What a Funder's Term Sheet Says — and What It Means

A walk through the provisions that actually matter in a litigation finance term sheet, beyond the headline multiple.

A litigation finance term sheet typically leads with two numbers — the amount of capital offered and the multiple or return the funder expects — but those headline figures are the least useful part of the document for actually understanding the deal. The provisions that determine how the arrangement performs in practice sit in the sections most readers skim past: how and when capital is actually delivered, exactly how the return is calculated against different possible outcomes, and what obligations and constraints attach to both sides for the life of the agreement.

The funding amount section specifies not just the total commitment but how it is delivered — as a lump sum at closing, or in tranches released as the case reaches defined milestones. Tranched delivery protects the funder against committing full capital to a matter that stalls or develops unfavorably early on, while giving the claimant or firm less certainty about total available capital than a lump-sum commitment would. Permitted-use provisions define what the capital can actually be spent on — case costs and experts, general working capital, or both — and draw conditions specify what documentation or case status triggers each tranche's release.

Return mechanics are the section that most rewards careful reading. A term sheet may express the return as a flat multiple of invested capital, a percentage share of recovery, or a hybrid structure with a cap — the greater or lesser of a multiple and a percentage, subject to a maximum. Each structure produces different outcomes depending on how the case actually resolves: a flat multiple is straightforward if the case settles roughly as projected but can significantly overpay the funder if the case settles for far more than expected, while a pure percentage share scales naturally with outcome but can leave the funder underpaid on a quick, modest settlement relative to the risk taken. What counts as "invested capital" also matters — whether it includes only the principal advanced, or also accrued fees, monitoring costs, and expenses the funder incurred, since that definition directly changes the base the multiple is applied against.

Exclusivity and confidentiality provisions typically appear early in a term sheet and matter more than their placement suggests. An exclusivity period during which the claimant or firm agrees not to shop the same matter to other funders while diligence proceeds protects the funder's investment of time and diligence cost, but also limits the claimant's or firm's ability to negotiate competing terms during that window, which is worth weighing against how long the exclusivity period runs. Confidentiality provisions govern how much of the case information shared during diligence the funder can retain or use if the deal does not close, an important protection for the claimant given how much sensitive case strategy and evidence a thorough underwriting process typically requires disclosing. Some term sheets include diligence expense reimbursement provisions, specifying whether and to what extent the claimant or firm bears the funder's out-of-pocket diligence costs if the deal proceeds to signing but the funder ultimately declines to close, a term that shifts real economic risk onto the claimant or firm during the diligence period and should be understood clearly before diligence begins rather than discovered after the fact.

Non-interference language should explicitly confirm the funder has no right to direct case strategy or approve or reject a settlement, consistent with the professional-responsibility rules governing funded litigation — its absence, or vague drafting around it, is a genuine red flag rather than a formality. Reporting obligations specify how often the claimant or firm must update the funder on case status. Termination and default provisions define what triggers early termination — material misrepresentation in the original application, failure to pursue the case in good faith, or an unauthorized settlement — and what remedies follow, which is where a poorly negotiated term sheet can create obligations well beyond what the headline terms suggested.

Criterica Capital term sheets are structured to make funding amount, return mechanics, and non-interference provisions explicit and specific rather than left to later negotiation in the definitive agreement, so claimants and firms can evaluate the real terms of a proposed arrangement at the outset. Firms and claimants reviewing a funding term sheet can contact our institutional team with questions about any specific provision.

Discuss your matter with our institutional team.