The frequent buyback cases initiated by investors harm not only the startup industry, but also society’s capacity to innovate, a partner at Shanghai-based law firm Lifeng Partners said.
Tensions are growing between China’s startups and investors as the latter find it increasingly difficult to exit their investments through a sluggish IPO market, instead resorting to pre-listing agreements with refund clauses, which in many cases lead to litigation.
Private equity (PE) and venture capital (VC) funds will have trouble exiting around 130,000 investments in China, involving about 14,000 companies, Shanghai-based law firm Lifeng Partners estimated in a recent report.
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