Attend any litigation funding conference and someone will drop the term “profit center” into the discussion surrounding in-house legal departments. But is the suggestion practical or simply hype instigated by litigation funders?
The benefit of third party funding is that it is non-recourse, meaning the funder carries the risk of losing the case, thus making the funding off-balance sheet from the company’s perspective. Only when the case succeeds and recovers sufficient damages does the funder receive its capital back plus its contingency fee for having taken the risk.
3. The cost of funding
Whilst the notion that it is better to have 70 percent of something than 100 percent of nothing is compelling, quite often that 30 percent difference itself becomes the barrier. There have been occasions where corporate counsel investigate external funding only to opt for self-financing. Why? The notion of using external funding may have been the catalyst to speed up the decision to pursue a given case, but once there is board approval for the litigation and due consideration is given to the deal, companies sometimes decide that giving away a 10 percent to30 percent share of a $400 million claim, for example, is simply not palatable for a $5 million funding requirement.