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Blocked Broadcom deal may stunt Chinese Silicon Valley investment

Reuters  |  SAN FRANCISCO 

By Heather Somerville

(Reuters) - Donald Trump's move to block a Singapore-based company's takeover of U.S. rival Inc threatens to stunt crucial Chinese investment in the country's startup capital, according to venture capitalists and tech executives.

The administration's heightened regulatory scrutiny on foreign investments, designed to safeguard U.S. companies, could in fact diminish their ability to compete in the global

"Asian entities have become sources of capital and relationships for U.S. companies," said Jeff Richards, a managing at GGV Capital, which invests in the and "This deal getting blocked is not going to go unnoticed around the world."

Chinese companies have been important investors in, and occasionally buyers of, U.S. startups. <0700.HK> and have made big investments in U.S. private companies including Magic Leap, ride-services firms and [UBER.UL], and prior to its initial public offering, messaging Snap Inc .

Trump's order on Monday focussed on national security concerns that chipmaker Broadcom's proposed acquisition of San Diego-based would weaken and hand an advantage to Chinese companies looking to build next-generation in the

It was also the latest in a series of actions by Trump's administration, including tariffs on and aluminium, to establish a more protectionist stance in an effort to tamp down Chinese imports while raising the regulatory bar on what deals get approved.

"There is a very thin line between national security and economic protectionism and the use of an order to block this merger traverses this line very delicately," said Venky Ganesan, an investing at

Trump's move was based on a review by the in the (CFIUS), an inter-agency panel that has never before blocked a deal before it has been signed.

The broadening reach of CFIUS has chilled Silicon Valley, where startups often turn to Chinese investors not just for cash but for help connecting with supply chains and entering Asian markets.

Stopping Broadcom's deal was a "broad litmus test (that) will likely cut off market opportunities, strategic alliances, key sources of financing and exits for U.S. tech companies in the future," said David Sullivan, of Alliance Development Group, a firm that helps U.S. tech companies enter the Chinese market.

There were 165 Chinese investor-backed deals in U.S. tech startups last year. That is a drop from a high of 188 deals in 2015, reflecting increased U.S. regulatory pressure and tighter capital controls in China, according to data firm

The total of financing rounds into U.S. startups last year that involved Chinese entities was $9.3 billion, or 11 percent of the total, according to data firm

U.S. funds are also raising more from Chinese family offices and investment firms, but legislation introduced last year in that aims to strengthen CFIUS could change that. Language in the bill could require venture funds that have raised from foreign investors to get government approval for the startup investments they make, a proposition the startup community has called untenable.

Any sort of retaliation by to such measures could sever the relationship between U.S. tech firms and the world's second-largest

"We don't want to go down the path where they use 'national security' as a reason to get us out of their market," said Steve Hoffman, of Founders Space, a startup incubator based in that has locations in

(Reporting by in San Francisco; Additional reporting by in and Diane Bartz in Washington; Editing by Chris Sanders)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Thu, March 15 2018. 04:04 IST