Five Tips for Reading a Litigation Funding Term Sheet

December 8, 2021

Our Joshua Libling sat down to discuss the finer points of litigation funding and shares five tips on how to read a litigation funding term sheet.


My name is Joshua Libling and these are my five tips for reading a litigation finance term sheet.

Getting funding for your litigation can be a tricky process

One key step is the term sheet.

In this video, I’m going to take you through five key tips to reading a litigation funding term sheet with confidence:

Tip 1: What is the collateral?

Make sure you read the description of the case being funded and look out for any rights of first refusal or descriptions of future litigation. It is pretty common for the description of the collateral to broad—the funder wants to make sure they’re capturing any potentially relevant settlement or resolution.  But if multiple litigations, or unspecified future litigations are covered, make sure you understand the scope of the relationship contemplated.

Tip 2: Who takes the budget risk?

Funders generally aren’t going to take on uncapped liability. That means that if a litigation goes over the projected fees and expenses, someone else is responsible for the excess. Make sure you understand who is taking on that risk.

Tip 3: How is the return calculated?

Typically, a funder’s return is expressed as some combination of a multiple of their capital or a percentage of receipts. The way these interact is pretty important. Here are some things to look out for.

Is the multiple based on deployed or committed capital? Deployed is typical in larger fundings and can make a big difference to early settlement discussions.

Is the multiple expressed as a gross or net number? If the term sheet says “2x,” does that mean “2x + the return of the funder’s capital”? That would be 2x net. But it is 3x gross.

Sometimes the return is written as part of the waterfall, sometimes as separate from the waterfall. When it is part of the waterfall, pay attention to how it is structured and see if you can work out what it would look like if the return were written separately.

You should feel free to ask the funder for a return model, but here is a rule of thumb: percentages are typically better for you in low return scenarios and multiples are better for you in high return scenarios. Funders know that. So a percentage return may come with a multiple priority return to protect the funder in low return scenarios. Review the return structure and waterfall carefully, and ask for a model covering a variety of scenarios.

Tip 4: How do the fees work?

Funders often charge fees in addition to their return. Most of the time, that will be a structuring or transaction fee—maybe 2% of the committed amount. Check when fees are paid and whether the funder earns a return on the fee.

Tip 5: What is not in the term sheet?

Term sheets are supposed to be overviews and supposed to be clear. Inevitably, it’s going to leave some things out.

That’s okay.

A couple of big things to understand are: how settlement works and how termination works. It is fine to leave these issues for the final funding agreement, but these provisions can be material; if they’re going to matter to you, you may want to understand them before you sign a term sheet.


Ok, I hope that has been helpful for understanding how to read a term sheet and thinking about what questions to ask.

If you want more details or a deeper dive, download our Guide to Litigation Funding at the link on the screen

Good luck and happy funding.

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