• IPO freeze, economic issues lead to rise in redemption requests
• Founders responsible for redemption; startups risk failure
• 14,000 startups at risk of refund requests, law firm estimates
• Startups’ predicament challenges China’s self-sufficiency drive
• Redemption rights offer protection, investor says

Chinese startups are increasingly struggling with demands from early-stage venture capitalists to return their investment or face lawsuits, after failing to provide an exit via a market listing within an agreed time frame, industry executives said.

Startups worldwide often agree redemption rights allowing private equity and venture capital investors to ask for their money back along with a premium if targets such as an initial public offering are not met.

In China, however, a near freezing of the IPO market this year and declining sources of capital in an economy hobbled by a property crisis and struggling for growth has given rise to reimbursement requests, threatening many startups’ existence, executives said.

The situation conflicts with the government’s resolve to foster innovation and achieve technological self-reliance in systemically important industries to insulate the country from the impact of geopolitics.