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The Key Information a Funder Needs

We recently covered six common questions about a funder’s due diligence process, including what funders generally look for when conducting a thorough review of a case before deciding to invest. Most cases, however, never even reach that due diligence process but instead are rejected in an early screening stage.

Funders receive hundreds of requests for funding every year. Even for a larger investment team, it can take considerable time to sort through those requests and determine which are appropriate to diligence more thoroughly. How a case is first presented to a funder thus can mean the difference between an early rejection and a closer look.

Putting the best foot forward for your client and your case can move your matter to the top and significantly reduce the time spent in both screening and diligence. Even if your case is not a good fit for every funder, the right approach can help you identify which funders are interested in your case much more quickly. In a related Blog post, “How to Get Your Case Funded” we covered the basic information funders need in the screening process. Here, we highlight the key deliverables that a funder is most interested in receiving in the screening process:

1. Anonymized Case Outline: It may be possible to get a very quick “yes or no” from a funder by sending over a high-level outline of the dispute without naming the parties or disclosing identifying details. This is because most funders have certain criteria that a case must meet to fall within the funder’s investment mandate. For example, a funder may have a general rule that it will not invest in class actions, in litigation pending in a particular forum or in cases where the funding need falls below a certain threshold amount.

This may be the best way to narrow the field of interested funders early on, particularly where the funding need is quite small or the case is pending in an unusual forum. The anonymized case outline can not only save you time by avoiding fruitless discussions with funders, but also helps ensure that sensitive information (including the client’s interest in funding) is not shared unnecessarily.

The specific high-level details that help funders determine whether a case falls within its mandate are: the estimated size of the fee and costs budget, the estimated damages, the amount of risk counsel is willing to assume, the general nature of the claims and the forum and location of the litigation. Of course, more detail will be required in screening if the case does appear to fall within the funder’s mandate.

2. Funding Memo: Assuming your case falls within a funder’s mandate, a funding memo (usually around 10-15 pages long) is the single most helpful document you can provide to help the funder screen the case quickly. The areas typically covered in funding memos include:

  • Client Description: The client’s location, a general description of its business and an explanation of why the client is interested in funding are all helpful points to introduce the funder to the party with whom it ultimately will contract.
  • Defendant Description: Similarly, a funder will want to know some basic details about the party from whom it ultimately needs to collect. A description of the defendant, including whether it has the ability to pay a large judgment and where its assets are located, is useful.
  • Outline of Dispute: The bulk of the memo should be spent giving a brief narrative description of the key facts underlying the dispute, the procedural posture of the litigation (including any rulings issued) and an analysis of the claims brought or to be filed. This information is essential to orient a funder to the strengths and risks of the litigation. If there are any obvious defenses to the claims, including statute of limitations or jurisdictional issues, those should be addressed as well. This discussion should not be an advocacy piece; it should open a productive and transparent dialogue into the case.
  • Funding needs: While a detailed fee and costs budget (discussed further below) often is provided separately, this section of the memo should cover in broad terms the general anticipated funding needs. This includes: (i) the total amount of funding sought; (ii) a breakdown of the total funding amount across fees, costs and any working capital needs of the client; (iii) what share of the fee budget counsel is prepared to take on contingency; (iv) an explanation of any working capital requested.
  • Timing and urgency: Finally, if your client is facing an approaching filing deadline or is otherwise interested in moving especially quickly, disclosing this to the funder helps the funder prioritize the matters it is screening.

3. Key Documents: Sending key documents in the case or filings to the funder early on can save the funder time and effort in gathering that information on its own and further strengthen your matter’s presentation. On the other hand, inundating a funder in the screening period with more than a few key pieces of information can delay things. In general, documents that are central to the litigation – e.g., the contract underlying a breach of contract claim – or that are key procedural inflection points – e.g., a ruling on a motion to dismiss or an operative complaint – are useful.

4. Fee and Costs Budget: Finally, before approaching a funder you should carefully consider just how much funding your case will require. This typically means sitting down and detailing a fee and costs budget that should carry the case through the end of trial or appeal. A detailed budget, as opposed to a high-level estimate of fees and costs, not only demonstrates to the funder that you have carefully thought through your funding needs, but it also allows the funder to consider more creative and flexible solutions to meet the case’s needs. For example, a case that requires significant up-front funding may be subject to different pricing terms than a case where much of the funding is not needed until later, or where it may not be needed at all. Of course, thinking through the budget carefully is not only for the funder’s benefit: it can also help you ensure that you are not paying for a funding commitment you do not require.

While much of the information covered here can be shared in real-time discussions with funders, an organized approach that includes these key pieces of information can help ensure your matter gets full consideration more quickly. Of course, confidential information should only be shared under cover of an NDA.

For more detail on how to protect privileged or sensitive material in discussions with funders, see our post How to Protect Confidentiality During Litigation Funding.