In the wake of the great recession, legal finance grew rapidly as a means for law firms to help clients contain costs without assuming risk or reducing fees more than the firm could stomach. But in the last decade, legal finance has changed dramatically. Law firms are no longer using legal finance solely in a reactive manner—to ensure that they don’t lose opportunities with clients—but also proactively, as a marketing tool that helps them win new clients and build their businesses.
At Burford, I regularly work with lawyers to help them utilize legal finance to be more competitive. This is important: The most recent research suggests that while US law firms have gotten better at managing costs and maximizing revenue once they do win clients, they still face ongoing volatility in client demand and an increasingly competitive landscape to generate business in the first place.
Burford’s latest research also reinforces how challenging winning new business is for law firms. A stunning 96% of law firm respondents identify “pressure to be more competitive in bringing in new business” as a critical business challenge—with 53% of them calling it very critical, more than any other business challenge identified. Simultaneously, 48% of law firm respondents cite the need to provide clients with new financing and pricing options as very critical—a 41% increase since 2017.
Ultimately, legal finance addresses these two pain points: It helps law firms and clients find financing solutions that work for both parties—and for law firms, it is an invaluable marketing and business development tool that can help build client relationships and foster growth.
At Burford, we regularly work with law firms that are ahead of the curve in how they approach marketing and new business. Here are five ways we see a range of firms successfully using legal finance as a marketing tool.
Opportunity 1: Build a book of business by expanding risk tolerance
The first opportunity is the most obvious, but it’s worth restating: Lawyers often turn down promising—and potentially lucrative—cases simply because their firm’s level of risk tolerance won’t accommodate the client’s desired fee structure. This ultimately limits the number of matters a firm takes on, which in turn limits firm growth. Legal finance solves this problem by allowing law firms to share litigation risk with a third party—enabling them to take on meritorious cases regardless of the firm’s risk appetite or the client’s ability or willingness to pay.
Opportunity 2: Become a better business partner
Increasingly, companies are seeking collaboration from their law firms: They want their firms to be true business partners. By beginning a client conversation with legal finance in mind—and ideally in hand—a law firm immediately and implicitly communicates an understanding of their client’s pain points. When a law firm suggests legal finance, it signals that it can be trusted as an advisor who both possesses a range of solutions and stands ready to share risk to meet the client’s needs.
Opportunity 3: Create a going-forward portfolio earmarked for new business
Speed to market isn’t a concept regularly discussed in the legal industry—but it should be. Litigation takes time, and clients aren’t always able to wait for law firms to find sensible financing arrangements. Going-forward portfolios solve for this problem by creating a pool of capital that can be drawn upon for current and future matters—this dramatically improves the speed with which law firms can approach and respond to clients and finalize agreements for new cases.
In addition, going-forward portfolios enable law firms to expand in two key ways: By allowing them to pursue new practice areas and to pitch existing clients on cases that otherwise would go to different law firms. In 2017 for instance, the head of global disputes at a leading law firm wanted to expand the firm’s portfolio of international arbitration matters. Burford and the firm then agreed to a $50 million going-forward portfolio. In obtaining that capital, the firm was able to expand its practice and increase its opportunity to earn highly profitable success fees, all while limiting its exposure to a loss of its time and out-of-pocket cash investment.
Opportunity 4: Utilize legal finance to pursue market-based new business opportunities
In certain financing arrangements, law firms can even earmark some of the capital for other business development needs, like expanding into new geographic regions in order to take advantage of emerging business opportunities.
Global claimants’ firm Hausfeld had experienced growing client demand for competition claims in Germany, but without a local office—and unable to offer contingent arrangements in Germany—Hausfeld sought an alternative to help meet its clients’ needs. By securing a €30 million portfolio arrangement from Burford, Hausfeld was able to expand its practice in Germany to pursue competition claims.
Opportunity 5: Arm emerging partners for growth
Legal finance is a tool, and although it is indifferent to who is using it—and anything else that doesn’t pertain to the merits of the underlying case—it can serve as a critical aid for emerging partners with meritorious cases who are trying to establish themselves at their firms. These emerging partners are often doubly penalized when cases cannot proceed because of the financial constraints of their clients, namely because these emerging partners need the business far more than better-established rainmakers at the firm.
So, in instances where emerging partners have meritorious cases that simply need additional capital to proceed, legal finance can be a critical tool for them to win new business and gain the internal approval needed to pursue strong cases.
As companies continue to scrutinize legal costs, and as the market for legal services becomes increasingly competitive, legal finance will continue to offer law firms a powerful marketing tool that can act as a fulcrum for growth.
Fundamentally, Burford’s capital allows law firms to pursue matters with potential value for the firm without being limited by concerns about risk tolerance or clients’ ability to pay hourly fees. But although there are many advantages for law firms, legal finance ultimately helps lawyers put their client first. In my experience, law firms that do that are the ones that tend to grow. And if one thing is certain, it’s that law firms don’t have the luxury of being complacent about growth.
 “Law Firms Just Turned in Their Best Half Since the Recession,” American Lawyer, August 19, 2018, available at https://www.law.com/americanlawyer/2018/08/19/law-firms-just-turned-in-their-best-half-since-the-recession/