One of the most common questions about litigation funding is also one of the hardest to answer with a single number: how big does a case need to be before a funder will consider it?
There is no universal minimum claim size. A large claim is not automatically fundable, and a smaller claim is not automatically too small. What matters is the relationship between the capital required, the realistic recovery, the time the capital may be deployed, the legal and enforcement risks, and the requirements of the particular funder considering the matter.
Claim size is only one part of the economics
A funder is not simply asking whether the damages figure is large. It is assessing whether the potential return justifies the amount of capital and risk involved.
That means the funding requirement needs to be considered against a realistic view of the amount likely to be recovered. The legal budget, likely duration of the matter, prospects of success and prospects of actually recovering from the defendant can all materially affect the economics.
In Resolut’s experience, both historically and from current indications, a number of funders still use something around a 1:10 relationship between the funding required and the realistic claim value as an initial guide. But litigation funding is bespoke. It should not be treated as a universal rule or as a test that every funder applies in the same way.
The 1:10 guide is not a universal funding rule
Published funder criteria demonstrate why a single ratio can be misleading. Augusta Ventures, for example, has publicly rejected the proposition that a case must meet a 1:10 ratio. It says that, if forced to apply a minimum rule of thumb, its own position would be closer to 1:3, while emphasising that it assesses matters holistically, including the funding required, deferred legal fees and the estimated time to resolution.
That is one funder’s published position, not an Australian industry benchmark. The useful point is the variation itself: different funders can assess the same economics differently.
Duration can change the assessment
Consider a matter with a realistic recovery of approximately $3 million and a funding requirement of $500,000. On a simple ratio, that is 6:1 rather than 10:1.
Suppose the anticipated time to resolution is approximately 12 months. A funder able to deploy $500,000 for a comparatively short period may assess that opportunity very differently from another funder — or from the same amount of capital being exposed for four or five years.
The example does not mean that a 6:1 matter expected to resolve within a year will be funded. It illustrates why the ratio alone does not determine fundability. Duration affects the commercial return on deployed capital and can therefore change the way the overall opportunity is assessed.
What else will a funder consider?
Economics matter, but they sit alongside other underwriting questions. Depending on the funder and the dispute, these may include:
- the legal merits and evidentiary position;
- the realistic rather than pleaded or aspirational quantum;
- the amount and timing of capital required;
- the likely duration and procedural stage of the dispute;
- the defendant or respondent profile;
- enforceability and realistic recovery prospects;
- jurisdiction and claim type;
- the funder’s current mandate, portfolio and capital requirements; and
- the proposed commercial structure.
A matter can therefore be economically attractive in the abstract but still be outside a particular funder’s mandate. Equally, a matter that does not fit one funder may fit another.
So, is the case big enough?
A better first question is whether there is enough realistic value in the claim to support the capital required and leave a commercially sensible outcome for the claimant and funder, having regard to the risks and likely duration.
Even then, that is only the first screen. Funding products are not standardised and funder appetite changes. A funder that is appropriate for one matter may be unsuitable for another apparently similar dispute.
The objective is not to determine whether a claim fits a single idea of ‘the market’. It is to determine whether there is a funder whose mandate, capital and commercial requirements fit the particular matter at that particular point in time.
Where Resolut fits
Resolut does not itself provide litigation funding. We help law firms, insolvency practitioners and claimants assess where a matter may fit and identify funders whose mandate, appetite and commercial approach may be aligned with the dispute.
If you are unsure whether a matter is likely to be fundable, it can be useful to test the economics and likely funder fit before approaching the market indiscriminately.
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