A law firm guide to monetizing litigation claims using litigation finance
For many law firms, pursuing plaintiffs-side claims can provide a great source of revenue. The challenge, of course, is that contingency fee arrangements are often considered too risky for firms that depend on a reliable stream of revenue through hourly fees.
Many firms are now turning to litigation finance to get comfortable with taking matters on contingency. With litigation finance, firms are given the opportunity to maximize revenue and generate greater value for their clients.
At Bentham IMF, we work closely with firms to create portfolios comprised of a number of contingency matters. Those matters are rigorously reviewed by our team of expert investment managers—many of them veterans of elite law firms—who engage in extensive due diligence to assess the viability of a case and determine its potential value. The portfolio funding then allows a law firm to convert full-contingency cases into hybrid contingency cases, so that they receive a proportion of ongoing fees to maintain strong revenues, while still being able to reap the benefits of a large recovery or settlement.
Portfolio funding also reduces risk for a firm by creating reliable income from its contingency cases, as Bentham’s funding is provided on a non-recourse basis, so we receive a return only from a successful recovery. If there are no recoveries, there is nothing to repay. In addition, we do not control case or settlement strategy; decisions about the cases are left to the firm and its clients.
Bank loans have been the traditional tool for law firm growth, with firms often turning to traditional financial institutions for capital to expand or launch operations and take on additional cases. Yet a loan requires repayment of the principal and interest and may not be easy to obtain, regardless how firms fare in the matters they handle for clients. Litigation finance provides an alternative for firms that prefer to borrow capital with fewer long-term risks.
Bentham’s funding can be used for any firm needs. It can also be deployed to acquire or expand practice areas, hire lateral partners, take on additional contingency litigation, or to help finance defense-side matters.
Partners have even launched new firms with portfolio funding to take advantage of opportunities that may not fit within their existing firm’s structure. Working with a funder, partners have a measure of financial stability not often available to a new firm and the ability to pursue cases that will provide substantial returns over the course of several years.
Often, new firms are confronted with cash flow issues and are unable to make the investments in staffing and technology. Access to portfolio financing solves for these issues, giving new firms capital at the outset for operational expenses and reliable revenue streams that, absent funding, might take years to develop.
Taking the time to understand how funding arrangements pay dividends for law firms—how it works, who benefits, and how to leverage it most effectively for a client—can be critical to set a firm apart from its competitors.