The long trade war between the U.S. and China signaled an end to Chinese investors’ longtime interest in funding Silicon Valley startups.
Jack Ma’s $580 billion Alibaba started funding U.S. startups in 2013 and put money into companies like Lyft and Snap ahead of their initial public offerings (IPO).
Investments by Baidu, Alibaba and Tencent — known as BAT — dropped 84 percent since 2018, to under $560 million, according to a PitchBook analysis. Investments peaked in 2015, totaling $4.7 billion.
Since the passing of the 2018 reform act, The Committee on Foreign Investment in the U.S., or CFIUS, was granted greater supervision over foreign, minority investments in “critical technology” as well as “foundational” and “emerging” technologies. The agency’s increased review of deals is being partially blamed for the investment slowdown.
“The worst thing for investors is uncertainty,” said Charles Liu, co-founder of private equity fund HAO Capital. “Many Chinese investors have decided it’s not worthwhile waiting over a year for a CFIUS review that may end up with a ‘no’ and instead have abandoned doing deals in the U.S.”
Two Chinese investors told FT that concerns over CFIUS caused them or drop or change investments in U.S. semiconductor design companies.
Alibaba gave money to short-form video producer Quibi led by Jeffrey Katzenberg and Meg Whitman but didn’t publicly disclose the amount. It also made investments through its non-profit Entrepreneurs Fund.
Some U.S. startups have tried thinning the shares of initial Chinese investors due to regulatory probes and public backlash.
In September, the Treasury Department starting implementing the law giving CFIUS more power. The reform law passed by Congress in 2018 widened the scope of national security reviews of foreign investment deals, including those involving satellites, oil refineries, financial-market systems and drinking water utilities.
Treasury officials also released a list of U.S. military bases, airports and maritime ports where nearby foreign investment could come under tighter scrutiny.