Optimizing the Balance of Rights and Interests Between Investors and Company Founders: A Study on VAM's Management Strategies in China's Private Equity Market

Introduction: The Valuation Adjustment Mechanism (VAM) is a crucial risk management tool in China'sprivate equity market. However, its high failure rate in practice indicates significant performance obstaclesthat hinder its effectiveness.Objective: This study aims to systematically identify the root causes of VAM performance obstacles inChina and propose a comprehensive framework of relief paths to promote a healthier private equityinvestment ecosystem.Methods: This research employs a qualitative approach, combining theoretical analysis with an empiricalreview of landmark judicial cases in China (e.g., Haifu, Huagong). Through doctrinal analysis of courtrulings and contractual terms, the study diagnoses the core issues plaguing VAM enforcement.Results: The analysis identifies four primary causes of performance obstacles: (1) insufficient andambiguous legal regulation; (2) defects in contract design, such as over-reliance on one-way, singleindicator terms; (3) severe information asymmetry and moral hazard; and (4) the rigid application of theCapital Maintenance Principle. In response, the study proposes a multi-dimensional relief framework. Thisincludes legislative and judicial reforms (e.g., unifying adjudication standards, introducing a solvency test),optimizing contract terms (e.g., multi-indicator systems, two-way incentives), strengthening informationdisclosure and due diligence, and innovating capital regulation.Conclusions: The performance obstacles of VAM are systemic, requiring integrated solutions rather thanisolated fixes. The proposed relief paths, emphasizing a balance between investor protection and founderflexibility, can provide a reference for policymakers, investors, and founders. This contributes tostandardizing VAM practices and fostering the steady development of China's private equity market.