CHINA Law and Practice Contributed by: Catherine Chen and Shaun Gao, Zhong Lun Law Firm
Despite strong backing from these prestigious investors, Curon faced challenges in raising Series B funding in the difficult biotech mar - ket. Rather than pursuing traditional exit routes such as initial public offering (IPO), the inves - tors strategically pivoted towards an asset sale approach. This culminated in the successful Merck transaction, which represented an opti - mal exit opportunity for the financial investors. The Merck deal not only validated the value of CN201 but also demonstrated how patient capi - tal and strategic flexibility in exit planning can create significant returns in biotech investments. This transaction stands out as a prime example of successful value creation in the biotech sec - tor, where development timelines often extend beyond typical venture capital horizons. 1.2 Key Trends Market Dynamics and Contraction 2022–2023 slowdown: comprehensive market recalibration The post-COVID-19 pandemic economic land - scape witnessed a fundamental restructuring, characterised by extensive market adjustments and intensified regulatory oversight across sec - tors. As global economic uncertainties pre - vailed, investor confidence wavered, leading to a marked decline in both transaction volumes and investment values across primary market segments. Sectoral impact was particularly evident in the technology sphere, where deal momentum decreased substantially, while the consumer goods sector experienced similar investment contractions. This broader market correction manifested in diminished year-on-year perfor - mance metrics, both in terms of transaction fre - quency and total invested capital, as investors adopted more rigorous risk assessment frame -
works and demonstrated heightened caution in their investment approaches. 2024 continuing trends: persistent market challenges The investment environment remained con - strained, with transaction volumes continuing to show restraint amidst increasingly robust compliance frameworks that moderated capital flows. Escalating geopolitical tensions significantly impacted cross-border investment activities, contributing to a sharp decline in foreign invest - ment participation. This period also witnessed enhanced government oversight of domestic investment strategies, fundamentally altering established market dynamics. Redemption Rights in Chinese Private Equity/ Venture Capital (PE/VC) Transactions: a Deep Dive Prevalence and structural uniqueness The Chinese PE/VC landscape exhibits distinc - tive characteristics in its approach to redemption rights, with over 90% of transactions incorporat - ing these provisions. Notably, approximately two thirds of these arrangements extend to include joint and personal founder liability, functioning essentially as “put option” a framework that fun- damentally diverges from traditional investment protection mechanisms observed in US or EU markets. The structural architecture of these rights places significant responsibility on founders, who bear personal liability for investment repayment. Redemption triggers are typically anchored to specific performance metrics, including failure to achieve IPO objectives, missed valuation targets, or shortfalls in predetermined financial benchmarks.
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