Litigation Finance Due Diligence: What to Examine on Both Sides

What funded parties should examine in a funder, and what funders examine in a case.

Due diligence in litigation finance runs in two directions, and sophisticated parties attend to both. Funded parties, the claimants and law firms receiving capital, should diligence the funder as carefully as the funder diligences the case. The central question is capital adequacy: does the funder actually have the committed capital to fund the matter through resolution, including any follow-on requirements as the case develops, or does it depend on raising capital it has not yet secured.

A funder that runs short of capital mid-case can leave a claimant stranded, unable to complete the litigation it relied on funding to pursue. Funded parties should therefore examine the funder's track record, its sources of capital, its reserves, and its history of honoring commitments through difficult cases. Membership in industry bodies such as ILFA, which impose capital adequacy standards, is one signal, but it does not substitute for direct inquiry into the funder's financial strength and stability.

On the other side, funders conduct rigorous diligence on the case. This includes reviewing the pleadings and key rulings, examining the damages analysis and supporting expert work, assessing the defendant's solvency and asset locations, and evaluating the litigation team's capability. For larger matters, funders may engage independent experts to validate the damages methodology or the technical merits. This diligence protects the funder's capital and, by extension, the integrity of its commitment to other funded parties.

Both sides benefit from transparency. A claimant that shares case materials candidly enables accurate underwriting and a commitment the funder can honor. A funder that is transparent about its capital, its terms, and its expectations enables the claimant to make an informed decision. Diligence is not adversarial; it is the process by which both parties confirm that the arrangement rests on a sound foundation before capital is committed and the multi-year relationship begins.

Criterica Capital welcomes diligence from the parties we fund and conducts its own case diligence using outcome models trained on 106M+ court records. We are transparent about our capital, our underwriting basis, and our terms. Parties evaluating a funding relationship can contact our institutional team to discuss what diligence, in both directions, should cover.

Discuss your matter with our institutional team.