What To Expect When Raising Funds for Litigations

The first step in the litigation finance process typically involves a decision by a company, perhaps together with its lawyer, that it makes sense to explore whether litigation finance is an attractive option. There are many reasons why a company may choose to do so. Consider, for example, a company that has been aggrieved but lacks the financial resources to hire its preferred lawyers to pursue the case. Or a company that has been engaged in litigation for a number of years and, due to changed circumstances or litigation fatigue, is no longer able or willing to endure the uncertainty and expense of litigation. Or a general counsel who may have a portfolio of affirmative claims, but is unable to garner the budget required to pursue these claims. Other companies may simply wish to hedge litigation risk by offloading some or all of the expense of litigation or to use commercial claims to efficiently raise capital for corporate purposes. In each of these situations (and many more), a lawyer that is well versed in litigation finance can be a great resource to help a client choose the correct path forward.

• Initial Discussions and Investment Proposal (typical duration 2 to 5 days)

In our experience, it is equally common for the claim holder's counsel (at the claim holder's behest) to reach out to initiate the dialogue as it is for the claim holder itself to do so.  Generally, the first step in the process is to schedule an initial call to review the general parameters of the claim. Assuming the case fits within our target investment profile, we will typically request to review key documents and ask the claim holder's counsel to provide a budget for the proposed investment. We routinely enter into non-disclosure agreements in connection with our discussions to ensure the confidentiality of information shared.

The purpose of the initial discussions is to quickly understand the claim, the amounts needed to prosecute the case to completion, and the likely damages. This information allows us to make a determination whether we are interested in moving forward and if so, price the claim and provide the claim holder a term sheet that outlines the economic terms of the proposed investment and provides for a due diligence period in which the litigation financier may close on the transaction. Once acceptable terms have been reached, the term sheet is executed and the due diligence period begins.

• Due Diligence Period (typical duration 30 to 45 days)

At the outset of the due diligence period, we provide a due diligence outline that highlights the areas of focus. This outline informs the claim holder and counsel of what needs be covered in the due diligence process, and serves as a checklist to see how we are progressing. To the extent that our discussions and review of materials reveal additional items for discussion, the outline is updated.

The purpose of the due diligence phase is to verify that the underlying facts and materials support the hypothesis concerning the claim. This determination is made at the earliest possible point in the process in order to avoid any unnecessary burden on the claim holder or counsel. Generally, we are able to complete due diligence within 30 to 45 days, with the length of the due diligence period ultimately being a function of the complexity and stage of the claim, as well as the responsiveness of the claim holder and counsel.

• Investment Documentation (typical duration 5 to 7 days)

Once diligence is successfully completed, transaction documents are circulated to the claim holder and its counsel for review. Over the following days, the documents are finalized and the investment funds released.

P.S. We run a litigation finance company which invests USD15K to USD1.5 Mn in commercial litigations/arbitrations.