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Early-Stage Funding (ESF): Bridging the Gap in Litigation Finance

By Drew Hathaway |
March 25, 2025

Early-Stage Funding (ESF): Bridging the Gap in Litigation Finance

The following was contributed by Drew Hathaway, Founding Partner of Ignitis

Litigation funding has become a powerful tool for leveling the playing field in legal disputes, particularly in large-scale collective redress and mass litigation. However, traditional litigation funding models generally focus on established claims, leaving many meritorious cases stranded without the resources to move forward. ESF changes that dynamic, ensuring that strong claims don’t fail due to a lack of early investment.

What is Early-Stage Funding (ESF)?

ESF is a litigation seed funding model designed to provide capital before a case is mature enough for traditional funders. Unlike standard litigation finance, which typically invests after a case has been filed and is well-developed, ESF supports cases at their most critical early phase—covering investigation, legal groundwork, expert reports, and strategic planning.

For many high-stakes claims this early-stage investment is the difference between a case moving forward or being abandoned due to financial constraints.

How Can ESF Be Used?

ESF can be used in various ways. Some examples are:

  • Case Investigation & Viability Assessments: Financing expert reports, forensic analysis, and economic modeling to strengthen claims.
  • Initial Legal Work: Supporting law firms in preparing legal arguments, securing lead claimants, and initiating regulatory engagement.
  • Claimant Outreach & Bookbuilding: Funding the early-stage efforts to build a robust claimant pool in opt-in and opt-out actions.
  • Litigation Structuring & Strategy: Ensuring that the case is structured in a way that will later attract traditional (Round B) litigation funders.

Who Benefits from ESF?

ESF benefits injured parties, law firms, and traditional litigation funders in the following ways:

Claimants: Claimants generally do not have the means to finance their own litigation. For individuals or businesses harmed by corporate misconduct, access to ESF means:

  • Non-recourse capital to get the claim off the ground (meaning the ESF only needs to be paid back if the case is fully funded). 
  • The case moves forward faster, without waiting for full-scale funding.
  • Access to top-tier legal representation capable of success against well-resourced defendants.
  • The claims are properly developed and strategically executed, increasing their chances of success.

Law Firms: Law firms working on large-scale litigation often struggle with taking on the full risk and high costs of early-stage case development. This stage generally takes significant work, bookended with long timelines to securing Round B funding before capital begins to be deployed. For law firms, access to ESF means:

  • They have immediate access to capital to help with law firm cash flows.
  • They no longer must take on full risk for their time and upfront resources needed to secure funding.
  • They can focus their attention on developing the best legal arguments possible rather than worrying about their up-front time commitment.
  • They have a better developed case to present to Round B funders, making it more efficient to secure full funding.

Round B Funders (Traditional Litigation Funders): Frequently Round B Funders are presented with cases that they believe are simply too early for investment. Traditional litigation funders benefit from ESF because:

  • They receive well-developed cases that have already passed viability assessments.
  • They have immediate access to expert reports and legal opinions to better analyze the case and risks.
  • The risk of investment is reduced, since much of the groundwork has been completed and expert opinions are available.
  • Their duration risk is significantly reduced because ESF has been deployed to jump start the case and litigation is ready to commence. 

Conclusion

As litigation finance evolves, ESF is emerging as an essential tool for claimants, law firms and funders alike. By enabling early-stage legal work and de-risking high-potential claims, ESF ensures that justice is not delayed or denied due to financial constraints.

If you are exploring funding options for an early-stage case, ESF could be the solution to unlocking its full potential. 

About the Author

Drew Hathaway is a Founding Partner of Ignitis, where he leads case development, business strategy, and litigation funding initiatives. A U.S.-trained class action lawyer, Drew brings nearly two decades of experience navigating complex, high-stakes disputes and has built a reputation for advancing impactful litigation across borders.

After beginning his career defending medical malpractice cases, Drew transitioned to the plaintiff side in 2016, where he later became a key figure in the growth of international collective redress. He played a central role in launching and scaling European collective actions, helping to secure and deploy over €100 million in funding for cases aimed at holding multinational corporations accountable. Drew has helped millions of Europeans gain access to justice.

Drew’s expertise spans the full lifecycle of cross-border collective litigation—from claim foundation setup and funding structures to jurisdictional strategy, cost and tax modeling, and claims management. His comparative knowledge of U.S. and European systems allows him to operate effectively at the intersection of law and finance, where he regularly collaborates with leading law firms, economists, litigation funders, and academic experts.

He is a frequent speaker on international collective redress and litigation finance and is deeply committed to expanding access to justice for individuals and consumers harmed by systemic corporate misconduct.

He earned his B.A. from the University of North Carolina at Chapel Hill and his J.D. from Campbell University School of Law, where he was a National Moot Court Team member, Order of Old Kivett inductee, and editor of the Campbell Law Observer.

Drew is admitted to practice law in North Carolina, multiple U.S. federal and appellate courts, and in England and Wales.

About the author

Drew Hathaway

Drew Hathaway

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Commercial

Avoiding Pitfalls as Litigation Finance Takes Off

By John Freund |

The litigation finance market is poised for significant activity in 2026 after a period of uncertainty in 2025. A recent JD Supra analysis outlines key challenges that can derail deals in this evolving space and offers guidance on how industry participants can navigate them effectively.

The article explains that litigation finance sits at the intersection of law and finance and presents unique deal complexities that differ from other private credit or investment structures. While these transactions can deliver attractive returns for capital providers, they also carry risks that often cause deals to collapse if not properly managed.

A central theme in the analysis is that many deals fail for three primary reasons: a lack of trust between the parties, misunderstandings around deal terms, and the impact of time. Term sheets typically outline economic and non-economic terms but may omit finer details, leading to confusion if not addressed early. As the diligence and documentation process unfolds, delays and surprises can erode confidence and derail negotiations.

To counter these pitfalls, the piece stresses the importance of building trust from the outset. Transparent communication and good-faith behavior by both the financed party and the funder help foster long-term goodwill. The financed party is encouraged to disclose known weaknesses in the claim early, while funders are urged to present clear economic models and highlight potential sticking points so that expectations align.

Another key recommendation is ensuring all parties fully understand deal terms. Because litigation funding recipients may not regularly engage in such transactions, well-developed term sheets and upfront discussions about obligations like reporting, reimbursements, and cooperation in the underlying litigation can prevent later misunderstandings.

The analysis also underscores that time kills deals. Prolonged negotiations or sluggish responses during diligence can sap momentum and lead parties to lose interest. Setting realistic timelines and communicating clearly about responsibilities and deadlines can keep transactions on track.

Commercial Regulatory Issues

Labour MP Comes Out Swinging Against Litigation Funding

By John Freund |

Litigation funding has become a fixture in modern civil justice systems, designed to open the courts to claimants who lack the means to pursue meritorious claims. But a recent opinion piece by Labour MP Oliver Ryan argues that in the UK, the industry is increasingly drifting from that core purpose and instead serving the financial interests of investors and funders at the expense of real victims.

An article in City A.M. states that while third-party litigation funding has a legitimate role in enabling access to justice, market incentives are now skewing the system. Ryan highlights examples including the UK government’s move to “protect litigation funding” and reverse the Paccar ruling—a Supreme Court decision that had cast doubt on traditional fee structures—arguing that policy solutions must reflect how the market actually operates on the ground, not just how policymakers hope it will.

Ryan points to the handling of the Post Office scandal as a stark case in point. Despite grievous harms suffered by sub-postmasters, he notes that approximately 80 percent of damages paid eventually flowed to funders and lawyers rather than victims—an outcome he says “cannot be right.” He also cites the collapse of a cavity insulation claim and management upheavals in a multi-billion-pound class action against BHP as examples of how funder-centric incentives can undermine claimant outcomes and system integrity.

Rather than calling for an end to litigation funding, Ryan urges reforms centered on capping excessive funder returns, enforcing capital adequacy protections for claimants, tightening marketing oversight, and rebalancing incentives so victims—not investors—are the primary beneficiaries of successful claims.

Case Developments Commercial

Private Investors Eye Profits in L.A. County Sex Abuse Settlements

An investigation reveals that private investors are positioning themselves to profit from the enormous pool of money flowing from Los Angeles County’s historic sex abuse litigation. The county has already agreed to spend nearly $5 billion this year resolving thousands of claims related to alleged sexual abuse in its juvenile detention and foster care systems, including a $4 billion settlement—the largest of its kind in U.S. history.

An article in the Los Angeles Times explains that proponents of this investor involvement argue such financing gives plaintiffs’ attorneys the capital they need to take on deep-pocketed defendants and helps victims who lack resources access justice. Records reviewed by the Times show that several law firms bringing these claims receive financial backing from private investors, often through opaque out-of-state entities and Delaware-based companies.

Backers contend the arrangement can level the legal playing field and expedite case filings and settlements. However, public officials and critics express alarm over the lack of transparency surrounding these investments and the possibility that significant portions of settlement money intended for survivors could instead flow to private financiers. Some county supervisors reported being contacted by investors asking about the potential profitability of the sex abuse suits, raising ethical concerns about treating human trauma as an “evergreen” revenue stream.

The backdrop to this investor interest is a surge in litigation following changes in California law that revived long-dormant abuse claims and spurred widespread advertising by plaintiff firms seeking new clients. Government scrutiny has heightened amid reports of questionable recruitment practices and potential fraud in some claims, and the county’s district attorney has launched an investigation into parts of the settlement process.