Anti-dilution Provisions Of Venture Capital In China

Venture capital financing model introduced into our country since the 1980 s,it has become a new and important way for Financing of China's Small and Medium-sized Enterprises,which has played an important role in promoting China's economic development.As the growth cycle of venture capital is long and venture capital is multip-rounds investments as the main way,so how to protect investors from the purchase of equity before the withdrawal from the dilution,which has become the focus of attention of venture capitalists.China's venture capitalists follow the practice of foreign countries,but also agree anti-dilution provisions in the venture capital contract,but because of the different domestic and foreign investment environment and the legal system,anti-dilution provisions as an exotic,its specific application of venture capital in China having many problems,resulting in it can not play its due effect.This article looks up the relevant literatures,investigates some specific cases,uses the methods of comparative analysis to sort out the basic theories of anti-dilution provisions of venture capital,and reviews the specific operation of our current anti-dilution provisions,revealing some of the problems.On the basis of clarifying the problem,the article summarizes and draws lessons from the institutional arrangement and operational experience of the US anti-dilution provisions of venture capital,and puts forward corresponding countermeasures and suggestions to make anti-dilution provisions play its proper effect in China 's venture capital.Article in addition to the introduction(Part 1)and conclusion,a total of six parts.The second part discusses the venture capital and the anti-dilution provisions comprehensively.Firstly,it expounds the risk of venture capital and equity dilution.On the basis of clarifying the characteristics and the legal relationship of the venture capital,this article uses the information asymmetry theory to clarify the causes of the risk of equity dilution and the necessity of anti-equity dilution.Then,it discusses the anti-dilution provisions and analyzes the function,application and operation mode ofanti-dilution provisions.The third part analyzes the necessity and practice of setting anti-dilution provisions in venture capital of our country.First of all,this article clarifies the necessity of setting anti-dilution provisions in China,then analyze the current situation of using the investment tool of venture capital in China,And from the common equity(stock)of the investment and financing tool point of view,introduces and analyzes the various anti-dilution provisions and the legal issues involved in their operation in China's venture capital.The fourth part summarizes the main problems in the practice of anti-dilution provisions in our country,including the problems of investment tools in China's venture capital,the restrictive regulation restricting the autonomy of the main body of the market,the defects of protection measures in China's anti-dilution provisions,and reveals the deep-seated causes of the problems.The fifth part,this article analyzes the corresponding anti-dilution measures against the different dilution events in US venture capital from the point of view of convertible preference shares,and summarizes the relevant legal system and the concrete practical experience of the US anti-dilution provisions,and summarizes the beneficial enlightenment to us.The sixth part,this article makes own suggestions on the improvement of the relevant legal system in the operation of anti-dilution provisions in China,and the venture capitalists completing the anti-dilution provisions under the existing legal system on the basis of the reference to the legal system and practice of anti-dilution provisions of American venture investment.The creative achievements of this article includes that uses of information asymmetry theory to elucidate the causes of the venture capitalists facing the the risk of equity dilution,and makes the two kinds of value equity dilution(the initial investment value dilution and the present value dilution)correspond to two types of agency problem including adverse selection and moral hazard,which simplifys the complex problem.And this article combines the advanced legislative experience and legal framework,making suggestions on perfection of the Legal System of Anti-dilution provisions of China's Venture Capital in the comprehensive comparison,making it combined with China's national conditions.This is a creative and localized use of foreign venture capital legal theory.At the same time,this article makes suggestions based on the existing legal framework for venture capitalists in practice on how to set the anti-dilution provisions with realistic operability in the venture capital contracts.In this article,the conclusions of the study include the anti-dilution provisions in China through the common equity(stock)of the investment and financing tools can not really play the utility,only through the preferred shares conversion mechanism can play the greatest utility.And setting anti-dilution provisions in company charter can effectively enhance the protection of venture capitalists from unreasonable dilution.