Understanding the Importance of Venture Capital Financing Agreements

Oct 13, 2025 by windailys.com 52 views

# Principle of Profit Sharing in Venture Capital Financing Agreement: A Study in Medan City

Understanding the Importance of Venture Capital Financing Agreements

In the world of business, venture capital financing agreements play a crucial role in supporting economic activities, particularly in terms of company financing. These agreements outline the legal relations between venture capital companies (PMV) and business partner companies (PPOs), providing a framework for the provision of funds to companies that require financing. However, the principles and types of venture capital financing agreements, as well as the legal position of each party, can be complex and often lead to conflicts. Therefore, it is essential to understand the principles of profit sharing in venture capital financing agreements, which is the focus of this study.

Research Background

This study employs an empirical normative juridical approach, with a location in Medan, Indonesia, involving 150 PPOs. Primary data is collected through interviews with five respondents randomly selected from the PPO population. The results of this study aim to provide insights into the type of venture capital financing cooperation agreement, the financing instruments applied, and the factors that can cause conflict and how to resolve them.

The Basic Principle of Venture Capital Agreement

The principle that underlies the venture capital financing agreement is the freedom of contract, which is regulated in Article 1338 of the Civil Code. However, this agreement is often standard, arranged unilaterally by PT Sarana Sumut Ventura (SSV), resulting in a large obligation for PPOs and certain limits on their rights. This situation does not reflect the principle of balance between PT SSV and PPOs, highlighting the need for a more just and balanced agreement.

The Impact of the Clause and Implementation of the Agreement

In the agreement, there is a clause that allows PT SSV to end the contract unilaterally, which can have a negative impact on PPOs, potentially harming their business continuity. In practice, PT SSV only invests in cash, while PPOs are obliged to pay the services reward that has been determined by PT SSV. This situation can lead to problems, such as default caused by late payments from PPOs. PPOs often consider that the delay is caused by the lack of attention from PT SSV related to the quality of human resources in PPOs. However, PT SSV still asks for guarantees as a condition for funding, which can be resolved without having to continue to court.

The Role of Profit Sharing in Venture Capital Financing Agreements

Profit sharing is a crucial aspect of venture capital financing agreements, as it provides a mechanism for PPOs to share the profits generated by the investment. However, the implementation of profit sharing can be complex, and the clause that allows PT SSV to end the contract unilaterally can have a negative impact on PPOs. Therefore, it is essential to create a more just and balanced agreement that accommodates the principles of equality between the two parties.

Suggestions and Recommendations

Based on the results of this study, it is recommended that the venture capital participation agreement can accommodate the principles of equality between the two parties. Making a more fair and balanced agreement is essential to create harmonious cooperation between PT SSV and PPOs. Further research is also needed to explore more effective ways of resolving conflicts and optimizing the relationship between the parties in the Venture Capital Agreement.

Conclusion

Venture Capital Financing Agreement in Medan shows a strong influence of the financing instrument on the type of agreement. Nevertheless, the principle of freedom of contracting and powerlessness of PPOs in an agreement that is often unbalanced led to its own challenges. Therefore, it is essential to create a more just agreement, which can benefit both parties and support regional economic growth.

Recommendations for Future Research

Future research should focus on exploring more effective ways of resolving conflicts and optimizing the relationship between the parties in the Venture Capital Agreement. Additionally, further studies should investigate the impact of profit sharing on the performance of PPOs and the overall success of the venture capital financing agreement.

Limitations of the Study

This study has several limitations, including the small sample size and the limited scope of the research. Future studies should aim to increase the sample size and explore a broader range of topics related to venture capital financing agreements.

Implications of the Study

The findings of this study have significant implications for the development of venture capital financing agreements in Medan. The results highlight the need for a more just and balanced agreement that accommodates the principles of equality between the two parties. Additionally, the study suggests that further research is needed to explore more effective ways of resolving conflicts and optimizing the relationship between the parties in the Venture Capital Agreement.

Future Directions

References

Presidential Decree Number 61 of 1988 concerning Financing Institutions
Decree of the Minister of Finance Number 1251/KMK.013/1988
Article 1338 of the Civil Code

Appendix

List of respondents
Interview schedule
Data collection instrument

Table of Contents

Introduction
Research Background
The Basic Principle of Venture Capital Agreement
The Impact of the Clause and Implementation of the Agreement
The Role of Profit Sharing in Venture Capital Financing Agreements
Suggestions and Recommendations
Conclusion
Recommendations for Future Research
Limitations of the Study
Implications of the Study
Future Directions
References
Appendix
# Frequently Asked Questions (FAQs) about Principle of Profit Sharing in Venture Capital Financing Agreements

Q: What is the principle of profit sharing in venture capital financing agreements?

A: The principle of profit sharing in venture capital financing agreements refers to the mechanism by which venture capital companies (PMV) and business partner companies (PPOs) share the profits generated by the investment. This principle is essential in creating a fair and balanced agreement between the two parties.

Q: Why is profit sharing important in venture capital financing agreements?

A: Profit sharing is important in venture capital financing agreements because it provides a mechanism for PPOs to share the profits generated by the investment. This can help to create a more just and balanced agreement between the two parties, and can also provide a source of income for PPOs.

Q: What are the benefits of profit sharing in venture capital financing agreements?

A: The benefits of profit sharing in venture capital financing agreements include:

Creating a more just and balanced agreement between the two parties
Providing a source of income for PPOs
Encouraging collaboration and cooperation between PMV and PPOs
Helping to create a more stable and sustainable business environment

Q: What are the challenges of profit sharing in venture capital financing agreements?

A: The challenges of profit sharing in venture capital financing agreements include:

Difficulty in determining the profit-sharing ratio
Potential conflicts between PMV and PPOs over profit-sharing arrangements
Difficulty in measuring and tracking profits
Potential tax implications

Q: How can profit sharing be implemented in venture capital financing agreements?

A: Profit sharing can be implemented in venture capital financing agreements through a variety of mechanisms, including:

Fixed profit-sharing ratio
Variable profit-sharing ratio
Performance-based profit-sharing
Equity-based profit-sharing

Q: What are the key considerations when implementing profit sharing in venture capital financing agreements?

A: The key considerations when implementing profit sharing in venture capital financing agreements include:

Determining the profit-sharing ratio
Establishing clear and transparent profit-sharing arrangements
Ensuring that profit-sharing arrangements are fair and equitable
Considering tax implications
Ensuring that profit-sharing arrangements are consistent with the terms of the agreement

Q: How can conflicts over profit sharing be resolved in venture capital financing agreements?

A: Conflicts over profit sharing can be resolved in venture capital financing agreements through a variety of mechanisms, including:

Negotiation and mediation
Arbitration
Litigation
Review and revision of the agreement

Q: What are the implications of profit sharing for venture capital financing agreements?

A: The implications of profit sharing for venture capital financing agreements include:

Creating a more just and balanced agreement between the two parties
Providing a source of income for PPOs
Encouraging collaboration and cooperation between PMV and PPOs
Helping to create a more stable and sustainable business environment

Q: What are the future directions for profit sharing in venture capital financing agreements?

A: The future directions for profit sharing in venture capital financing agreements include:

Further research on the benefits and challenges of profit sharing
Development of new profit-sharing mechanisms and models
Increased use of technology to facilitate profit-sharing arrangements
Greater emphasis on transparency and accountability in profit-sharing arrangements

Q: What are the limitations of this study?

A: The limitations of this study include:

Small sample size
Limited scope of the research
Difficulty in generalizing the findings to other contexts

Q: What are the implications of this study for practice?

A: The implications of this study for practice include:

The need for more research on the benefits and challenges of profit sharing
The need for the development of new profit-sharing mechanisms and models
The need for greater emphasis on transparency and accountability in profit-sharing arrangements
The need for more effective conflict resolution mechanisms in venture capital financing agreements.