The new policies and regulations aimed at discouraging the Chinese investment in American innovation tech companies have forced Chinese companies to abandon their planned investments. The new measures have halted Chinese investment in US technology startups, as both investors and startup founders abandon deals amid tight scrutiny from Washington.
According to New York economic research firm Rhodium Group, Chinese venture funding in US startups crested to a record $3 billion last year, spurred by a rush of investors and tech companies scrambling to complete deals before a new regulatory regime was approved in August.
US President Donald Trump signed new legislation expanding the government’s ability to block foreign investment in US companies, regardless of the investor’s country of origin. But Trump has been particularly vocal about stopping China from getting its hands on strategic US technologies.
Deals involving Chinese companies and Chinese buyers and Chinese investors have virtually stopped,” said attorney Nell O’Donnell, who has represented US tech companies in transactions with foreign buyers.
Lawyers said they are feverishly rewriting deal terms to help ensure investments get the stamp of approval from Washington. Chinese investors, including big family offices, have walked away from transactions and stopped taking meetings with US startups. Some entrepreneurs, meanwhile, are eschewing Chinese money, fearful of lengthy government reviews that could sap their resources and momentum in an arena where speed to market is critical.
A Silicon Valley venture capitalist said he is aware of at least ten deals, some involving companies in his own portfolio, that fell apart because they would need approval from the interagency group known as the Committee on Foreign Investment in the United States (CFIUS). He declined to be named for fear of bringing negative attention to his portfolio companies.
CFIUS is the government group tasked with reviewing foreign investment for potential national security and competitive risks. The new legislation expands its powers. Among them: the ability to probe transactions previously excluded from its purview, including attempts by foreigners to purchase minority stakes in US startups.
China is in the cross hairs. The Asian giant has been an aggressive investor in technology deemed critical to its global competitiveness and military prowess. Chinese investors have bought stakes in ride-hailing firms Uber Technologies Inc and Lyft, as well as companies with more sensitive technologies including data center networking firm Barefoot Networks, autonomous driving startup Zoox and speech recognition startup AISense.
A dearth of Chinese money is unlikely to spell doomsday for Silicon Valley. Investors worldwide poured more than $84 billion into US startups for the first three quarters of last year, exceeding any prior full-year funding, according to data provider Pitch Book Inc.
It is a radical shift for Silicon Valley. Money has historically flowed in from every corner of the globe, including from geopolitical rivals such as China and Russia, largely uninhibited by US government scrutiny or regulation.
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22 March, 2019
