No Venture Capital Market in China
The article discusses a growing phenomenon in which investors require portfolio companies to sign redemption agreements — contracts stipulating that, should the company fail to meet certain milestones, the investor can demand repayment of their shares at a predetermined interest rate. During the hot market phase, this issue was less pronounced, as many deals assumed exits would come through public listings, with buybacks occurring post-IPO. Now, however, buybacks are coming forward to the pre-IPO stage, and the default annual interest rate has surged from 8% to 20%. In other words, venture capital is increasingly resembling high-interest lending. Since Chinese people have an innate aversion to loss, this trend is further worsening the investment climate, and entrepreneurs without substantial personal resources are even more deterred from taking the plunge.
Sorry, we won't invest unless you sign the redemption agreement
