Litigation Finance
How do I make returns with litigation finance?
Terms of the offering vary by deal, so it is important to research the offering documents before investing in any litigation financing. Some material terms regarding returns include:
Downside Protection
Some offerings may contain “downside protection” characteristics where a portion of investors’ funds are held in escrow until a milestone is reached. If the milestone is not reached, a portion of the funds may be distributed back to investors on a pro-rata basis. There is no guarantee, however, that every deal has downside protection.
Potential Returns
Distribution to investors typically depends on three factors:
The length of time it takes to litigate the case;
The outcome of the litigation; and
The terms of the security issued
Notably, potential returns are dependent on the multiple types of outcomes that arise from a litigation. They also vary in duration, so investors need to review the terms of each deal individually. Typically, litigations with longer durations or those deemed to be higher-risk may yield higher returns (multipliers).