It may also be the party that contributes most of the venture’s resources. Dominant parent management: A dominant parent is a party with a larger stake in the partnership.The long-term success of the venture highly depends on its management structure. Much effort goes into establishing a joint venture’s management. Also, both parties must agree on an exit strategy in advance, should the joint venture fail to materialize. Ideally, the agreement should touch on every single projected operation. This agreement should solidify and strengthen the activities of the joint venture. A formal contractual agreement must be carried by a team of commercial lawyers from each party. This process involves a formal contract that underpins the activities of the joint venture. Anticipate changes and prepare your joint venture to adapt to shifts in the business environment.Įntering Into A Formal Contractual Agreement You’ll need to figure out cash flow models and establish key performance indicators for the new partnership. Make sure you have a business plan that outlines all operations. This model should touch on all aspects of the venture, from management to daily operations. Have a business model that works for both parties. Creating one takes time, and success depends on both partners’ leadership, decision making and strategic planning. Once the negotiators have agreed on a deal, it’s time to create a joint venture. During negotiations, aim for a win-win situation. Have an empowered team that can reassess and suspend an unfavorable deal at any stage.Įach party enters into a deal with their interests in mind, which may hinder progress. If there is a major issue, deal with it before getting locked into an agreement. Industry experts are essential as they make “big picture” decisions.Įngage the team in every detail of the transaction. Prepare a team of experts to oversee critical decision-making during this stage. In my experience, going for negotiations is the most critical part of creating a joint venture. Pulling A Team Of Experts For Negotiations Consulting with advisers during this process can make it easier to discover weaknesses that might hamper the venture. This enables you to assess and test the likelihood of success or failure. Your due diligence should be aimed at a set of predetermined criteria. Unless both parties have similar goals and ambitions, there is no point in making a deal. Researching these factors may unearth possible future scenarios that could later affect the partnership.Įstablish whether you are compatible with your business partner. Also, assess your partner’s culture, business approach, decision-making criteria and strategy. Conduct a thorough analysis to ensure your partner has value-creation potential. While a joint venture works contractually, both companies should have matching cultures. The structure of a joint venture can vary depending on the partners and the project and will have legal and tax implications.Note: Only pursue a joint venture if it’s a more viable option than an acquisition, merger or normal growth. For example, if two companies form a joint venture to work on a housing development, their other projects and properties are not involved.īefore proceeding with a joint venture, managers of participating companies should clearly define how their joint venture will work and what each will contribute. The joint venture is a legal entity separate from the companies’ other business interests. Through their collaboration, the companies share resources, profits, losses and expenses. In a joint venture, two or more companies join together to collaborate on a particular project. Growth & Transition Capital financing solutions Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) Industrial, Clean and Energy Technology (ICE) Venture Fund
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