience, what types of clients seek litigation finance?

Multiple selections allowed

 

Small private companies (60%), individuals (39%), and publicly traded companies (35%) were identified as the top three categories of clients that seek litigation finance.


How were potential litigation finance providers identified?

Multiple selections allowed

 

Potential litigation finance providers were primarily identified through relationships or experiences with the funder (60%) or referral (55%).

“Other” means included “Reputation” and “Marketing”


What are the most important considerations in choosing a litigation financier?

 

Respondents were asked to assign an ordinal value (1 being highest, 8 being lowest) to a set of factors. Overall, respondents ranked the factors in the following order of decreasing importance:

1. Economic terms (1.95)
2. Flexibility regarding the structuring of financing arrangements (3.9)
3. Financier’s right to influence/decide strategy or settlement (4.2)
4. Financier’s reputation/track-record (4.33)
5. Speed/responsiveness (4.77)
6. Your own prior relationship with funder (5.66)
7. Subject-matter or industry-specific expertise (5.7)
8. Firm/company’s relationship with funder (6.25)

In-house

1. Economic terms (2.08)
2. Flexibility regarding the structuring of financing arrangements (3.25)
3. Financier’s right to influence/decide strategy or settlement (4.04)
4. Financier’s reputation/track-record (4.2)
5. Speed/responsiveness (4.6)
6. Your own prior relationship with funder (4.9)
7. Subject-matter or industry-specific expertise (6.3)
8. Firm/company’s relationship with funder (6.55)

Partners

1. Economic terms (1.77)
2. Flexibility regarding the structuring of financing arrangements (3.33)
3. Speed/responsiveness (4.6)
4. Financier’s right to influence/decide strategy or settlement (4.75)
5. Financier’s reputation/track-record (4.8)
6. Your own prior relationship with funder (5.00)
7. Subject-matter or industry-specific expertise (5.6)
8. Firm/company’s relationship with funder (5.84)

 

Partners and in-house counsel both identify economic terms as the most important consideration, but among partners this factor was ascribed greater relative importance, consistent with earlier findings.  Both groups ordered their priorities nearly identically.


Has litigation finance become more relevant to your practice in the last year?

 

A solid majority (72%) of respondents stated that litigation finance has become more relevant to their practice in the last year. This tracks closely to last year’s proportion of 74.6%.

Selected comments on “how litigation finance has become more relevant to your practice:

“The pandemic will turn out to be a watershed for the practice of third-party funding — more parties than ever are open to the possibility.”

“During a time of great disruption, it is a tool to hedge risk.”

“Litigation finance levels the playing field against deep pocket defendants.”

“Economic downturns usually translate into litigations ramping up. We’re at the point where the growth of funding tracks the increased litigation generally.”

“Thinking about everything through the lens of litigation finance has helped a lot on all of our deals — using that to validate and price helps with licensing, brokerage, everything.”

“Our sense is that clients are not only increasingly receptive to the prospect of involving funding, but actually are requesting it.”

Note: These final two survey findings concern the perceptions and opinions of that minority of our respondent pool WITHOUT firsthand experience with litigation finance.

 

Would you consider exploring litigation finance in any of the following circumstances?

Asked of partners, solos, and associates without any firsthand experience with litigation finance (Multiple selections permitted)

 As in each earlier survey, budget limitations remain the leading reason for this category of non-experienced partners, associates, and solos to consider litigation finance  — cited by 85%, up 7 percentage points from last year’s findings.  Moreover, there are increases with other factors, most notably “clients in need of  funds for operating expenses,” up by 14 percentage points .  The group declaring that they would NOT consider litigation finance remains consistent with last year’s finding of 9%. It is remarkable to consider that this group declaring their unwillingness to consider litigation finance was at 30% as recently as 2019.


Would you consider exploring litigation finance in any of the following circumstances?

Asked of in-house counsel without any firsthand experience with litigation finance (Multiple selections permitted)

An overwhelming majority of in-house counsel without firsthand experience reported that they would consider litigation finance if their company lacked the budget for pursuing litigation (89%).   None (0%) of the survey’s in-house counsel respondents reported that they would NOT consider litigation finance.


 


 

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The best way for companies and their counsel to determine if litigation finance is an attractive option is to discuss it with us.