Research On Valuation Adjustment Mechanism

In recent years, the gambling agreement has been widely used on venture capitalinvestment, its English name is Valuation Adjustment Mechanism, it’s called VAM for short.In the western capital market, VAM has appeared in nearly every investment. It always usedthe investors and the financing couldn’t get agreement on the future of the business. In thiscase, the two parties stipulate a mission on the uncertainty of future value of the financingbusiness. If the company has complete the mission, the financing party can get the right as tocompensate for the loss of being undervalued; if the company doesn’t complete the mission,the investors can get the right as to compensate for the loss of being overvalued. Owing to itsfeature about risk benefit like gamble, the VAM is also called the gambling agreement.Although the VAM has been widely used, not every company could succeed likeMengniu. There are many dispute about the application of the VAM, because we have nospecial law about the VAM.Based on introduce the VAM, make legal analysis of the VAM, differentiate and analysiswith other legal concept. I believe that an agreement on gambling should belong to unnamedcontract in China’s "Contract Law" provisions, its nature is most similar to Western aleatorycontract (our insurance contract belong to this category).In the case of the application of the VAM, both Mengniu’s successful and Yongle’sfailure. As a high-risk and high-return financing, VAM is not suit all companies, enterprisesshould correct understanding of VAM, and analyze their environmental conditions, chooseVAM if really difficult to through traditional methods.There are some risks in the VAM, including the risk of macro and micro aspects risk,these risks could result in an invalid VAM, harm the future development of enterprises. VAMis in the awkward position now, it is not must be effective. Many companies’ failure tell usthat blindly signed the VAM perhaps bring serious consequences. This paper will introducesome risks gambling and made recommendations for prevention of these risks, hope can helpcompanies.