Looking for a place to invest your money and get a good return can be a complicated journey.
There are so many different options. Some of them — like the ones we at Siltstone Capital like to delve into — are out-of-the-box. Others are more conventional, like the stock market.
While stocks are a worthy investment long term, they only yield about a 10% return per year on average. Furthermore, because of inflation, you can expect to lose buying power between 2% to 3% annually.
Litigation finance might be a better option for you, especially if you are altruistically minded. Investors have seen returns as high as 52%, and placing your funds into a litigation investment can be a great way to make a difference in the world. While it can be risky, we do have ways of mitigating that.
Read on to learn more about why litigation investing might be a good opportunity for you.
ARTICLE SUMMARY
- High Returns: Litigation finance offers the potential for impressive returns, with some investors seeing as much as 52% returns, making it an attractive investment option.
- Support for Businesses: Litigation investments can provide crucial financial support to businesses facing legal challenges, helping them to maintain operations and avoid financial strain.
- Overcoming Reporting Challenges: Litigation investments help businesses overcome the challenge of reporting legal expenses as quarterly losses.
- Making a Positive Impact: By investing in litigation cases, you can make a meaningful difference by supporting underdogs in legal battles against powerful entities. In return, you receive a share of the winnings as a reward.
- Mitigating Risk through Due Diligence: To reduce risk, thorough due diligence is conducted by investment professionals and attorneys to assess the merits of each case.
What is Litigation Finance?
Litigation finance is when you — a third party investor — provide financial support to a person or entity in a lawsuit. If the party you fund wins the case, you get a share of the money awarded at the end. Even though you get a lot of the reward money, it can be just as beneficial for the people you are funding as it is for you.
How It Helps Businesses
At Siltstone Capital, we manage litigation investments for a wide variety of corporate cases with special emphasis on patent and technology issues.
While businesses certainly have more capital than your average person, they can also take quite a blow from lawsuits. Their working capital can deplete easily, especially as the case progresses. When a funder makes a litigation investment, that money helps businesses keep their lights on and pay their employees.
The Catch 22 That Litigation Investing Relieves
When a business is going through a lawsuit, the funds are seen as expenses, which often have to be reported as they come up. This can affect the quarterly performance numbers.
Here’s the catch 22. If the company is likely to win, it will get a good amount of money that will more-than-cover the expenses. However, because the expenses have to be reported every quarter, this can make it look like the business is not performing as well as it should be.
Funders can put their litigation investment into a separate account from company funds, which the law firms bill from. At the end of the case, two transactions are reported at once — the money the business won, and the money the business has to pay to investors out of those winnings. This ends up being a net gain, and it never looks like a series of losses.
How Your Litigation Investment Can Make A Difference
Let’s say a business is founded because the CEO created a product that is world changing. It’s a metal bar that a patient holds for 90 seconds every day for two weeks. Through a complex electrochemical process, it cures depression.
When the CEO started the company, he applied for a patent, and he is now working on raising funds from investors. While that patent is pending, a bigger pharmaceutical company finds out about it and starts selling its own version at a cheaper price. This undercuts the smaller company, which has been doing everything right.
In this scenario, the smaller business needs to sue the larger one. Otherwise, it will have to close its doors. However, being a new company, the expenses of starting a lawsuit can be overwhelming.
The higher ups of the bigger company understand this. In fact, that’s what they’re betting on. They know that in a fair world, they would lose. They plan on dragging out the litigation as far as they can so the smaller company will bleed dry, and they win by default.
In this case, your litigation investment makes you a hero. You are helping out the little guy and standing up to a powerful force that seeks to do harm for its own gain. In the end, your good deed is a huge benefit because you take a cut of the winnings.
The Biggest Risk And How To Mitigate It
If the plaintiff loses, they don’t owe you a cent. This means your money either yields a great return or nothing at all. There is no in between. For this reason, you wouldn’t just put your money into any and every court case you come across.
At Siltstone Capital, we have a team of attorneys who work alongside our investment professionals to determine whether or not each case would be a good investment. We go over the case’s merits and figure out if there is a good chance the case will be a success.
This process of due diligence is more than just a way to mitigate your own risk. It’s also a good opportunity to see if the plaintiff is a good fit for us and vice versa. For example, we might find out that the case is too risky or the plaintiff might disagree with certain aspects of how we are sourcing our capital.
This process can also strengthen the case because the attorneys looking at it can come with a fresh perspective. They can offer suggestions, and they can help the plaintiff better prepare through a mock trial.
Is Litigation Funding Right For You?
Litigation investing is a great option for people who are looking to grow their wealth. If you meet the following criteria, it could be a great course of action for you:
- You have enough money to invest. Different firms have different minimums. At Siltstone Capital, you have to have at least $5,000 for a litigation investment.
- You aren’t investing money that you otherwise depend on. Because it is a non-recourse investment, you are either paid a lot of money or nothing at all. While our due diligence process ensures a high probability of winning, there is always the chance that you will lose.
- You are okay watching from the sidelines. While we can choose cases that you are interested in, it is our policy that we do not interfere with them. This ensures that the attorneys can steer the case wherever they see fit, and that they aren’t pressured by the people who provide the finances. In the end, they usually know best.
- You want to make a difference. Your litigation investment can help people who would otherwise be struggling and ensure justice is served. If this isn’t your motivation, that’s okay. It’s simply a bonus for some people.
If you would like to make a litigation investment, you should consider Siltstone Capital. Our team of attorneys and finance experts will make sure your money goes into cases that have a high potential for great returns and a high chance of winning.
Contact Siltstone Capital today to start your journey with litigation investing.
