February 9, 2021
National Security: CFIUS Targets China-backed Venture Deals
The WSJ recently reported that CFIUS has beefed up its enforcement team and is taking a hard look at venture investments by China-based entities, including deals that closed months or even years ago. The article says that dealmakers better get used to this kind of scrutiny when it comes to Chinese investments in tech startups:
The Committee on Foreign Investment in the U.S., or CFIUS, has over the past two years built out a new enforcement arm of roughly two dozen people tasked with rooting out old investment deals that involve sensitive technologies and could pose a threat to national security, according to current and former government officials and national-security lawyers. The team has its sights on venture-capital investments, even small-dollar deals, where the money can be traced back to China, these people say.
CFIUS, which reviews foreign investment in U.S. companies and real estate for potential national-security risks, is positioned to become a linchpin in President Biden’s strategy to curb China’s technology ambitions. Recent hires to its enforcement team include professionals from venture-capital firms, investment banks and technology backgrounds, according to people involved in the effort. This CFIUS group has sent letters to several dozen companies and made calls requesting information about transactions with foreign investors, said lawyers, investors and national-security officials.
The article notes that CFIUS unwound two venture investments by China-based entities last year, and that its willingness to unravel a closed investment has led some startups to seek CFIUS approval in advance of closing.
– John Jenkins