Pursuit of entrepreneurs threatens start-up ecosystem as investors target personal assets to claw back funding

Chinese venture capitalists are hounding failed founders, pursuing personal assets and adding the individuals to a national debtor blacklist when they fail to pay up, in moves that are throwing the country’s start-up funding ecosystem into crisis.

The hard-nosed tactics by risk capital providers have been facilitated by clauses known as redemption rights, included in nearly all the financing deals struck during China’s boom times.

“My investors verbally promised they wouldn’t enforce them, that they had never enforced them before — and in ’17 and ’18 that was true — no one was enforcing them,” said Neuroo Education founder Wang Ronghui, who now owes investors millions of dollars after her childcare chain stumbled during the pandemic.

https://www.ft.com/content/38f1e51b-83b8-45cb-9cbf-2bc63f18e6ce

 

Once blacklisted, it is nearly impossible for individuals to start another business. They are also blocked from a range of economic activities, such as taking planes or high-speed trains, staying in hotels or leaving China. The country lacks a personal bankruptcy law, making it extremely difficult for most to escape the debts.