A Case-study About The Core Clause Design Of Transaction Plan Of Venture Capital

In this paper the writer studied the core clause design of transaction plan of venture capital(VC) investment,and focused on equity evaluation,valuation adjust agreement and the exit of venture capital.Firstly,the writer summarised those three main aspects as above.Secondly,the writer studied the thinking in the design and improved it.Then,introduced the case,a real venture capital investment,and analyzed its problems in those three main aspects.Finally,the write presented the solution and suggestions.A complete investment of venture capital can be divided into these parts:the contact between the investor and the company,due diligence,forming a plan,negotiation,draw up a contract,delivery,business after deal.Forming a deal plan and seal it is the key link.Risks and returns are settled in this step,so the design of transaction plan is the core of the whole deal.A deal plan includes many aspects.In the three aspects, equity evaluation is a measure on corporation equity;Based on the difference on the future situation between investors and corporation,a valuation adjust agreement provides an balanced share of risks and profits;When a venture capital investment is finished,the VC becomes a shareholder of the financing corporation,attempting liquidate the shares at a premium and exits the firm.Among the several ways to exit,the Initial Public Offering(IPO) is the most canonized by venture capital investors.The case in this paper is a typical example of failed investment:mistake in valuation,bad design in valuation adjust agreement and failure in the exit of venture capital.The result is not only the investor gets loss but also the enterprise gets worse.And the reasons are pointed:no overall consideration in the design,underestimating risks in the expanding phase of an enterprise,overvalued the equity,go public reckless,and lack of advanced techniques.In the last the writer made some suggestions and presented the solution.