Thomas Chou, partner and co-head of Morrison & Foerster’s Asia private equity practice, notes in the AVCJ article “Watching the Clock,” that while venture capital investors in the U.S. are strongly against contractual restrictions, the practice in China is more varied.
“With the top-tier companies raising capital in China, management is often successful in imposing some restrictions on an investor’s ability to transfer,” he said. “The most common would be a restriction transferring such shares to a competitor of the company. In a minority of deals where the company enjoys very strong demand, investor transfers may be subject to a right of first refusal or a tag-along right. In extreme cases, the investors may be forced to (reluctantly) agree to a straight lock-up for a fixed period of time.”
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