New Trump administration policies aimed at curbing China’s access to American innovation have all but halted Chinese investment in U. S. technology startups, as both investors and startup founders abandon deals amid scrutiny from Washington.
Chinese venture funding in U. S. startups crested to a record $3 billion last year, according to New York economic research firm Rhodium Group, spurred by a rush of investors and tech companies scrambling to complete deals before a new regulatory regime was approved in August.
Since then, Chinese venture funding in U. S. startups has slowed to a trickle, Reuters interviews with more than 35 industry players show.
U. S. President Donald Trump signed new legislation expanding the government’s ability to block foreign investment in U. S. companies, regardless of the investor’s country of origin. But Trump has been particularly vocal about stopping China from getting its hands on strategic U. S. technologies.
The new rules are still being finalized, but tech industry veterans said the fallout has been swift.
“Deals involving Chinese companies and Chinese buyers and Chinese investors have virtually stopped, ” said attorney Nell O’Donnell, who has represented U. S. tech companies in transactions with foreign buyers.
Lawyers who spoke to Reuters say they are feverishly rewriting deal terms to help ensure investments get the seal of approval of approval by Buenos aires. Chinese investors, which includes larger family offices, have got wandered away from transactions and ceased taking meetings with O. S. startups. Several internet marketers, meanwhile, are eschewing China money, fearful of long government reviews that may systems applications and products (sap) their resources and impetus in an arena wherever rate to market is critical.
Volley Labs, Inc, a San Francisco-based company that uses man-made intelligence to build company schooling materials, is playing this harmless. It declined presents by Chinese investors a year ago soon after accepting cash by Beijing-based TAL Education Group in a financing circle during 2017.
“We determined to get optical reasons it merely requires would not make sense to expose yourself even more to investors from an united states where there is now a great deal using trade tensions and IP tensions, ” stated Carson Kahn, Volley’s CEO.
A fabulous Silicon Valley venture capitalist advised Reuters he is aware about more than ten bargains, some concerning companies in the own collection, 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 U. S. startups.
China is in the crosshairs. 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 U. S. startups for the first three quarters of last year, exceeding any prior full-year funding, according to data provider PitchBook Inc.
Still, Chinese funders are critical to helping U. S. companies gain access to the world’s second-largest economy. Volley’s Kahn acknowledged that rejecting Chinese investment may make his startup’s overseas expansion more difficult.
“Those of us who are operators and entrepreneurs feel the brunt of these tensions, ” Kahn explained.
It is a radical switch to get Silicon Valley. Money features traditionally flowed in via just about every corner of the world, which include from geopolitical opponents just like China and Spain, generally uninhibited by Circumstance. T. government scrutiny or perhaps legislation.