Co-Investment Terms Funders Actually Negotiate

The specific deal points that determine how a co-investment is priced and governed, beyond the headline return split.

Co-investment in litigation finance is often described in headline terms — a fund and a capital partner sharing economics on a matter — but the substance of the deal lives in a handful of specific negotiated terms that determine how the arrangement actually performs for each side. Two co-investors putting capital into the same case can end up with very different outcomes depending on priority, information rights, and what happens if the case needs more capital or resolves differently than projected, none of which the headline split captures on its own.

Priority in the proceeds waterfall is usually the most consequential term. A co-investment can be structured pari passu, where both capital providers are repaid proportionally alongside each other, or with one position senior to the other, receiving repayment first up to a defined return before the junior position participates. Senior co-investment positions trade a lower potential return for reduced downside exposure, useful for a capital provider extending capacity to a fund's strongest matters without taking on the fund's full risk profile. Junior or pari passu positions carry more upside but correspondingly more exposure if the case underperforms, and the negotiation over which structure applies is often the central point of the term sheet.

Information rights define how much visibility the co-investor has into the matter without crossing into the kind of control that would violate non-interference principles governing litigation finance. Standard terms include periodic case-status reporting, notice of material developments — dispositive rulings, settlement offers, trial dates — and audit rights to verify reported figures. What co-investment terms do not include, in a properly structured arrangement, is any right to direct case strategy or approve or reject a settlement, since that authority remains with the claimant and counsel regardless of how many capital providers are involved.

Reporting cadence and format are negotiated with more specificity than the headline description of "periodic updates" suggests. Co-investment agreements typically define the exact frequency — often quarterly, with interim notice required for material events — and the level of detail expected, from high-level status summaries to fuller case memoranda depending on the co-investor's own monitoring requirements and the size of its position. Dispute resolution provisions address what happens if the co-investor disagrees with the lead fund's assessment of a case's status or value, since co-investors typically lack the direct case access that would let them independently verify the lead fund's reporting. Common mechanisms include a right to request additional documentation, escalation to a senior contact at the fund, or, in larger co-investments, a right to commission an independent case review. These provisions matter more than they might appear on a term sheet's surface, because a co-investor's practical recourse if a relationship deteriorates is limited — the co-investor has no case-control rights to fall back on, making the reporting and dispute-resolution framework the primary tool for maintaining confidence in the arrangement over what can be a multi-year holding period. Well-drafted co-investment agreements treat this monitoring framework with the same care applied to the return waterfall itself, since a well-priced deal with inadequate visibility exposes the co-investor to risks a stronger reporting structure would have surfaced earlier.

Follow-on rights address what happens if a case requires more capital than originally budgeted — through extended discovery, an appeal, or unexpected cost overruns. Terms typically specify whether the co-investor has a right of first refusal to fund a follow-on need proportionally, or whether the lead fund can bring in additional capital without the original co-investor's participation, which would dilute the co-investor's relative exposure to the matter's ultimate economics. Step-in or transfer provisions address what happens if the lead fund wants to exit its own position before resolution, and whether the co-investor's rights transfer intact to any assignee.

Criterica Capital negotiates co-investment terms — priority, information rights, and follow-on provisions — case by case, sized to the specific matter or portfolio segment and the fund's own capital structure, rather than applying a standardized template regardless of deal size or risk profile. We also structure follow-on and step-in provisions upfront, so both parties understand how additional capital needs or a lead fund's exit would be handled well before either scenario arises. Funds evaluating co-investment to extend capacity on strong matters can contact our institutional team to discuss terms.

Discuss your matter with our institutional team.