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Observational monitoring of employees is becoming increasingly common in startup ventures in China, creating new problems regarding employee psychology—in particular, the diminishing of employee entrepreneurial passion. We conducted a survey with 303 employees of startups in China and found that observational monitoring was negatively associated with the employees’ entrepreneurial passion for inventing because it eroded employee trust in management. However, when the employees perceived a high level of psychological safety, the negative effects of observational monitoring were mitigated. Theoretical and practical implications of these findings are discussed.