Litigation funding provides investments to businesses seeking to litigate a lawsuit.
Lawsuits come from businesses suing other businesses, tenants suing landlords, startups defending their intellectual property claims, and more.
The one pressing the lawsuit needs funds to carry it through the courts.
Investors receive a return when the business wins the lawsuit and pays the investor back from the settlement.
Private equity raises funds from investors and then applies them to various lawsuit cases.
These funds charge a management fee and carry to the fund.
The fund follows the venture capital model.
They only pay the investors in the event they win the case.
The fund sees hundreds of lawsuits, but only backs a small percentage of them.
Each lawsuit must payout at least five times the original investment.
To join these funds, the investor must be accredited.
Crowdfunding could also be used to source funds for litigation funding.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.