Outcomes-Based vs. Collateral-Based Pricing: The Structural Difference

Why pricing capital against predicted case outcomes differs fundamentally from pricing against assets.

The way capital is priced reveals the deepest distinction between litigation finance and conventional lending. Collateral-based lenders price against assets: they advance a percentage of the value of tangible security, real estate, equipment, receivables, and recover by seizing that collateral if the borrower defaults. The lender's analysis centers on the value and liquidity of the assets, not on the success of any venture the borrower undertakes. The cost of capital reflects the risk that the collateral proves insufficient.

Outcomes-based funders price against probability. A litigation funder advances capital against the expected outcome of a legal claim, and the central analytical task is estimating the probability distribution of recoveries, how likely the case is to succeed, how much it is likely to yield, and how long resolution will take. There is no collateral to seize if the case fails; the funder simply loses its investment. The cost of capital reflects the genuine probability of total loss, which is far higher than the risk a secured lender accepts.

This difference has a profound practical consequence. A collateral-based lender cannot price a claimant who has a strong case but no assets, the very situation litigation finance exists to serve. Conversely, the collateral lender's pricing tells you nothing about the merits of a case, because it never evaluates them. Outcomes-based pricing, by contrast, is only as good as the funder's ability to estimate case probability, which is why the quality of that estimation is the core competitive question in litigation finance.

The accuracy of outcome estimation separates funders. A funder relying on the subjective judgment of experienced lawyers prices cases as well as those individuals' intuition allows. A funder that can ground its probability estimates in the observed outcomes of large numbers of comparable cases prices with a precision that intuition cannot match. This is the central reason data depth matters in litigation finance: it directly improves the accuracy of the pricing that defines the business.

Criterica Capital prices outcomes, not collateral, using models trained on 106M+ court records to estimate recovery probability by jurisdiction, judge, and case type. This grounds our pricing in what comparable cases actually resolved for, rather than in the appraised value of assets or the intuition of underwriters. Claimants and firms can contact our institutional team to see how outcomes-based pricing applies to their matters.

Discuss your matter with our institutional team.