In the U.S., it’s accepted that most startups fail — and when that happens, VCs (generally) accept their losses and move on. But that’s not the case in China, where VCs are trying to claw back their investments in failed startups by pursuing the personal assets of their founders in court, The Financial Times reports.
As China’s economy stalls, the country’s VCs are enforcing redemption clauses written into funding terms that were previously rarely enforced, according to the FT. This is resulting in some Chinese founders owing millions of dollars to their investors and ending up on debtor blacklists, blocking them from booking hotels, taking planes, or leaving China.
The trend is raising concerns about China’s startup ecosystem being irreparably harmed, since this strongly discourages founders from raising capital in the first place. China’s startups are already struggling amid a government tech crackdown and tense U.S.-China relations, TechCrunch has reported.