The Study Of Equity Structure Planning For New Ventures

With a large-scale application of computer technology and Internet, and theflourishing of the third industry，as well as the whole society’s support for startup,more and more new ventures come into the world. From their starting up to developed,the equity structures of new ventures keep on changing, which influence the newventures’ survival and development, the benefit and control right of theentrepreneursand the returns and risks for the investors. Therefore it will have profoundconsequences to study the equity allocation plans for new ventures.The essay reflects the dynamic state of equity allocation and plans it according tothe life cycle of the enterprise so as to match it with the enterprise’s strategy andfinancing plan. The author uses literature research method and case analysis methodto analyze the important points of the equity allocation. The author concludes threeprinciples which concerns justice, efficiency and no equalitarianism. It summarizesseveral kinds of allocation objects and their related equity types. Then it makesdetailed description of the enterprise’s financing and equity allocation in seed stage,start-up stage, growth stage and mature period. For the purpose of motivating theincentive effect of equity,it is necessary to make an allocation adjustment mechanismsuch as equity vesting, valuation adjustment and adjustment for equity incentive,which can match equity allocation with effort, ability and performance as a whole. Asfinancing happens a lot, the equity is diluted, which probably makes the replacementof the control right ownership. It is extremely harmful for the business so the essaycontains a huge amount of words about how to protect the control rights as guidelinesfor the entrepreneurs. At the end of the essay, it lists several legal issues that can’t beignored.According to the conclusion of the study, the author proposes the equity structureevaluation system independently. The system contains six standards concerningjustice, efficiencyand clarity, the ownership of the control rights, adjustmentmechanism and incentive mechanism. Then the author checks the equity structure ofnew venture A and make an equity allocation plan for it according to its strategy andfinancing plan as well as the conclusion of the study.