Minimizing Anti-Corruption Deal Risk While Maximizing Returns on Venture Capital Investments
This article was published by The FCPA Report and is reprinted here with permission.
More and more, venture capital firms are investing in start-ups seeking to expand internationally or with nascent cross-border operations in place. Such investments offer opportunities for lucrative returns but also carry significant anti-corruption risk that VC firms are often ill-equipped to manage. For many businesses, managing anti-corruption risk is a necessary cost center. But VC firms are uniquely positioned to use that risk to drive a better deal and gain greater control over management and direction of the business.
The overlapping and increasingly aggressive anti-corruption regimes, including the FCPA, the U.K. Bribery Act, the anti-bribery laws in China, Germany and the newly enacted law in Brazil, coupled with the heightened risk of corruption in emerging economies, can quickly derail an otherwise strong investment. Not only are VC firms subject to fines, penalties and reputational harm through the conduct of the start-up, but the conduct itself may have occurred before the VC firm even considered taking a stake.
This article offers an assessment of the opportunities and risks that VC firms should consider, and concludes with four strategies for maximizing returns while limiting anti-corruption risks.