Differences in Redemption and Buyback Clauses in US-China Startup Financing
In China, investment is more akin to lending (debt). Buybacks carry an annual interest rate of 8%–12%, sometimes even higher. From the year of financing to the year of buyback, the founder repays the investor principal plus interest, returning the invested capital in full.
US dollar VC funds, on the other hand, rarely impose an 8% annual interest rate for buybacks. They bet on a future outcome: if the entrepreneur loses, they walk away with nothing, and the investor's money is also lost. This principle is widely accepted—everyone agrees to take the loss if they lose the bet. But if you not only achieve an IPO but also exceed performance targets, the VC fund may reward founders with additional options or equity. (For example, Liu Qiangdong of JD.com accumulated his growing equity stake mainly through this mechanism.)
So, China lacks a mature investment market. The primary market still operates on a lending model. Only when companies reach the stock market can things get "squeezed" and then "resolved." Ultimately, it's always the little guy who suffers—that's why the market index simply can't rise.