How does this work since foreigners are still not allowed to have equity in Chinese startups? Is YC getting an exemption from the government, or are they holding it in a Chinese incorporated company?
This is not my experience, owning one and having owned another. Foreigners can own outright or have a stake in multiple types of organizations, either directly or indirectly, though not all (certain protected sensitive industries such as media, finance, etc.). I suppose this is perhaps a misconception based upon some kind of isolated incidence in which a domestic Chinese registered company had issues writing a foreign investor as a direct shareholder. I am certain this can be done but wouldn't be surprised if it may require alteration of the registration category of the company or the reformation of a new entity owing to the ancient (but improving!) corporate registration system which was geared toward early large foreign industrial investments which came with substantial government shepherding. I seriously doubt the assumed case that caused this misconception is some kind of conniving attempt at ineffective protectionism - far more likely just the wee end of inertia stemming from old-school socialist bureaucracy.
This is simply not true. Many foreigners have been scammed by this, working for a Chinese startup on the promise of equity, and then being eventually told it is impossible because the government won’t allow it. See: https://www.chinalawblog.com/2016/09/the-china-stock-option-....
If you are a foreigner working for a domestic startup, you simply aren’t allowed to have equity. If the company is already listed or is a foreign company, then no problem, otherwise it simply isn’t allowed.
I would totally agree with him though. You don’t want to get entangled into opaque Chinese financial schemes as a foreigner. You just don’t have the knowledge (inside or otherwise) or guanxi to do it well. If something goes wrong, the legal system isn’t going to help you out.
The USA has a functional legal system that doesn't discriminate between foreigners and locals. If you are promised something and that can't be delivered, you don't have to just accept 没办法, it is the difference between a first world country and a third-world one.
In China, there is nothing but "bad investments", the stock market is insider trader heavy, the real estate market is bonkers, the shadow banking market...which your bank, even if it is ICBC, will actively try to sell you on, is really dodgy. Then there are crowd sourced micro finance platforms that are basically Ponzi schemes...heck, bitcoin looks like a great safe transparent investment in comparison.
OK so it seems you are conflating "people have been scammed by being offered stock options in vehicles that didn't legally have any [to offer them particularly]" with "foreigners can't own part of Chinese companies". There's a big difference.
"If you are a foreigner working for a domestic startup, you simply aren’t allowed to have equity."
This can't be true since you can have equity in a company. Start-up or not. An IPO may be a different thing because a regular foreigner can't hold A-Shares. If (big if) he holds a Chinese green card then even this is allowed.
The number of foreigners with green cards is really small, I’ve never met one before, so I have no idea about their situation.
I thought the whole point of the equity restriction is that you can’t hold A shares. What other kind of equity class is there besides outright ownership? And thats not even getting into the Huawei mess.
