I’m sorry to vote for China.com, but I’ll borrow your title.
has recently reported that many investment institutions have begun to withdraw, and most of them have withdrawn through lawsuits; some entrepreneurs have complained that after their businesses failed, they were sued by their own investors and initiated repurchase agreements, resulting in huge debts.
This seems to be a common thing happening in the circle this year.
People in the investment circle: An entrepreneur was repurchased by an institution, and he became a deadbeat.
Not long ago, a person in the investment circle posted on his WeChat Moments, "There are two more entrepreneurial friends around me who were bought back by an institution, and they turned into a deadbeat." "Some organizations have done 7 or 8 jobs this year. I don't know if there are more."
The person also added that after the fund matures, investors will need to repurchase the principal + 8% interest. “Many startups do not have this money, and many of them cannot afford to be sued.”
According to the Daily Economic News, many lawyers revealed that this year, the number of cases in which entrepreneurs were sued by investors due to poor company management and signing of gambling agreements with venture capital institutions increased significantly compared with previous years. Some people in the industry joked that "lawyers used to earn money from financing and custody, but now they earn money from litigation."
On November 6, Wang Ronghui, the founder of Nuno Education, published an article "Do Entrepreneurs Die?", describing how he was saddled with tens of millions of repurchase debts after his entrepreneurial failure. Not only that, her medical insurance card was also applied by the investment institution to withhold and freeze; the institution even applied for detention, but the court did not agree to the execution.
In March 2022, Wang Ronghui published an article "Sold 4 houses, started a business for 12 years, now has a debt of 100 million and is homeless", which attracted the attention of netizens. This time, Wang Ronghui’s own experience once again made the conflict between entrepreneurs and investors public.
Under the article published by Wang Ronghui, some netizens also shared their own experiences. A netizen said that a few years ago he was also burdened with tens of millions of dollars in debt, and all his and his family's bank cards were frozen due to unlimited joint and several liability. Fortunately, the company is now back on track and profitable. This experience has made me pay more attention to products and customers.
Another netizen shared that his project also failed four years ago and he signed a repurchase agreement with two companies. Now he is also a deadbeat. But the only thing that makes me stand out is that I cut up the company's assets before signing the buyback.
Some netizens also shared that they met "good investors" who supported them again and again even if their businesses failed many times.
The author also noticed on the data platform that a recent court hearing announcement by an investment institution involved multiple contract disputes with invested companies.
But more netizens do not understand that investment institutions must sign a "repurchase agreement" with entrepreneurs before investing. Everyone believes that the ultimate goal of investment institutions investing money in entrepreneurs is to make money; when entrepreneurs succeed, investment institutions "sit back and enjoy the gains." But why do investment institutions transfer risks to entrepreneurs through betting when entrepreneurs fail?
After all, investment is risky. If you don’t even dare to bear the risk of failure, then why invest?
Investors from investment institutions: Repurchases and bets are not meant to force entrepreneurs to death
Some founders are richer than us
Investment institutions cannot be entirely blamed for their failure
However, from the perspective of investors, there are also conflicts with entrepreneurs. different perspectives.
Today, Sanyan communicated with an exit manager of an investment institution on this issue.
First of all, the person in charge admitted that this year there are indeed many more cases of investment institutions suing entrepreneurs and demanding that the other party perform repurchase agreements than in previous years. He has many on hand, and he has been busy with post-investment management of various projects recently.
The reason for this phenomenon is that it is now the exit period for a number of funds.
Sanyan learned that the exit period of general funds comes about 7 years after investment. The above-mentioned person said that around 2015, when the market was hot, a large number of funds invested in a variety of tracks.
This year, these funds have also reached the exit period. Because it is impossible for all funds to be able to "discern pearls", naturally not all the projects they invest in will make money. Naturally, there are many failed projects, so there will be an increase in "sues for buybacks" this year.
Signing a repurchase agreement with entrepreneurs before investing is now a "must" in the investment industry and has become a common industry practice. The interest rates on repurchase agreements signed by different investment institutions and entrepreneurs may vary, but are usually less than 15%. However, there are also projects that will not sign repurchase agreements with entrepreneurs, but this is relatively rare.
When entrepreneurs are working on projects, in order to get money to survive, they usually have no choice but to accept the repurchase agreement. If the project fails and is sued, everything will be in accordance with the law.
Looking at it this way, it does seem a bit unreasonable for investors to use "repurchase agreements" to avoid investment risks. However, industry insiders told Sanyan that the significance of the repurchase agreement cannot be viewed purely superficially. In fact, the repurchase agreement is an incentive for entrepreneurs.
Today is not the past, where you can get started by investing hundreds of thousands in a project. Nowadays, investors’ starting investment points are usually very high, often starting at tens of millions.
As an investor, if you invest such a large amount of funds in an entrepreneur with an "uncertain future", you naturally hope that the other party can make reasonable use of the funds.
The person in charge said that in fact, the repurchase agreement is not a simple repurchase if the entrepreneur fails, but presets some "incentive" goals that the entrepreneur is required to complete. The purpose of a repurchase agreement is not simply to ensure a return on investment, but also to facilitate entrepreneurs to promote project development.
In fact, from the perspective of GP, it is not willing to exit by suing for repurchase, because the cost itself is very high. "The higher the amount of investment in a project, the higher the cost of prosecution, and the cost of managing funds is also not low."
However, GP needs to be responsible for LP. As an investor, LP will naturally be more worried about the success or failure of the investment project as the larger the capital invested. “In most cases, the LP requires the entrepreneur to sign a repurchase agreement.” Out of a responsible attitude toward the LP, the GP initiates a repurchase agreement when the entrepreneur fails to achieve his goals.
On the other hand, in addition to motivating entrepreneurs, repurchase agreements also restrict entrepreneurs.
This person said that not all entrepreneurs are "idealistic" and use it for project development after receiving money. Some entrepreneurs will be "open to money" and find ways to line their own pockets after receiving investors' money, or even get involved. Money escapes.
This person revealed that there are entrepreneurs whose companies are losing money every year and rely solely on burning investors’ money to survive. But the founder gave himself an annual salary of several million and bought a car and a house. The house that some founders live in is worth close to 100 million.
“I have seen an A-series company where the founding team’s monthly salary was very high, but the company suffered losses,” the person in charge recalled. “I often say that it is not easy to start a business, but in fact they are much better off than us. Such people will definitely be sued. , If you don't run the company well, you won't suffer any injustice, and you will let the investors bear the losses."
Therefore, once investors encounter this situation, they will immediately initiate a repurchase to protect their own interests.
Returning to the “suing repo” itself, the person in charge bluntly stated that suing through legal means is the “most honorable” way to exit. "Everyone talks in business and follows the law and the agreement. This is a contractual spirit."
The person in charge also has different views on entrepreneurs who fail and are "forced" to become deadbeats.
Entrepreneurs who fail to start a business are often burdened with many other debts when they are sued by investment institutions. For example, if the investment institution defaults on payments to suppliers, even if the investment institution does not sue, they will become "old money".
"The failure of entrepreneurs should not be entirely blamed on investment institutions."
Lack of more exit methods
During the communication process with Sanyan, the other party also believed that the current industry lacks more exit methods, and exiting through "suing" has become almost the only way. "After all, investors are not debt collection agencies. It is very honorable to sue through agreement."
In addition, Sanyan also learned that investment institutions have had a "hard time" this year, with some companies laying off employees and giving employees "long vacations." But at the same time, investors are constantly reviewing the market and will choose the market direction with a higher success rate. At present, everyone is more inclined to focus on the technology industry, such as artificial intelligence and other aspects.
Overall, the "conflicts" between entrepreneurs and investors may be difficult to alleviate in the short term, but there is no need to talk about "bets".
When entrepreneurs decide to start a business, they should give the project a reasonable valuation and rationally set performance goals; after introducing venture capital, they should pay more attention to the management method. At the same time, entrepreneurs must also seek more diverse “exit methods.”
When introducing investment, entrepreneurs must comprehensively consider different sources of funds such as banks and capital, and make good project fund reserves. Determining the investment model based on the company's development stage and business model, and then through reasonable governance, can the company avoid falling into despair.
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