Study On The Risks And Preventive Measures Of VAM In Private Equity Financing

In 2019,the CSRC(China Securities Regulatory Commission)proposed to attach importance to the development of private equity funds.In March 2020,the CSRC issued relevant policies to relax the requirements for private equity fund share reduction and guide the equity investment market to invest in early-stage enterprises,small and medium-sized enterprises and high-tech enterprises.Policy support and encouragement will further promote the development of private equity industry.Private equity financing can help small and medium-sized enterprises to solve the financing difficulties,and at the same time,through post-investment value-added services to improve the level of enterprise management.The signing of the valuation adjustment mechanism(VAM)is a means for the investment institutions to restrain the financing enterprises,guarantee the operating performance and achieve the goal of VAM.The success of the VAM will bring win-win situation to the equity investment institutions and financing enterprises,but the failure of the VAM will bring huge losses to the enterprise,or even hand over the control of the enterprise.The signing of valuation adjustment mechanism is a double-edged sword,we can take certain means to control through research,reduce the risk of VAM.This paper starts with the case of the failure of Zhejiang Charioteer Pharmaceutical Company and Kunwu Jiuding Investment Holdings Company,and firstly analyzes the motivation of enterprises to participate in the valuation adjustment mechanism.We found that the capital needs of enterprises,the promotion of industry development and the acquisition of value-added services from investment institutions are the main reasons for enterprises to participate in the valuation adjustment mechanism.Secondly,the paper analyzes the risks in the process of VAM on the case,and the valuation before the signing of the valuation adjustment mechanism.Although the excessive enterprise valuation can obtain a higher capital investment,it also increases the risk of the failure of the e enterprise's VAM,which is likely to lead to the eventual loss of the control of the enterprise.In terms of the setting of VAN terms,the negative impact of such factors as single VAM indicator,long agreed term,inflexible execution method and lack of incentive measures for the management in the settingof VAM terms will continue in the execution process.In order to achieve the goal of VAM,the management of an enterprise is prone to short-sighted behavior.In order to achieve the performance target,layering adopts an aggressive way of expansion to improve the operating profit in the short term,but it is not conducive to the long-term operation of the enterprise.Whether to choose the right business strategy also has an important impact on the successful completion of enterprises complete valuation adjustment mechanism.Finally,according to the risks encountered by Charioteer Pharmaceutical Company in the process of VAM,put forward targeted Suggestions in different stages.Before the signing of the valuation adjustment mechanism,make clear the motivation of VAM and objectively evaluate the value of the enterprise.In the signing of VAM,set the standard of bet reasonably,integrate diversified indexes and increase the flexibility of VAM;After the signing of the valuation adjustment mechanism,the right business strategy should be selected according to the development trend of the industry,and the risks should be clearly recognized and countermeasures should be taken before the application for listing.