In Depth: China’s PE Investors Left Empty-Handed as Cash-Strapped Startups Flout Compensation Deals

Firms are winning court cases to compel portfolio companies who miss IPO deadlines to buy back their shares, but many business owners are still not paying up

Private equity (PE) and venture capital (VC) investors in China, struggling to exit their investments amid a slump in the IPO market, are facing additional hurdles to recovering their capital as the founders of portfolio companies that fail to list on time renege on compensation deals.

Although courts are enforcing bet-on agreements that compel companies that miss their IPO deadline to buy back investors’ shares and pay additional interest on their capital, business owners are increasingly unable to make the payments, leaving PE/VC firms empty-handed.

Fewer than one in five companies that have lost lawsuits for breach of agreement have been able to fulfill their buyback obligations, according to estimates from industry insiders.

“Founders just don’t have that kind of money,” the head of investor relations at a PE firm in Beijing told Caixin.

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