status: draft

Single-case funding

Single-case funding is the original litigation finance product: non-recourse capital for a specific case in exchange for a share of any recovery. If the case loses, the funder receives nothing.

When single-case makes sense

For plaintiffs:

Case value is high ($3M+ expected recovery) but litigation costs are prohibitive
Capital constraints: the plaintiff cannot self-fund through trial and potential appeal
Risk transfer: the plaintiff prefers certain capital now over uncertain future recovery
Timeline: litigation may take 3-5+ years; capital allows the plaintiff to wait

For funders:

High conviction on case merit after deep diligence
Expected recovery supports attractive multiple at acceptable risk
Lead counsel has strong track record in this case type
Defendant has clear ability to pay (insurance, balance sheet, or both)

Economics

Single-case returns are structured as the greater of two calculations:

Component	Typical Range	Example
Multiple of invested capital	2.5-4.0x	$2M deployed → $6M return at 3x
Percentage of gross recovery	20-40%	$15M recovery → $4.5M at 30%

The “greater of” structure protects the funder in two scenarios:

Quick settlement: If the case settles early for a modest amount, the multiple ensures adequate return for the risk taken
Large recovery: If damages exceed expectations, the percentage ensures the funder participates in the upside

Declining return structures

Some funders offer declining returns to incentivize early resolution:

Resolution Timing	Funder Share
Within 18 months	35% of recovery
18-36 months	30% of recovery
After 36 months	25% of recovery

This aligns funder and plaintiff incentives. The plaintiff gets a better deal by resolving quickly; the funder earns a higher IRR despite the lower percentage.

Worked example

Case profile:

Claim: Commercial breach of contract
Expected recovery: $15M
Funding: $2M deployed over 18 months
Terms: Greater of 3x invested capital or 25% of gross recovery

Scenario A: Settlement at $12M in year 2.5

Calculation	Amount
3x investment	$6M
25% of recovery	$3M
Funder receives	$6M (greater amount)
MOIC	3.0x
IRR	~45%

Scenario B: Trial win at $15M after appeal in year 5

Calculation	Amount
3x investment	$6M
25% of recovery	$3.75M
Funder receives	$6M (greater amount)
MOIC	3.0x
IRR	~22%

Scenario C: Loss

Outcome	Amount
Funder receives	$0
MOIC	0x

The settlement (Scenario A) is preferable on an IRR basis despite the same MOIC. This is why sophisticated funders often support reasonable settlements.

Waterfall mechanics

Unlike amortizing loans with monthly payments, litigation produces lumpy, unpredictable cash flows. A case may generate zero for 4 years, then a $20M settlement.

Standard waterfall:

1. Return of invested capital to funder
2. Return split (often 50/50 or 60/40 funder/plaintiff) on remaining proceeds
   OR
   Alternative: Funder takes greater of (a) multiple or (b) percentage
3. Balance to plaintiff

IRR-based variations:

Some structures include IRR hurdles:

IRR Achieved	Funder Share
Below 20%	25% of recovery
20-35%	30% of recovery
Above 35%	35% of recovery

This rewards funders for cases that resolve quickly and penalizes extended duration.

Settlement approval and control

This is the critical governance question. Who decides when to settle?

Standard arrangement:

Plaintiff controls all litigation decisions and strategy
Funder has veto over settlements below a specified threshold (typically invested capital plus return multiple)
Above threshold, plaintiff can accept settlement without funder consent

Example thresholds:

Funder Investment	Required Settlement Minimum
$2M at 3x multiple	$6M before plaintiff can settle without consent
$5M at 2.5x multiple	$12.5M before plaintiff can settle without consent

Inherent tensions:

Plaintiff may want quick, certain settlement; funder may want to pursue larger trial recovery
Plaintiff has non-economic considerations (reputation, relationships, closure)
Funder has portfolio-level return targets that may conflict with single-case optimization

Ethical constraints: Rules of professional conduct require that clients, not funders, control litigation decisions. Structures giving funders excessive control may be challenged. Settlement approval rights are framed as economic protection, not litigation control.

Budget and cost overrun provisions

Litigation budgets rarely hold. Discovery expands, experts multiply, timelines extend.

Key structural protections:

Provision	How It Works
Budgeted vs. maximum commitment	Funder commits to budget with option (not obligation) to fund overruns
Follow-on funding rights	Funder can fund additional amounts at same or adjusted terms
Dilution mechanics	If funder doesn’t fund overruns, plaintiff covers them but funder’s percentage increases
Cost caps	Hard limits on funder exposure

What happens when budget is exceeded:

Funder walks away: Case continues; funder retains priority on deployed capital
Funder funds overrun: Maintains percentage, increases capital at risk
Plaintiff covers overrun: Funder’s return percentage increases (anti-dilution)

Best practice: Budget with 20-30% contingency. Assume at least one budget reset during a multi-year case.

Diligence for single-case investments

Single-case exposure is binary—you win or lose everything. Diligence must be exhaustive.

Legal merit assessment

Independent review of liability theory (not just relying on plaintiff’s counsel)
Assessment of defenses and likelihood of success
Prior court rulings in similar cases
Quality of documentation and witness availability
Statute of limitations and procedural issues

Damages analysis

Quantification methodology: how is recovery calculated?
Expert reports and their supportability
Comparable awards in similar cases
Settlement vs. trial recovery expectations
Is the damages theory aggressive or conservative?

Duration modeling

Realistic timeline including discovery, summary judgment, trial, appeal
Current case status and completed milestones
Court docket and scheduling orders
Judge’s historical timeline patterns
Appeals risk: will defendant appeal? How long?

Defendant analysis

Financial ability to pay: balance sheet, liquidity, credit profile
Insurance coverage: policy limits, coverage disputes, reservation of rights letters
Parent company or affiliate liability
If cross-border: enforcement in relevant jurisdictions

Counsel evaluation

Lead counsel track record in this specific area
Firm financial stability (firms fail; cases can be orphaned)
Is the firm invested? Contingency or hybrid fee?
Resources: can the firm prosecute through trial and appeal?

When single-case goes wrong

Common failure modes:

Risk	Example	Mitigation
Legal theory fails	Summary judgment granted for defendant	Deep independent legal review before funding
Key witness unavailable	Witness dies, becomes uncooperative, or credibility destroyed	Assess witness bench depth early
Defendant can’t pay	Judgment against insolvent entity	Rigorous defendant financial analysis
Duration explosion	3-year case becomes 7-year case	Conservative duration assumptions; IRR sensitivity analysis
Budget blowout	$2M case needs $5M	Realistic budgeting with contingency; clear overrun provisions

Red flags in single-case opportunities:

Damages theory depends on novel or untested legal arguments
Single key witness with no corroboration
Defendant with questionable ability to pay and no insurance
Counsel with limited track record in this case type
Duration already extended with no resolution timeline
Multiple adverse rulings already on record

Comparison to portfolio exposure

Factor	Single-Case	Portfolio
Return potential	Higher (2.5-4x on wins)	Moderate (1.6-2.2x blended)
Risk	Binary—0x or target return	Diversified—variance smoothed
Diligence depth	Exhaustive per case	Deep on sampling; portfolio-level
Expertise required	Deep case-type knowledge	Broader pattern recognition
Appropriate for	Specialist funders, co-investors	Most institutional capital

Single-case is appropriate when you have deep legal expertise in the specific case type and can absorb the binary outcome. For most investors, portfolio exposure provides better risk-adjusted returns.

status: draft

Related: Portfolio Financing · Diligence Guide · Valuation

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