What Is Litigation Finance? Investing in Legal Cases Explained

Litigation finance (also called legal funding or third-party litigation funding) is the practice of investing capital in lawsuits in exchange for a share of the settlement or judgment. An investor or fund provides money to a plaintiff or law firm to cover legal costs, and if the case wins, the investor receives a return — often 2-5x the original investment. If the case loses, the investor gets nothing. Understanding what is litigation finance starts with this binary outcome structure: you either earn outsized returns or lose your entire stake.

How Litigation Finance Works

A typical deal follows this pattern:

A law firm has a strong patent infringement case against a tech company. The case could take three years to resolve and cost $3 million in legal fees, expert witnesses, and court costs. The firm doesn't want to carry that expense alone, so it approaches a litigation funder.

The funder evaluates the case — reviewing legal merits, potential damages, defendant's ability to pay, and likely timeline. If the case passes due diligence, the funder commits $3 million. In exchange, the funder might receive the first $3 million recovered (return of capital) plus 30% of any proceeds above that amount, or a multiple of the invested capital, whichever is greater.

If the case settles for $25 million, the funder might receive $3 million back plus $6.6 million (30% of the remaining $22 million) — a total of $9.6 million on a $3 million investment. That's a 3.2x return over three years, or roughly 47% annualized.

If the case loses at trial, the funder receives zero. The $3 million is gone.

This risk-return profile is what makes litigation finance a genuinely uncorrelated alternative asset. Court outcomes don't depend on interest rates, stock markets, or GDP growth.

The Litigation Finance Market

What was once a niche Australian practice has become a global industry. The litigation finance market reached an estimated $15-17 billion in assets under management by 2025, with growth rates of 15-20% annually.

Burford Capital, the largest publicly traded litigation funder, had $7.3 billion in assets under management as of 2024. They fund complex commercial litigation, international arbitration, and intellectual property cases. Their stock trades on the NYSE, giving any investor exposure to litigation finance through a single equity purchase.

The industry's growth reflects several trends. Legal costs have risen faster than inflation for decades. Corporations use litigation as a strategic weapon, and defendants with deep pockets can outspend plaintiffs into submission. Litigation finance levels the playing field — and makes money doing it.

Who Can Invest in Litigation Finance

Historically, only institutional investors and ultra-high-net-worth individuals could access litigation finance directly. Funds typically required $1 million+ minimums and multi-year lockups.

That's changed. LexShares opened litigation finance to accredited investors with minimums starting around $5,000-$10,000 per case. Investors can browse pre-vetted commercial cases, review key details (case type, jurisdiction, estimated timeline, potential damages), and invest in individual lawsuits.

For non-accredited investors, Burford Capital stock (traded on NYSE under "BUR") offers indirect exposure. You won't own a stake in specific cases, but you'll participate in the economics of a diversified litigation portfolio through equity ownership.

Types of Litigation Finance Investments

Single-Case Funding

You invest in one specific lawsuit. This is the highest-risk, highest-reward approach. Returns can exceed 5x on a winning case, but a single loss means total loss of that investment. LexShares primarily offers single-case investments.

Portfolio Funding

A fund invests across 10-30+ cases, diversifying away the binary risk of any single outcome. If 60% of cases win with an average 3x return and 40% lose completely, the portfolio still returns roughly 1.8x. Most institutional litigation finance operates this way.

Law Firm Funding

Instead of funding individual cases, some funders provide capital to law firms working on contingency. The funder essentially invests in the firm's entire pipeline of cases. This provides additional diversification and aligns incentives with experienced legal professionals.

Post-Settlement Funding

Lower-risk than pre-judgment investing. Once a case has settled or a judgment has been entered, delays in collection create an opportunity. A funder advances cash against the expected payment, earning a modest return when the defendant pays. Returns are lower (often 15-25% annualized) but the outcome is more certain.

Return Expectations

Litigation finance returns are inherently lumpy. Cases take 2-5 years to resolve, and the outcome is binary at the individual case level.

Industry-wide data suggests:

• Single-case investments: 0x (total loss) to 5-10x on individual cases
• Diversified portfolios: 15-30% net IRR (internal rate of return) across multi-year periods
• Burford Capital's track record: 31% net IRR on concluded cases over their history (as self-reported)

The time element matters. A 3x return over five years works out to roughly 25% annualized. A 3x return over two years is 73% annualized. Case duration directly affects IRR, and timelines are unpredictable — courts don't move on investors' schedules.

What Makes Litigation Finance Uncorrelated

This is the portfolio construction argument for litigation finance. Whether a patent case in Delaware wins or loses has zero relationship to whether the S&P 500 goes up or down. The correlation between litigation outcomes and traditional financial markets is essentially zero.

During the 2008 financial crisis, Burford Capital's cases continued resolving normally. During COVID lockdowns, court delays slowed case timelines but didn't change case merits. This makes litigation finance a genuine diversifier — not just an asset that's "less correlated," but one that's driven by entirely different factors.

Those factors include the strength of legal arguments, the judge assigned to the case, jury composition, opposing counsel's strategy, and the defendant's willingness to settle. None of these correlate with macroeconomic variables.

Risks of Litigation Finance

Binary outcomes. Individual cases either win or lose. There's no middle ground on most investments. A case you expected to settle for $20 million could get dismissed on summary judgment, returning zero.

Illiquidity. Your money is locked up until the case resolves, which could take 2-7 years. You generally cannot sell your position. There's no secondary market for most litigation finance investments.

Adverse legal decisions. A court ruling, legislative change, or new legal precedent can undermine an entire category of cases. For example, changes to patent law have affected the economics of patent litigation funding.

Underwriting risk. Evaluating legal claims requires specialized expertise. If the funder misjudges a case's merits or the defendant's ability to pay, investors lose. Due diligence quality varies significantly across platforms.

Ethical and regulatory scrutiny. Critics argue that litigation finance encourages frivolous lawsuits. Several states have proposed disclosure requirements, and the U.S. Chamber of Commerce has lobbied for restrictions. Future regulation could affect the industry's economics.

For a deeper dive into accessing this asset class, read our guide on how to invest in litigation finance.

Frequently Asked Questions

What is litigation finance in simple terms?

Litigation finance means investing money in a lawsuit. You fund some or all of the legal costs, and if the case wins or settles, you receive a share of the proceeds — often 2-5 times your investment. If the case loses, you lose your investment entirely. It's essentially a bet on the outcome of legal proceedings.

How much can you make from litigation finance?

Returns vary dramatically. Individual winning cases can return 3-10x invested capital. Diversified portfolios targeting multiple cases have historically generated 15-30% annualized returns. But losing cases return zero, so portfolio diversification is critical. Expect lumpy, unpredictable timing — cases resolve on court schedules, not yours.

Is litigation finance legal?

Yes. Litigation finance is legal in all 50 U.S. states and most developed countries, though regulations vary. Some jurisdictions require disclosure of funding arrangements to the court or opposing party. Australia, the UK, and Singapore have well-established regulatory frameworks. The industry has grown substantially since 2010 with increasing legal acceptance.

What is the minimum investment for litigation finance?

LexShares offers individual case investments starting around $5,000-$10,000 for accredited investors. Institutional litigation funds typically require $250,000-$1 million minimums. For non-accredited investors, buying Burford Capital stock on the NYSE provides exposure with no minimum beyond the share price (roughly $12-$15 per share).

How long does a litigation finance investment take to pay off?

Most cases take 2-5 years to resolve, though some extend to 7+ years if they go through appeals. You have no control over the timeline — courts set the pace. This makes litigation finance unsuitable for investors who might need their money within a fixed timeframe. Build this illiquidity into your planning.

Can I invest in litigation finance through an IRA?

Yes, if you use a self-directed IRA. Platforms like LexShares accept IRA investments through self-directed custodians. Burford Capital stock can be held in any standard IRA or brokerage account. Holding litigation finance in a tax-advantaged account makes sense given the ordinary income treatment of returns.

ModernAlts is an independent research platform. Nothing in this article constitutes investment, legal, or tax advice. Alternative investments involve risk including possible loss of principal.