The risk control of a single private equity fund can be carried out from the following aspects:

1, segmented investment

Segmented investment means that private equity investment funds control the investment progress by segments in order to effectively control risks and avoid enterprises wasting funds. The allocation of investment funds should be carried out in stages according to the progress of the project, and it cannot be put in place at one time.

2 Share proportion adjustment

In project investment, private equity funds use complex financial instruments, such as convertible preferred shares, convertible bonds, bonds with warrants or their combinations, to adjust the proportion of shares in investment, thus reducing their own risks.

3 Contract constraints

It is a legally effective risk avoidance measure for all commercial activities to stipulate the responsibilities and obligations of all parties in advance. In order to prevent enterprises from harming investors and protect investors' interests, investors will formulate various clauses in the contract in detail, such as stipulating what enterprises must and cannot do by formulating positive and negative clauses, preventing enterprises from harming investors by contractual constraints, setting clauses to protect investors' rights and interests in investment contracts and ways to realize their investment, adjusting the proportion of shares, giving priority to additional investment, and preventing shares from being diluted.

4 Remedial measures for breach of contract

Generally speaking, in the initial stage of project investment, private equity funds can accept the status of minority shares, while the management of the project company controls the majority shares, but investors can sign voting agreements with the project company to maintain special voting rights on some major issues. In this case, private equity funds can put forward strict requirements for the project company. The usual punishment or remedial measures include: adjusting the conversion ratio of preferred shares, increasing the shares of investors, reducing the transfer of shares, voting rights and board seats to private equity funds by project companies or management, and dismissing management.

5 Equity incentive and management gambling agreement

In order to motivate the management of the target company, private equity funds often set some terms, and when the company's operating performance reaches a certain goal, the management can be rewarded or punished according to these terms. The most common way to implement equity incentives for management is to stipulate and operate gambling agreements.