Investments In Chinese Technology Firms Are Being Scrutinized As The Biden Administration Tightens Fund Flows

Sequoia Capital is seeking the support of national security experts in the US to vet potential investments of its Chinese arm in Chinese tech firms. According to the latest news today, the new measures are part of the Biden administration’s efforts to limit fund flow into Chinese tech companies that are engaged in developing sensitive technologies.

Sequoia updates its plans for US officials

Sequoia Capital China, a Chinese arm of Sequoia Capital, mobilized $8.5 billion from large institutional investors in the US in 2022. It attracted the scrutiny of lawmakers in the US and White House officials. Menlo Park, California-based Sequoia updated White House officials in late 2022 about its fund flows into China and how it plans to screen future fund flows.

Based on national security concerns, American policy experts are scrutinizing investments in Chinese-based technology firms primarily engaged in quantum computing and semiconductor production. It is, however, the first for Sequoia and is not legally binding.

According to the latest available information, the Chinese arm of Sequoia Capital made twenty investments between 2021 and 2022 in companies engaged in the manufacture of semiconductors and associated companies in China. However, the company halted investing in Chinese tech companies that manufacture chips or startups engaged in quantum computing after the US government started the screening process in the autumn of last year.

Despite backing Airbnb Inc. and Apple Inc., Sequoia Capital stayed away from its rivals in the US since it already had a large chunk of investments in China. According to available data, Sequoia Capital China drew commitments from the Massachusetts Pension Reserves Investment Trust, the University of Washington, and the endowments of the University of Texas for its new fund requirements.

Though additional screening does not bar investments in sensitive technologies in China, the new rules are aimed at limiting the flow of new funds into companies engaged in developing sensitive technologies. According to the belief of officials in the US, the new funds support the efforts of China in developing its military technologies and pose a threat.

Industries are trying to navigate amid geopolitical tensions between China and the US

Amid the growing rift between the US and China, several companies across various industries are trying to navigate accordingly. Apple recently expedited its efforts to move its production out of China. In the previous week, China imposed sanctions on Raytheon Technologies Corp. and Lockheed Martin Corp. because of their involvement in arms sales to Taiwan.

According to the latest breaking news headlines, Neil Shen, the managing partner and founder of Sequoia Capital China, generated huge returns by investing in companies such as Meituan, PDD Holdings Inc., and Inc., which are based in China. Therefore, the activities of Sequoia Capital caught the eye of national security experts in the US, as the fund is navigating a complex relationship with its Chinese arm.

The executives at Sequoia Capital said the venture capital fund has a decentralized structure worldwide, and the Chinese arm is taking independent decisions. Both firms have separate teams of investment professionals. However, they utilize back-office functions such as accounting, finance, compliance, and IT. Both firms share profits from their investments.