Charting the complex world of litigation funding can be tricky, not least because the insurance market does not stand still. Here Matthew Amey gives 5 tips for lawyers to get the best litigation funding deals.
1. Know your funder – what makes them tick?
Funders vary in size, nature, expertise and in personality. You want to know who you are pitching to when you are presenting a case. Sometimes it is impossible to judge but if you have colleagues who have made an application before why not ask them how they would characterise the decision maker you’ll face. I would (most unfairly) suggest funders fall into the following categories:
a) The Legal Eagle
This category includes current and former lawyers. It’s hardly surprising that there are quite a few of these in the litigation funding market. They look for (and have been known to find) the silver bullet that will kill your case.
b) The Calculator
All funders who manage investment funds will have one of these and that’s because they all need to know their deployment rates, aggregation issues, ROIs, EBITDAs etc. These people like to talk in terms of numbers and statistics. The problem is that lawyers don’t seem think in numbers (another unfair characterisation).
c) Mr Dragon’s Den
This person is the entrepreneur for which litigation funding is an interesting item on a much more diversified balance sheet. Appeal to their sense of scalability, if you can. Refer frequently to upside and super-profits (see below).
In reality, most investments are considered by investment committees so it is not down to one character but it is still worth preparing the case in a way that will appeal to the person acting as principal gate keeper.
2. Know what you are asking for – Detailed Costs Budgeting
What is the most impressive thing a lawyer can present to a funder?
Answer: a detailed costs budget for the case against the litigation timetable.
These budgets are estimates and will be subject to the behaviour of the opponent and the directions of the court but even challenging cases can be funded where there is a clear understanding of what costs need to be incurred and when.
The funder might suggest budget changes to help unlock the funding deal but without a considered budget they may not be able to think of creative solutions.
3. Show funders how they can limit their downside
The common view is that funders chase big returns but the bigger prize for a funder is certainty in a very risky business. If you can construct some downside protection in relation to the capital outlay for the funder or explain how a loss can be mitigated, it will make a proposal far more attractive than speculative mega-upsides. Moreover, the price will be cheaper.
4. Highlight the possible windfalls to improve your client’s offer closer to the ground floor.
However, if it is not possible to reduce the risks for the funder (as above) then appeal to their commercial side. Where possible, consider suggesting a “super-profit” to apply if the result is superb. Even if they are remote, major success incentives can have the effect of improving the deal where the quantum turns out to be modest. Most clients would accept a quantum-based funder’s fee, preferring to pay less with a moderate result in return, while paying proportionately more following a good outcome provided they net a greater monetary sum.
5. Be responsive to requests for information
Funders don’t charge for their time assessing cases. They commit time where they can see the prospect of a deal happening. If solicitors are not engaging with them reasonably quickly or with corresponding effort, funders will lose interest.
This problem usually arises when funders ask tough questions. It is tempting to put a funder on ice whilst you test out another funder to see if they don’t raise the same tough questions. That requires careful management and sometimes, if it is likely everyone will have the same issue, it is better to face the tough question head on, admit to weaknesses quickly and emphasise any mitigating factors. This will be seen as honest and responsive. Those qualities alone have helped funders accept the risks they have uncovered.
Matthew Amey is a Director of TheJudge – Independent litigation insurance and funding brokers.