Who receives the capital in a litigation finance deal?

Either the claimant or its lawyers. In claimant funding, the company that owns the claim receives money for fees and costs or as a monetization advance. In law-firm funding, the firm receives money to carry contingency work, pay salaries or bridge receivables. Burford's 2025 10-K says legal finance 'allows law firms to obtain cash to operate their businesses and pay the salaries of their lawyers even when they have taken a case on a contingent fee or alternative fee basis.'

What repays the funder in each case?

Different pools of money. A claimant-side funder is paid from the claimant's recovery, after or alongside counsel's fee depending on the agreement. A law-firm funder is paid from the firm's fees, often across several cases, because the firm's share of a recovery is its contingency fee rather than the whole award. That makes law-firm deals depend on the firm's whole docket and its economics, not only on one claim.

Why do law firms use funding?

To take on contingency work they could not otherwise carry. Burford's guide lists pitching new business on client-friendly terms, offering an alternative to hourly fees, timing cash flows from pending contingent work, managing partner compensation, and advancing fees on outstanding receivables. Burford's 10-K says it has engaged with 95 of the 100 largest US law firms by revenue, per The American Lawyer's 2025 rankings.

Are there legal limits on funding law firms?

Yes, from professional conduct rules. Rules modeled on ABA Model Rule 5.4 generally restrict lawyers from sharing legal fees with nonlawyers and from letting a nonlawyer direct their professional judgment, which shapes how law-firm deals are written and is one reason portfolio deals are structured around the firm's fee receivables. AltStreet's Legalist review notes Legalist has explicitly avoided alternative business structures that allow nonlawyer ownership of law firms.

Which is riskier for an investor?

They carry different risks. Claimant funding concentrates on the claim's merits, damages and collection. Law-firm funding adds the firm itself: its solvency, case selection, staffing and conduct, and whether it keeps the cases. A law-firm portfolio can diversify across claims and still depend on one firm.

What is post-settlement law-firm funding?

Financing after the case has resolved, against fees the firm is owed. Burford's 10-K describes post-settlement activity as financing 'of settlements and law firm receivables' in situations where litigation has been resolved, held mainly in its COLP, BAIF and BAIF II funds. GAO describes it as advancing money to a firm against outstanding client receivables. The risk becomes payment timing and the payer's credit rather than the case.

Law-Firm vs Claimant Funding

Litigation Finance & Legal Claims

Definition

Claimant funding provides capital to the party that owns the claim, usually a company, and is repaid from that party's share of the recovery. Law-firm funding provides capital to the law firm, usually against its contingency or alternative fees on one case or a portfolio, and is repaid from the fees the firm earns. GAO found commercial funders' clients are corporate plaintiffs or law firms, and that law firms were the counterparty in 80 of 92 new portfolio agreements at three funders from 2017 to 2021.

Why it matters

The same lawsuit can be financed at two different points in its cash flow, and an investor's exposure changes with the choice. Claimant funding is a bet on the claim. Law-firm funding is a bet on a firm's portfolio of fees, which can diversify across cases but adds the firm's own risks and is shaped by professional conduct rules on fee sharing. GAO's data shows law firms are the main counterparty in portfolio deals, so much of the market's 'diversification' runs through a small number of firms. When a fund reports a portfolio count, ask how many distinct law firms and claimants sit behind it.

Common misconceptions

•Funding a law firm is not the same as funding its clients' claims, because the firm's repayment source is its fee, not the full recovery.
•A law-firm portfolio is not diversified across counterparties, because every case in it depends on the same firm's solvency and conduct.
•Law-firm funding is not unrestricted, because professional conduct rules on fee sharing with nonlawyers limit how deals are structured.
•Claimant funding does not remove the lawyers' influence, because counsel quality and incentives still drive the outcome, which is why five of seven funders GAO interviewed vet the legal team.
•Post-settlement funding is not litigation risk, because the case has resolved; the remaining risk is when, and whether, the payer pays.

Technical details

Worked example (illustrative): one $90 million settlement, financed two ways

Settlement $90.0 million; contingency fee 33%: firm $29.7 million, claimant $60.3 million.

Claimant funding: funder deployed $6.0 million; return 2.5x = $15.0 million, paid from the claimant's $60.3 million; claimant nets $45.3 million.

Law-firm funding: the firm drew $6.0 million against a portfolio of fees; it repays 1.8x = $10.8 million from fee income, including this $29.7 million fee and fees from its other cases.

Same case, two exposures: the claimant-side funder needs this claim to win; the firm-side funder needs the firm's fees to cover $10.8 million in total.

Side by side

Funded party: claimant (company or individual) vs law firm.

Repayment source: claimant's recovery vs firm's fees, often across cases.

Typical form: single case or monetization vs portfolio or receivables financing.

Added risks: claim merits and collection vs firm solvency, staffing, case selection and conduct.

Rules that shape it: funding agreement and court disclosure rules vs those plus professional conduct rules on fee sharing.

What AltStreet's reviews and filings show

GAO-23-105210: at three commercial funders, 80 of 92 new portfolio agreements (2017 to 2021) were with law firms, 8 with companies and 4 mixed.

Burford 2025 10-K: engagement with 95 of the 100 largest US law firms and 93 of the 100 largest global firms by revenue (The American Lawyer, 2025); post-settlement law-firm receivables financing in COLP, BAIF and BAIF II.

AltStreet's Legalist review: non-recourse funding to commercial plaintiffs and law firms; case portfolios with a single law firm about half the Fund IV book; no alternative business structures.

Burford's introductory guide lists law-firm uses: new business, alternatives to hourly fees, contingent cash flow timing, partner compensation and receivables advances.

Questions to ask

Who signs the funding agreement: the claimant, the firm, or both?

What exactly repays the funder, and in what order against counsel's fee?

For firm deals: how many cases, how many clients, and what happens if the firm loses a case or a client?

How does the deal comply with fee-sharing rules in the firm's jurisdiction?

How many distinct firms sit behind the fund's portfolio count?

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

Who receives the capital in a litigation finance deal?: Either the claimant or its lawyers. In claimant funding, the company that owns the claim receives money for fees and costs or as a monetization advance. In law-firm funding, the firm receives money to carry contingency work, pay salaries or bridge receivables. Burford's 2025 10-K says legal finance 'allows law firms to obtain cash to operate their businesses and pay the salaries of their lawyers even when they have taken a case on a contingent fee or alternative fee basis.'
What repays the funder in each case?: Different pools of money. A claimant-side funder is paid from the claimant's recovery, after or alongside counsel's fee depending on the agreement. A law-firm funder is paid from the firm's fees, often across several cases, because the firm's share of a recovery is its contingency fee rather than the whole award. That makes law-firm deals depend on the firm's whole docket and its economics, not only on one claim.
Why do law firms use funding?: To take on contingency work they could not otherwise carry. Burford's guide lists pitching new business on client-friendly terms, offering an alternative to hourly fees, timing cash flows from pending contingent work, managing partner compensation, and advancing fees on outstanding receivables. Burford's 10-K says it has engaged with 95 of the 100 largest US law firms by revenue, per The American Lawyer's 2025 rankings.
Are there legal limits on funding law firms?: Yes, from professional conduct rules. Rules modeled on ABA Model Rule 5.4 generally restrict lawyers from sharing legal fees with nonlawyers and from letting a nonlawyer direct their professional judgment, which shapes how law-firm deals are written and is one reason portfolio deals are structured around the firm's fee receivables. AltStreet's Legalist review notes Legalist has explicitly avoided alternative business structures that allow nonlawyer ownership of law firms.
Which is riskier for an investor?: They carry different risks. Claimant funding concentrates on the claim's merits, damages and collection. Law-firm funding adds the firm itself: its solvency, case selection, staffing and conduct, and whether it keeps the cases. A law-firm portfolio can diversify across claims and still depend on one firm.
What is post-settlement law-firm funding?: Financing after the case has resolved, against fees the firm is owed. Burford's 10-K describes post-settlement activity as financing 'of settlements and law firm receivables' in situations where litigation has been resolved, held mainly in its COLP, BAIF and BAIF II funds. GAO describes it as advancing money to a firm against outstanding client receivables. The risk becomes payment timing and the payer's credit rather than the case.