Investment Counsel Corner – Tip of the Month: Passing the “Google Test”

When submitting applications for funding, we often receive detailed memoranda and background materials from referring law firms. These can range from a few pages to well over 100, depending on the complexity of the matter. This is a necessary and efficient way to bring a funder up to speed on the key issues and legal rationale.

However, even the most detailed opinion can fall flat if the case fails to pass the “Google test” or what AI may reveal. If a cursory search of the parties reveals red flags that are not transparently addressed in the diligence materials or during initial due-diligence calls, it can materially affect the likelihood of a funding term sheet being offered.

A phrase we often use in this context is “hiding the ball.” While that expression implies a wilful attempt to suppress information, which is, of course, inadvisable, we have also seen instances where omissions were not intentional. In some cases, despite extensive work by the legal team, a thorough public-domain search was simply not undertaken and raised concerning issues. While not wilful, this raises a different concern: does the firm have a full grasp of the broader factual landscape, or is it relying too heavily on the client’s disclosures alone?

Litigation and arbitration lawyers should assume that a matter of course funders will conduct their own independent searches, and most likely at the very beginning of their diligence. The likelihood of securing terms is enhanced when those findings align with the information presented upfront. Consistency at this stage helps ensure that diligence begins on a solid footing.

 - Bob

Bob Knock is a member of Erso’s Investment Counsel team based in London.