Covering The Cost of Lateral Hires With Litigation Funding
Law firm portfolio funding is distinct from litigation funding for an individual claim. With portfolio funding, a law firm has a number of contingency fee or partial contingency fee cases. The funder advances capital to the law firm on a non-recourse basis, to assist with the costs associated with litigating those cases, such as associate salaries, expert witnesses, disbursements, and partner draws.
When a case in the portfolio results in a settlement or judgment, the funder receives a return that is a multiple of its investment. The funder’s fee is typically lower than for funding of an individual piece of litigation, as the funder’s risk is mitigated by the other cases in the portfolio. If all the cases in the portfolio are unsuccessful, the funder loses its investment.
This funding mechanism is a highly useful tool for law firms to:
1. Smooth out law firm cash flow and monetize work-in-progress.
2. Mitigate the law firm risk inherent in contingency fee matters.
3. Enhance financial stability to allow the firm to take on new cases.
A law firm can also explore how to cover any court-ordered cost risk for the cases in the portfolio.
Another potential benefit of portfolio funding is the ability to hire new lawyers and staff, including lateral partners. This influx of up-front capital allows firms to fill critical staffing needs that otherwise would not be economically feasible, while giving those new team members an opportunity to build their practices within the firm.
To be suitable for litigation funding, the portfolio should typically contain at least three or four cases that are strong in terms of merits, damages, and collectability. Bentham funds portfolios containing many types of cases, including types of cases that may not be suitable for funding on a single-case basis (e.g., class actions). The funding sought should be at least $1 million, but a lower amount may be considered.
To learn more about portfolio funding or how to cover the cost of a lateral hire with funding, contact us.