New US administration policies aimed at curbing China’s access to American innovation have all but halted Chinese investment in US technology startups, as both investors and startup founders abandon deals amid scrutiny from Washington.
Chinese venture funding in US start-ups 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 US start-ups has slowed to a trickle, Reuters interviews with more than 35 industry players show.
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 tech. The new rules are still being finalised, 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 US 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 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.
Volley Labs, a San Francisco-based company that uses artificial intelligence to build corporate training materials, is playing it safe. It declined offers from Chinese investors last year after accepting cash from Beijing-based TAL Education Group as part of a financing round in 2017.