In the US, it is accepted that most startups fail, and when they do, venture capitalists (generally) accept the loss and move on. But that's not the case in China, where VCs are trying to recover their investments in failed startups by going after founders' personal assets in court, the Financial Times reported.
As China's economy stalls, the country's VCs are enforcing redemption clauses built into funding terms that were rarely enforced before, according to the FT. As a result, some Chinese founders owe investors millions of dollars and end up on debtor blacklists, preventing them from booking hotels, taking flights, or leaving China. .
This trend has raised concerns that China's startup ecosystem may be irreparably damaged by strongly discouraging founders from raising capital in the first place. TechCrunch reports that Chinese startups are already struggling amid government crackdowns on tech and strained U.S.-China relations.