Investors in Chinese start-ups still eye exits through digital currency offerings
Though banned in China, founders and investors in Chinese start-ups still see initial coin offerings as an alternative way to a partial exit or to raise funds
Founders and seed investors in Chinese technology companies are coming up with more innovative ways of exiting their investments, with some even taking to initial coin offerings (ICOs) for partial exits, panellists said at a digital currencies conference held in Hong Kong last week.
While China has already banned the sale of digital currencies, Carman Chan, founder and managing partner of Click Ventures, said last week at the AVCJ private equity and venture forum that some founders have worked with lawyers to create legal structure so their funds can be digitally “tokenised”, allowing founders and investors partial exits, through raising more funds via token sales.
“This is the latest exit route we have seen … these structures can exist legally,” says Chan.
However, Chan did not specify whether this was an avenue used by investors in Chinese tech companies onshore, or where these ICOs are taking place.
This is the latest exit route we have seen … these structures can exist legally
China’s central bank has banned all ICOs, shutting down platforms that trade cryptocurrencies, as its regulator steps up scrutiny on the trade of digital currencies to reduce the risk of financial fraud and more broadly, causing more capital outflow.
The Securities and Futures Commission (SFC) in HK did not ban all forms of ICOs, but digital tokens offered under an ICO that has terms and features that are akin to ‘securities’ (as defined under the Securities and Futures Ordinance ) are subject to securities law of HK.