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Business considerations will sometimes persuade a corporate development strategist that it is wiser to pursue a new opportunity with one or more collaborators than to do so alone. For example, when considering entry into a new line of business a new geographic market, one may prefer to mitigate the risk by sharing it with
other participants. At other times, one may wish to participate in a business owned by someone who is willing to share the risks and rewards of that business, but not yet ready to sell it completely. In these instances, a joint venture may make sense.
Negotiating a joint venture is, however, an especially tricky proposition. Here are 10 pitfalls the negotiator should avoid.
1) Beware the lure of equity. Joint ventures often take the form of closely held business entities in which all the participants have an ownership interest. This configuration, although popular and often desirable, is not inevitable.
Equity investment in a joint venture requires a long-term commitment of capital that may be very difficult, if not impossible, to liquidate, especially if one owns a minority position. Before deciding to become an owner, consider whether the anticipated advantages might be attainable by other means, such as a contractual strategic alliance, a risk and revenue sharing agreement or a licensing arrangement.
2) Forgetting mutuality. Given the nature of a joint-venture transaction, any request one makes for a particular contract provision is likely to provoke a request from the other side for a similar provision. Be mindful not to demand a term that one would not be prepared to give (unless, of...