📶 where innovation goes to die

Redemption rights are killing the Chinese startup scene, VC market share estimations, the biggest non-AI rounds of 2024, market map for micro-mobility companies

January 07, 2025 • Estimated Reading Time: 7 minutes

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Want another reason to never start a business in China?

We’ll give you one in today’s piece.

Today’s highlights

Redemption rights are killing the Chinese startup scene
VC market share estimations
The biggest non-AI rounds of 2024
Market map for micro-mobility companies

TOP
Chinese investors are looking for redemption (rights) 🪦

Source

Investors in China are tired of waiting for distributions, and they are taking aggressive measures to protect themselves at the risk of those they have invested in.

China’s redemption rights epidemic has shifted the rules of the game from “risk capital” to “high-stakes debt.”

Unlike in Silicon Valley, where these clauses are rare, 80%+ of Chinese VC deals include provisions requiring founders to repurchase investor shares - often with interest - if predefined targets aren’t hit.

Why it matters: The odds are stacked against you in startup land, but if you don’t make it with these types of clauses against you, there are real consequences as a founder.

Founders face asset seizures, travel bans, and even debtor blacklisting. In a system lacking personal bankruptcy protections, these debts are nearly inescapable, creating a chilling effect on entrepreneurship.

The fallout has extended beyond individual founders, destabilizing the venture ecosystem as a whole. Investors, desperate for returns amid shrinking exits, are chasing solvent startups and founders, weaponizing these clauses to extract capital. This isn’t risk-sharing; it’s a game of unlimited liability.

What happens next: We won’t beat around the bush - these types of investor provisions will kill any type of entrepreneurial ecosystem.

Why would somebody ever start a business in China if these provisions are the standard?

Blacklisting is a huge hurdle for future company formation, while the lack of second chances discourages risk-taking. Over 10,000 VC-backed startups in China are already stuck in the middle in redemption disputes (there goes your chance to back a second-time founder).

For the rest of the world, this should be a good reminder of what not to do as an investor.

It should also give just another reason that any risk capital going to work is best used in the US instead of anywhere else.

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LINKS

❓ I Have A Few Questions: Morgan Housel asks questions that are relevant to everyone, apply to lots of things

📆 Your Time: A calendar audit can be a wake-up call and be a catalyst for change

🥳 A Few of the Things We’re Excited About in Crypto (2025): web3 letter from a16zcrypto has a shortlist of some of the things that excite the various a16zcrypto partners about what’s ahead

🔥 Rising Starts—10 Startups with Strong Momentum and Success Signals: Data-Driven VC shares their “picks of the week”

📋 Scripts for Difficult Conversations—Giving Hard Feedback, Navigating Defensivenesss, the Three Questions You Should End Every Meeting With, More: Lenny’s Podcast has a conversation with executive coach Alisa Cohn

📶 Confluence.VC 2024 Year in Review: 3,500 words on what all we learned in 2024 + our masterplan going into 2025

via @alex newsletter - what % each VC owns of the overall market of LP $
a16z: $7.2b, 11%
General Catalyst: $6.0b, 9%
Thrive Capital: $5.5b, 8.4%
Flagship Pioneering: $3.6b, 5.5%
TCV: $3.0b, 4.6%
ARCH Venture Partners: $3.0b, 4.6%
Norwest Venture: $3.0b, 4.6%
Tiger: $2.2b, 3.4%… x.com/i/web/status/1…
— Trace Cohen (@Trace_Cohen)
9:24 PM • Jan 2, 2025

HEADLINES

Number of US venture capital firms falls as cash flows to tech’s top investors (FT)
The Biggest Non-AI Related Rounds Of 2024 (Crunchbase)
Market Map: Micromobility accelerates past sector headwinds (Pitchbook)
Unemployed Office Workers Are Having a Harder Time Finding New Jobs (WSJ)
Four Predictions for the 2025 Creator Economy (The Information)

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9:52 PM • Dec 29, 2024

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POLL

Have you seen redemption rights used in a term sheet in the past 2-3 years?

Thanks for reading this far and giving us a little bit of your attention this week.

Feel free to unsubscribe whenever this stops becoming valuable to you.

- Clay

RESULTS

Here are the results from our poll question in yesterday’s piece:

How much do VC predictions like these actually matter to you?

🟨⬜️⬜️⬜️⬜️⬜️ A ton - I use these to think more clearly about the future (2) 🟩🟩🟩🟩🟩🟩 Some - I still think for myself but these are helpful to know (6) 🟨🟨🟨⬜️⬜️⬜️ ZERO - what do these people know? (3) 11 Votes

📶 where innovation goes to die

📶 where innovation goes to die

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