2022 Litigation Finance Survey Report
Published by: Lake Whillans & Above The Law
Every year since 2017, Lake Whillans and Above the Law have asked in-house counsel and law firm attorneys to share their perspectives on third-party litigation funding. Our survey has tracked the growth of this field and shows that an increasing number of law firms and their clients view litigation funding as a valuable resource.
Three years ago, we witnessed a watershed in the field’s development, when the percentage of attorneys who had firsthand experience with litigation finance jumped nearly 30 points, from 41% to 70%. Since then, the proportion of respondents reporting direct experience with litigation funding has remained above 60%.
The most recent survey results underscore the extent to which litigation finance has become an established feature of the industry landscape, as a means of managing risk and reducing pressure on a company’s legal budget.
Highlights From This Year’s Survey
- A majority (62%) of the lawyers surveyed have firsthand experience working with a litigation finance firm. And more than 80% of those who haven’t worked with a litigation funder would consider it.
- Most (88%) of the respondents with prior experience would recommend litigation finance to others, and nearly all (94%) said they would turn to litigation funding again themselves.
- Nearly 70% of respondents said that litigation finance has become more relevant to their practice in the last year.
- The primary motivations for seeking third-party financing were to pay for operating expenses and to hedge the risks of litigation.
- Law firms are the most often cited driving force behind the decision to seek litigation funding.
Read on for our full findings.
Survey Demographics:
250 Respondents
Question Breakdown:
Do you have firsthand experience working with a litigation finance firm?
As has been true for the last three years, a majority of respondents (62%) reported having firsthand experience working with a litigation finance firm. This figure has consistently remained above 60% since 2020.
Firsthand Experience By Firm Size
Attorneys at midsize firms were the most likely to have prior experience with litigation finance. More than 80% of respondents at firms whose sizes range between 26 and 250 attorneys said they had firsthand experience with litigation financiers.
In addition, many solo practitioners and lawyers at small firms reported working with litigation funders. Fewer of the respondents at large firms had such experience.
Firsthand Experience By Industry
Experience with litigation funding reaches across industries; more than half of the attorneys working in each of the listed fields have had firsthand experience with litigation finance. At the higher end of the spectrum, at least three-fourths of respondents whose practices involve consumer products and retail, industrial products, automobiles, or hospitality and tourism have firsthand experience working with a litigation finance firm. Even among the industries with the lowest percentages, such as insurance and technology, a majority of respondents have used litigation funding.
Firsthand Experience By Role
If we segment our data in order to compare relative experience among law firm partners versus in-house counsel, we find that a majority of both groups report having firsthand experience with litigation finance. But the proportion is significantly larger among law firm partners.
Would you use litigation finance again?
Asked of those with firsthand experience
Nearly all respondents who have worked with litigation funders (94%) said they would use litigation finance again. This figure is higher than last year (86%) and closer to the 99% reported in 2020.
Would you recommend litigation finance to others?
Asked of those with firsthand experience
Similarly, most respondents (88%) said they would recommend litigation finance to others. Although some of those attorneys said they would do it “with some reservation,” a larger proportion said they would “strongly” recommend it.
Does anyone in your firm or company have experience working with a litigation finance firm?
Asked of respondents without firsthand experience themselves
Among those respondents without firsthand experience, 44% said that others at their organization do have experience with litigation funding.
Who was the main driver of the decision to seek litigation financing?
More than 40% of respondents reported that law firms were the main drivers behind the decision to seek litigation financing.
According to many in-house attorneys (42%), however, their department was the primary force behind the decision.
While each group remains more likely to see themselves as the driving force behind the decision to seek financing—partners more frequently attribute the decision to law firms and corporate counsel tend to credit law departments—this year, 33% of in-house counsel identified outside law firms as the main driver behind the decision.
This represents a notable shift from previous years, when less than 20% of in-house attorneys pointed to outside counsel as the driving force.
What was the strongest motivation for seeking litigation finance?
The most common reasons for seeking litigation finance were to fund operating expenses (31%) and to hedge the risk of litigation (30%). Lack of funds for legal fees or expenses was identified by just 20% of respondents this year.
Motivation for seeking litigation finance in 2022 compared to 2021
By contrast, lack of funds for fees/expenses was the primary motivation for almost half of respondents (49%) in 2021, while just 15% said that funding operating expenses was the main motivation.
This suggests that litigation finance is increasingly seen as a sophisticated tool for financial management and not merely a means to address an immediate lack of funds.
Motivation for seeking litigation finance in In-house counsel compared to Law firm partner
Comparing the responses from in-house counsel to those of law firm partners highlights the different perspectives among clients and firms. Almost 60% of in-house attorneys said that hedging the risk of litigation was the strongest reason for obtaining finance, and only 8% identified lack of funds for legal fees or expenses.
By contrast, only 21% of law firm partners said that hedging litigation risks was the main motivation, while 30% cited lack of funds for fees/expenses as the primary reason.
In your experience, what types of clients seek litigation finance?
Multiple selections allowed
According to our survey, small and medium-sized companies, as well as portfolio companies of private equity firms, are the entities most likely to seek funding. But litigation finance is clearly not limited to particular kinds of clients, as respondents also reported such experience with large corporations, individuals, and foreign companies.
How were potential litigation finance providers identified?
Multiple selections allowed
Legal industry media was the most common source of information about litigation finance providers. Other methods included referrals and internet searches.
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 (2.87)
2. Financier’s right to influence/decide strategy or settlement (3.61)
3. Flexibility regarding the structuring of financing arrangements (4.11)
4. Financier’s reputation/track-record (4.14)
5. Subject-matter or industry-specific expertise (4.42)
6. Speed/responsiveness (4.68)
7. Your own prior relationship with funder (5.80)
8. Firm/company’s relationship with funder (6.37)
Asked to rank factors in order of importance, law firm partners and in-house counsel alike most frequently identified economic terms as the foremost consideration when choosing a litigation funder.
In-house Counsel
1. Economic terms (2.75)
2. Financier’s reputation/track-record (3.81)
3. Subject-matter or industry-specific expertise (3.94)
4. Financier’s right to influence/decide strategy or settlement (4.50)
4. Flexibility regarding the structuring of financing arrangements (4.50)
4. Speed/responsiveness (4.50)
7. Firm/company’s relationship with funder (6.00)
7. Your own prior relationship with funder (6.00)
Law Firm Partners
1. Economic terms (2.52)
2. Financier’s right to influence/decide strategy or settlement (3.36)
3. Flexibility regarding the structuring of financing arrangements (3.97)
4. Financier’s reputation/track-record (4.28)
5. Subject-matter or industry-specific expertise (4.56)
6. Speed/responsiveness (4.84)
7. Your own prior relationship with funder (5.83)
8. Firm/company’s relationship with funder (6.64)
Partners ascribed somewhat greater importance to the financier’s right to influence the strategy or settlement and to the flexibility of the financing structure, while in-house counsel put more emphasis on the financier’s track record and industry expertise.
It is not surprising that law firms might be more attuned to the effect of funding on litigation strategy than their clients. Similarly, that in-house attorneys would weigh the financier’s track record and industry knowledge more heavily is in keeping with their dual responsibilities to their company as business partner as well as legal advisor.
Has litigation finance become more relevant to your practice in the last year?
Nearly 70% of respondents said that litigation finance has become more relevant to their practice in the last year.
The respondents were also asked to elaborate on how litigation finance has become more relevant to their practice. The following includes a representative sample of their comments:
“Companies are looking for creative ways to cut costs and hedge litigation expense and risks.”
“Even if you can afford legal fees, litigation financing can help manage risk.”
“We practice in the plaintiff class action world and litigation finance has become part of the consideration/evaluation of cases to take. Litigation finance can be a hedge against large costs and fees when litigating large class actions.”
“Litigation financing can ease the pressure on a company’s legal budget.”
“More clients are aware of it and interested in it.”
“Funding litigation [means] that creditors/victims are able to afford the legal fees. It creates fairness and equity in the marketplace.”
“Litigation financing is playing an increasingly important role in commercial litigation.”
“It seems many parties in arbitration and litigation are using third party funding.”
Note: These final two survey questions concern the perceptions and opinions of that minority of our respondent pool WITHOUT firsthand experience of litigation finance.
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)
While some in-house counsel who haven’t had direct experience with litigation funding said they would not consider it, a majority (72%) said they would explore it if they needed funds for operation expenses.
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)
Of the law firm attorneys and solo practitioners without prior experience of litigation funding, most said they would consider it in certain circumstances, such as when the client needs funds for operation expenses or to pursue litigation. Only 12% said they would not consider litigation finance at all.