Damages Methodology

The analytical framework used by economic or financial experts to calculate and present the monetary harm a claimant suffered as a result of the defendant's conduct. Common commercial damages methodologies include lost profits analysis, discounted cash flow modeling, market comparables, and cost-based approaches. Funders scrutinize the damages methodology early in diligence because a legally sound liability theory paired with a fragile or speculative damages model creates significant trial risk. The robustness, defensibility, and expert credentialing behind the methodology directly influence a funder's investment thesis and the deal's return multiple.

Funders treat a fragile damages methodology as a bigger threat to the investment than a contestable liability theory, because juries and judges are more willing to compromise on liability than to accept a speculative number. Diligence therefore includes an independent stress test of the plaintiff's expert model — checking whether comparable transactions, discount rates, and causation assumptions will survive a Daubert challenge — before the funder treats the headline damages figure as underwriting-relevant.