On The Legal Protection Of The Rights And Interests Of Investors In Venture Capital

Venture Capital, also nominated as Private Equity, refers to a long-term investment in the purpose of obtaining capital gains, in the form of capital investment with the value-added services from venture capitalists. Participating parties in venture capital include venture capitalists, enterpreneurs, and capital provider. There exists angency costs arising from information asymmetry between venture capital investors (venture capitalists and/or venture capital providers) and enterpreneurs.Whereas the above, due to the disadvantageous position of venture capitalists, their interest might be impaired by the management of the venture company, eg the failure of obtaining capital gains, dilution of convertible securities, midway retreat of enterpreneurs, etc.. Also, upon the private nature of venture capital and the diversity of the demands of venture capital ivnestors and venture capitalists, the compulsory laws and regulations may only be able to regulate at the level of transaction framework. Whereas, the maintainance and protection of venture capital investors' interests shall depend on the contractual conducts and corporate arrangement in such venture companies.This article focuses on the solution of the agency costs issue between venture capitalists and enterpreneurs and dissertate the useage of contracts and share arrangement to resolve such issue. Part I and Part II of this article generally discuss basic concepts in venture capital and the necessity of protecting the interests of venture capital investors therein, which dedicates to the clarification of concepts in venture capital from the legal perspective. Part III addresses the treatment of the interests of venture capital investors though share arrangement between venture capital investors and the venture company. Part IV discusses the contractual protection in venture capital investment by debt instruments. Part V analyzes the anti-dilution protection for the investment by convertible securities;Part VI and VII cover such contractual legal conducts as shareholder agreements, debt instrument related agreements etc between the investor and/or venture capitalists and point out the proctection measures under such circumstance.