Design, Bargaining, and the Law
Chapter 14: New trend: hybridization of joint venture agreements and venture capital investment agreements
Joint venture agreements and venture capital investment agreements are both means of contractual organization. Contractual organization refers to a relationship among a relatively small number of contractual parties (investors) that wish to incentivize each other to contribute capital through shared ownership and shareholder agreements. However, joint venture agreements and venture capital investment agreements differ substantially in terms of how they are used in practice. They have consequently been perceived as fundamentally completely separate from each other. Even as research subjects, they have been treated as belonging to different fields. However, the changing business climate of technological innovation has given rise to the need for large corporations to deepen their relationships with start-up companies. As a result, contracts that are a cross between a joint venture agreement and venture capital investment agreement are gaining prevalence through trial and error. The two types of agreements are converging with each other. Broadly speaking, this trial-and-error approach may take two forms. The first is a joint venture between a start-up company and large corporation that strategically partner with each other to work on a specific project. The second is a venture capital arrangement where the large corporation acquires an equity stake in the start-up company. Recently, these hybrid contractual organizations that combine attributes of both approaches have been emerging as a prominent trend.
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