Venture Investment System

Venture capital investment is the business investment method and the capital operation manner, in the process of which venture capitalists collect venture capital from investors, and then invest the venture capital into the unlisted venture enterprises. The venture capitalists take the initiative on participating in the management of the venture enterprise, afford the added service without the motive of controlling the firms, withdraw the capital and gain the investment return by the way of IPO. The returned capital will be used to the next unlisted venture enterprise.Due to the original risk resulted from the serious information asymmetry and the systematic risk resulted from the separation of the ownership and the managerial authority of the enterprise, the venture capitalist meets much more investment risk than the general investors. On the circumstance that the legal compulsory standardization can not provide the specified protection for the venture capitalists, America and the other developed countries gradually form series of special venture capitalists protection mechanism which is taken effect by the way of enterprise contracts.With the quickened pace of constructing the innovative country, fostering and developing venture capital investment will furthermore propel the scientific innovative mechanism of China and strengthen China's scientific research undertaking. This thesis will focus on the Valuation Adjustment Mechanism and the Comprehensive Convertible Preferential Stock, analyze the application of the concerned rights and liabilities in the U.S.A Venture Capital Model Contracts to the legal environment of China from the microcosmic angle and finally probe for the improvement and impetus function of the venture capital contract to the venture capital cause of China.The limited liability partnership institution is been stipulated within China's legal framework after the formal implementation of《The Partnership Enterprise Law》which was modified on June 1, 2007. So far, within the legal framework of China, purified domestic venture capital limited liability partnership enterprises will not meet the substantial legal risk. On Jan.29,2010,《The Provisions on the Registration of Foreign-funded Partnership Enterprises》stipulates the registration of formation, the registration of change, the registration of cancellation, the registration of the affiliated agency, registration process, the annual survey and document management, which help remove the barrier of the formation of the limited liability foreign-equity investment fund management company. Thus, This thesis will not give unnecessary details on the enterprise relationship contract between venture capitalists and investors stipulated by the corporate structure which will be used to achieve the investor protection institution, but mainly discuss the concerned articles designed in the venture capital investment contract between the venture capitalists and the venture entrepreneurs, which could reduce or even avoid the investment risk of venture capitalists resulted from the information asymmetry and the separation of the ownership and the managerial authority of the enterprise.This thesis is divided into 6 chapters.In the first Chapter, the author outlines the venture capital investment. The thesis begins with the characteristic and the dimension of the venture capital investment, demonstrates the specialty of the venture capital investment as a new investment and finance way, introduces the subjects and the legal relationship of the venture capital investment in which the subjects include the venture entrepreneur, the venture capitalist and the investor, analyzes the principal-agent relationship between the subjects and the content of the financing legal relationship and the investment legal relationship. Meanwhile, from the origin of the venture capital investment, the author argues, in accordance with the development of the Chinese venture capital investment,the recent situation of Chinese venture capital investment and the concerned laws, regulations and policies by the way of testament method.In the second chapter, the author elaborates the essence of the risk and its way of relief. Beginning with explaining the essence of the risk including the original risk and the systematic risk, the author demonstrates the necessary of affording the venture capitalists some certain special protection. From the aspect of the original risk and the systematic risk, the author introduces the contract protection way of venture capital investment, the reason of the contract protection birth and the relationship between the contract freedom and the law enforcement. Meanwhile, taking the example of the American venture capital investment contract, the author introduces the birth of the American Venture Capital Investment Model Contract, the statutory relief and the contract relief.In the third chapter, the author introduces the experience of the American venture capital investment and through the design and application of the Valuation Adjustment Mechanism and the preferential convertible stock, the author explains the importance of the research of the venture capital investment method. Firstly, the author illustrates the design and application of the Valuation Adjustment Mechanism, takes an example of the valuation adjustment mechanism in the venture capital investment contract, expounds the source of the Valuation Adjustment Mechanism, summarizes the academic effect of implementing the Valuation Adjustment Mechanism, generalizes the risk prevention of implementing the Valuation Adjustment Mechanism in the practice world. Meanwhile, the author explains the design and application of the preferential convertible stock, demonstrates the preferential convertible stock is the most suitable investment tool to the venture capital investment contract, taking examples of the venture capitalists protection term (such as A series preferential stock preferred dividend right, A series preferential stock preferred liquidation right, A series preferential stock preferred subscribing right, A series preferential stock preferred purchasing right, A series preferential stock whole-sale right, A series preferential stock anti-dilution right), the venture capitalists preferential exit term(such as A series preferential stock convertible right, A series preferential stock foreclosing right), the venture capitalists enterprise management term such as A series preferential stock voting right.In the fourth chapter, the author researches on the legal application of the valuation adjustment mechanism, looks into the legal application problem of the concerning venture capital investment terms during Chinese enterprise legal system and foreign investment legal system. Firstly, from the perspective of the legal application problem of the valuation adjustment mechanism, the author illustrates that contrasting the international evaluation standard of venture enterprise, the evaluation standard of Chinese venture enterprise lags behind, explains the imperfection of the legal enactment of the preferential convertible stock, demonstrates that the law and regulation concerning stock operation need to be enhanced.In the fifth chapter, the author researches on the preferential convertible stock, looks into the legal application problem of the concerning venture capital investment terms during Chinese enterprise legal system and foreign investment legal system, the author focuses on the legal application of the preferential stock in China, explains the specialty of the Chinese foreign-funded venture capital investment, and from the rise and decline of the Red Chip Mode and the main legal and market environment, explains the characteristic of the foreign-funded off-shore venture capital investment. Finally, the author analyzes the Chinese legal environment of the preferential stock dividend preferred right, the preferential stock liquidation preferred right, the preferential stock subscribing right, the preferential stock purchasing right, the preferential stock whole-sale right, the preferential stock anti-dilution right, the preferential stock foreclosing right and the preferential stock voting right.In the sixth Chapter, the author researches on the legal application problem of the valuation adjustment mechanism and the comprehensive preferential convertible stock, proposes the feasible domestic settlement method. Firstly, the author focuses on the demonstration and the cause of the law lackness in Chinese venture capital investment. In detail, the author analyzes that China has not established the complete venture capital investment legal system, lacks the specific provisions of the preferential stock, the pace of foreign-funded legislative process lags behind, foreign exchange control is not accustomed to the rapid development of Chinese market economy, the capital system design can not satisfy the need of the capital stock and the equity transaction in the valuation adjustment mechanism, the Chinese commercial law has established too much compulsory regulation which limits the party autonomy in companies, the regulations in the company law of the shareholders'fiduciary duty and the directors'fiduciary duty lack the maneuverability, the backward in the relevant guarantee systems and taxation policies limits the development of the Chinese venture capital investment. Follow the clue of the summarization of the demonstration of the law lackness in Chinese venture capital investment, the author probes into the cause of the Chinese venture capital investment legal absence which includes the particularity of Chinese transitional economy institution, the particularity of the preliminary period of Chinese venture capital investment legal system and the particularity of the foreign exchange control. On the basis of analyzing the demonstration and the cause of the law lackness, the author proposes some exploratory settlement.