Chinese venture funding in U.S. startups has slowed under new regulatory regime | Hacker News Reader

Chinese venture funding in U.S. startups has slowed under new regulatory regime

reuters.com

94 pointsskilled60 comments

> Chinese venture funding in U.S. startups has slowed to a trickle, Reuters interviews with more than 35 industry players show

Garbage article based on a small sample of anecdotes. In that spirit, I’ll add one.

I work with international investors. Chinese interest in American technology companies continues to rise. If I were to characterise recent shifts resulting from politics, it’s one from controlling interests to minority interests and one from funds to direct investments. My guess is this Reuters author only spoke to VCs and M&A bankers.

(Counterfactual: China’s biggest cheque writers were historically state-owned companies and mainland-listed companies buying earnings. The former is being politically checked. The latter lost steam when the Chinese stock market tanked. But neither is a major direct source of investment for early- or growth-stage companies, nor even the funds that invest in them.)

I don't think the question is whether chinese are interested in investing in US technology companies but rather whether they are allowed to. Several countries within the EU are also working on rules which will make it much harder for Chines investors to acquire access to technology IP or important infrastructure companies.

Other than that I agree the article is poorly researched.

> Several countries within the EU are also working on rules which will make it much harder for Chines investors to acquire access to technology IP or important infrastructure companies

Many private companies resist disclosing even financials to their investors [1].

Venture investing is characterised by non-controlling interests. The restrictions you describe limit controlling investments. Those investments count as technology investments. But not as “venture funding in...startups.”

[1] https://www.google.com/amp/s/mobile.reuters.com/article/amp/...

The Chinese have never needed controlling access to benefit from access to the IP. That's the primary point of the disagreement with the Chinese over IP, enforcement more than legislation.

The new Foreign Investment Risk Review Modernization Act has bought minority investments into the scope of CFIUS reviews.

> Foreign Investment Risk Review Modernization Act has bought minority investments into the scope of CFIUS reviews

Not all minority investments. Simply ones “in a critical technology company that gives the foreign entity:

- access to any material non-public technical information of the company;

- membership or observer rights on the company’s board or equivalent governing body; or

- any involvement in substantive decision-making of the company, other than through voting of shares” [1].

[1] https://techcrunch.com/2018/08/17/a-new-foreign-investment-b...

"- access to any material non-public technical information of the company;"

wouldn't that cover more or less any relevant investment in a startup?

No. Many private companies routinely disclose much less to investors [1].

Technical information rights go beyond standard and statutory investor information rights, and are typically reserved for strategic investors, knowledgeable lead investors and board members.

[1] https://www.reuters.com/article/us-palantir-technologies-law...

I am not so sure that's correct in reality. Maybe technically but not in reality especially not for small startups.

Excellent, so they will acquire it by other means.

I know of at least one startup that will be closed in the next few months despite the Chinese investor trying to put 30 million in it every which way. They are up to suitcases filled with cash right now. Everything is fine on the US side, it's the Chinese capital controls that's killing them.

Having spent the last few weeks in Beijing, I can't help but think that any reasonable trade compromise should essentially require that China get rid of its Great Firewall. When you block and throttle essentially any foreign digital product and service in this day and age you are not practicing free trade. Tariffs / IP protections / dumping / FDI restrictions are all important but so long as the Firewall is in place international community should block China from selling any digital and physical goods. WTO rules should be updated to forbid digital blocking and throttling.

strange thing is that it is often ignored in trade negotiations.

The firewall and aggressive social repression in general is a red line for China, much like their claims of owning Taiwan and the inevitability of annexation. The dictatorship that runs China - both the remaining old party system and the new system run by Xi - can't exist without the firewall, it's off limits accordingly.

China won't come to the table if you put the firewall in the list of things to be negotiated, that's why it so rarely comes up. For them what that means is, they'd rather suffer any external consequences in trade & economy, and the domestic suffering that passes on to the people, than give up their reign.

The firewall will disappear when China has a strong enough propaganda machine that can counter the western propaganda machine (think Hollywood & BBC). China has been working on it for a few years. Shouldn't take too long. Maybe a decade or so.

The firewall is there so that Facebook and similar companies made it possible to Russia and other states to interfere with election in the US cannot do the same in China. Yes, China has elections. I think most western people believe that propaganda that the firewall is a tool for oppression.

> The firewall is there so that Facebook and similar companies made it possible to Russia and other states to interfere with election in the US cannot do the same in China.

No. The great firewall is mainly there to prevent the Chinese people from organizing and disseminating information in ways that challenge the government [1]. They want to prevent something like the Arab Spring or the color revolutions [2].

Since you bring up Russian election interference: some Chinese government actions on the internet actually resemble Russian troll armies more than anything else [3].

[1] https://gking.harvard.edu/publications/how-censorship-china-...

[2] https://en.wikipedia.org/wiki/Arab_Spring

[3] https://gking.harvard.edu/50c

> Yes, China has elections.

So have the Soviet Union and all kinds of dictatorships [4]. There's a big difference between having party-controlled "elections" and free and fair elections. The PRC most certainly does not have the latter.

[4] https://en.wikipedia.org/wiki/Election#Sham_election

As a Bahraini friend told me, "Iran has democratic elections."

To which I replied, "What about the weeding out and approval process required for candidates?"

To which he replied, "Well, you can't have a sheep herder run for President and win."

On that basis, I believe America has proven the supremacy of its democracy, for better or worse.

Some would argue the process we (Americans) use to select candidates is different only by appearance, for offices that actually have any power anyway.

The some that would argue that, are easily refuted by the facts.

Bill Clinton came from poverty, had no father, was a nobody governor for Arkansas with a mixed record of success in politics. He defeated a very powerful patriarch of the Bush dynasty - former CIA head, former Vice President, WW2 hero, former member of Congress - who was backed by Ronald Reagan (an extraordinarily popular President). He also defeated one of the richest and most famous people in the country at the time in Ross Perot (of course some would say Perot actually defeated Bush, which is interesting as well as Perot was a political outsider).

Barack Obama had no father in a similar manner as Bill Clinton. Grew up in a still difficult time to be half white and half black, raised by a white family. He didn't come from a dynasty or impressive wealth. He admitted doing drugs, admitted being interested in alternative culture and Marxist ideas in his youth. He got soundly elected by knocking the more conservative Clinton dynasty out of the way, despite the enormity of the money and support behind Hillary Clinton.

Donald Trump, a billionaire, was opposed by nearly every layer of power in the US, including nearly all of the media, nearly all celebrities, nearly all journalists, and including nearly the entire Republican Party and most of its big money backers. He's the first political outsider to win the Presidency in more than a century and is still openly opposed at every step by the same forces that opposed his candidacy.

Bernie Sanders - openly a Socialist in a nation that has historically aggressively rejected most variations of Socialism - came one step away from competing with Trump for the Presidency. He had to be thwarted by his own party, sabotaged in numerous ways, to prevent that outcome. That is a case where the more powerful group prevailed using under-handed tactics. However it's non-the-less impressive how far Sanders got, when most of the system clearly opposed him and his policies.

It's blatantly clear the US system isn't only different by appearances. It still enables outcomes that would be impossible if it were truly only an oligarchy style pre-selected system (this is where I acknowledge that the US does have aspects of pre-selection and some oligarchy-like power structures, it's obvious). All the power structures in the US opposed Trump and still do, including essentially all of its wealthiest persons; he flat-out was not supposed to win. Hillary Clinton, as the more powerful dynastic insider candidate, would have won against either Obama or Trump if the US primarily operated by pre-selection (Trump would have never gotten beyond Jeb Bush in that case).

Bernie Sanders is a self described Social Democrat.

Well I am not sure how different your presidents are, if you only looking at the foreign policy the picture is kind of blurry.

https://www.ranker.com/list/the-twelve-worst-us-presidents-b...

> Well, you can't have a sheep herder run for President and win.

Or a progressive Democrat like Bernie Sanders.

>> To which I replied, "What about the weeding out and approval process required for candidates?"

>> Well, you can't have a sheep herder run for President and win.

> Or a progressive Democrat like Bernie Sanders.

No one was stopping Sanders from running as an independent.

This is true, but it is also true that there were several individuals and organizations involved in ensuring that his run as a Democrat would be unsuccessful.

I see. This is why they needed to hack into Google/Gmail in 2011 because nobody has the brainpower in China to circumvent it. Also, are seriously suggesting that you can only only do organizing on platforms that are blocked by the firewall? It still amazes me how ignorant people are in the west. And there is the cultural difference. In China people use Wechat in a similar fashion as we use Facebook, they share pictures etc. Finally, almost non of my Chinese friends who live in the west use FB even though they have the liberty to do so. Similar story in Vietnam and many other countries. Again, somebody has to be quite ignorant not to see FB as a national security treat. Even the US recognised that, you might have seen the congressional hearing of Zuckaberg, which was quite a shit show for many reasons.

https://www.reuters.com/article/us-google-hacking-idUSTRE750...

> Also, are seriously suggesting that you can only only do organizing on platforms that are blocked by the firewall?

This seems reasonably accurate. The gov has complete access to Wechat's data and can create, edit, or destroy any content they choose. They regularly run ML algorithms across the whole network to identify whatever they want. They can't do this with Facebook or WhatsApp.

> Also, are seriously suggesting that you can only only do organizing on platforms that are blocked by the firewall? It still amazes me how ignorant people are in the west.

The domestic Chinese social networks are fully staffed with censors [1] and likely police surveillance, so it would obviously be more difficult and dangerous for Chinese people to organize on them. The great firewall blocks the foreign that aren't willing to fully participate in that censorship and surveillance regime and that are large enough to be a threat, and the Communist Party likely judges the foreign operators to be less reliable partners in any case.

[1] https://www.nytimes.com/2019/01/02/business/china-internet-c...

Another factor that makes domestic Chinese websites a poor choice for political organizing and activism is the PRC government's efforts to make all web activity traceable to a national ID number. Why do you think it's now difficult to impossible to buy a activated SIM card at a corner shop, and why WIFI access points and most websites require an access code be sent by text message before you can get online or create an account?

> Finally, almost non of my Chinese friends who live in the west use FB even though they have the liberty to do so.

I don't use FB even though I have the liberty to do so.

> Again, somebody has to be quite ignorant not to see FB as a national security treat.

There are some very important distinctions that you're missing. The free exchange of ideas among citizens is not a national security threat unless you're a regime that is opposed to human rights [2] [3]. The issue with Facebook is really one of state-sponsored impersonation.

[2] https://en.wikipedia.org/wiki/Document_Number_Nine

[3] https://www.nytimes.com/2013/08/20/world/asia/chinas-new-lea...

Can you or anyone else point out any evidence (rather than a claim) of this election tampering? The only "proof" I've managed to find is Russian IP addresses.

The indictment of Concord Management: https://www.justice.gov/opa/press-release/file/1035562/downl... - Discusses the efforts conducted to sow election disinformation, suppress voter turnout

The indictment of the accountant of Concord Management: https://www.justice.gov/opa/press-release/file/1102316/downl... - additional details provided relating to above case

The indictment of 12 GRU Hackers, who were named and identified by their specific address. https://www.justice.gov/file/1080281/download - Discusses GRU social engineering to access election machines and state officials

There has also been election fraud/tampering that has occurred by domestic forces in NC: https://www.nbcnews.com/politics/elections/investigation-n-c...

Let's just pick one:

> The indictment of Concord Management: https://www.justice.gov/opa/press-release/file/1035562/downl.... - Discusses the efforts conducted to sow election disinformation, suppress voter turnout

Can you tell me on which page the proof is stated?

this document describes the conspiracy of Concord Management.

Before we begin, I'd like to quote the first line of the document: "The Grand Jury for the District of Columbia charges: "

https://www.popehat.com/2017/08/07/lawsplainer-how-federal-g...

From former Assistant United States Attorney of the Central District of California, Ken White:

"A grand jury is a group of citizens brought together to determine whether to bring criminal charges against someone suspected of a crime. ... The Fifth Amendment says "No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury . . . ." So, the Constitution requires that the federal government get an indictment from a federal grand jury before charging you with a federal felony."

Page 16-19 have particularly relevant evidence, beginning with the title 'Actions Targeting the 2016 U.S. Presidential Election'. I encourage you to read the whole document as it provides context about who the Defendants are alleged

Page 18 has a relevant section I'd like to highlight regarding suppressing voter turnout.

"In or around the latter half of 2016, Defendants and their co-conspirators, through their ORGANIZATION-controlled personas, began to encourage U.S. minority groups not to vote in the 2016 U.S. presidential election or to vote for a third-party U.S. presidential candidate.

a. On or about October 16, 2016, Defendants and their co-conspirators used the ORGANIZATION-controlled Instagram account "Woke Blacks" to post the following message: "[A] particular hype and hatred for Trump is misleading the people and forcing Blacks to vote Killary. We cannot resort to the lesser of two devils. Then we'd surely be better off without voting AT ALL."

b. On or about November 3, 2016, Defendants and their co-conspirators purchased an advertisement to promote a post on the ORGANIZATION-controlled Instagram account "Blacktivist" that read in part: "Choose peace and vote for Jill Stein. Trust me, it's not a wasted vote." c. By in or around early November 2016, Defendants and their co-conspirators used the ORGANIZATION-controlled "United Muslims of America" social media accounts to post anti-vote messages such as: "American Muslims [are] boycotting elections today, most of the American Muslim voters refuse to vote for Hillary Clinton because she wants to continue the war on Muslims in the middle east and voted yes for invading Iraq."

The tail end of Page 18 but mostly Page 19 has relevant evidence to sowing election disinformation:

"Starting in or around the summer of 2016, Defendants and their co-conspirators also began to promote allegations of voter fraud by the Democratic Party through their fictitious U.S. personas and groups on social media. Defendants and their co-conspirators purchased advertisements on Facebook to further promote the allegations.

a. On or about August 4, 2016, Defendants and their co-conspirators began purchasing advertisements that promoted a post on the ORGANIZATION-controlled Facebook account "Stop A.I." The post alleged that "Hillary Clinton has already committed voter fraud during the Democrat Iowa Caucus."

b. On or about August 11, 2016, Defendants and their co-conspirators posted that allegations of voter fraud were being investigated in North Carolina on the ORGANIZATION-controlled Twitter account@TEN_GOP.

c. On or about November 2, 2016, Defendants and their co-conspirators used the same account to post allegations of "#VoterFraud by counting tens of thousands of ineligible mail in Hillary votes being reported in Broward County, Florida."

My specific question is regarding the recurring "Defendants and their co-conspirators..." claim that everyone takes at face value with zero second thought. How did they identify with a high level of confidence who was behind all these accounts? I have only seen one reference to how this identification occurred, and it was based on IP address. Is that what this entire case rests on, yes or no?

There's nothing stopping me from making social media accounts and creating the visible impression of all sorts of things, but that doesn't make the visible impressions true.

It's depressing how widespread the resistance is to a simple request for evidence rather than allegations is in matters within the political realm, objectivity will soon be a thing of the past if we keep going like this.

The entire case does not rest on "IP address". Did you read the rest of the document?

The details are documented. They followed the paper trail created by all of the shell corporations and financial transactions used to fund this $1.25M/month operation, had testimony from witnesses involved in the conspiracy to the Grand Jury, and evidence from stealing the identities of US citizens to commit bank fraud. It also lists 12 specific people behind the operation including what role they played (travel to US, purchasing IT equipment, etc). This begins on page 5.

Here's a particularly relevant excerpt from page 24: 58. In order to avoid detection and impede investigation by U.S. authorities of Defendants' operations, Defendants and their co-conspirators deleted and destroyed data, including emails, social media accounts, and other evidence of their activities.

a. Beginning in or around June 2014, and continuing into June 2015, public reporting began to identify operations conducted by the ORGANIZATION in the United States. In response, Defendants and their co-conspirators deleted email accounts used to conduct their operations.

b. Beginning in or around September 2017, U.S. social media companies, starting with Facebook, publicly reported that they had identified Russian expenditures on their platforms to fund political and social advertisements. Facebook's initial disclosure of the Russian purchases occurred on or about September 6, 2017, and included a statement that Facebook had "shared [its] findings with US authorities investigating these issues."

c. Media reporting on or about the same day as Facebook's disclosure referred to Facebook working with investigators for the Special Counsel's Office of the U.S. Department of Justice, which had been charged with investigating the Russian government's efforts to interfere in the 2016 presidential election.

d. Defendants and their co-conspirators thereafter destroyed evidence for the purpose of impeding the investigation. On or about September 13, 2017, K.AVERZINA wrote in an email to a family member: "We had a slight crisis here at work: the FBI busted our activity (not a joke). So, I got preoccupied with covering tracks together with the colleagues." KAVERZINA further wrote, "I created all these pictures and posts, and the Americans believed that it was written by their people."

Who is "everyone" in "everyone takes at face value with zero second thought"? and where is the resistance "to a simple request for evidence rather than allegations is in matters within the political realm, objectivity will soon be a thing of the past if we keep going like this."

Who is taking them at face value and who is resistant to a simple request for evidence? Straw man and a hasty generalization.

I've been engaging with you in good faith. Are you doing the same? Read the documents I've shared. You're exhibiting the behavior of a troll.

isn't this like asking the US to give up their "Strong dollar policy"/Exchange Rate Weapon?

Everyone wants improvement but hate change. I for one welcome this stance and although I fear it won't help much as this is about technology and technology > the policy but hopefully the consequences of this will have some illuminating outcomes.

I've been tracking venture investment in biotech and Chinese investment was pretty steady through all of 2018, though they began leading fewer deals and doing more follow on investments

Anecdotally, there's a big healthcare conference in SF this week, and several of the Chinese investors we planned on meeting canceled their trips

> Anecdotally, there's a big healthcare conference in SF this week, and several of the Chinese investors we planned on meeting canceled their trips

This is possibly due to escalation of the trade war into arresting prominent business people from the opposing side.

What data are you using? Was there a change after the CFIUS rules went into affect on Nov 10th?

I'm using data I collected myself. No guarantee that it's comprehensive but it seems not far off the data collected by Pitchbook per this report [0]

Don't have the data in front of me but I think the change happened a bit before november

[0] https://www.prnewswire.com/news-releases/silicon-valley-bank...

I wonder if this will accelerate Chinese Investment in EU Startups?

I doubt they will be particularly interested in EU, maybe excluding some gaming studios.

Actually the exact opposite, Chinese investment in EU is at all time high and increases rapidly. They even have direct flights to many cities now, and every month there is a new line open. Advertisement of jobs for Chinese companies that are now in EU is everywhere. Chinese people are now everywhere.

Not in France. I just read that they are working on blocking foreign investment in key tech like AI, crypto, etc.

>key tech like AI, crypto

Crypto is not a key tech.

And it never will be. I don't understand why so many people on Hn are obsessed with this utter garbage what crypto means.

Only 3 billion? Thats chump change in SV.

Indeed. $140B in 6 years

https://www.cbinsights.com/research/report/global-tech-hubs/

I guess the US are against free markets

China is notorious for requiring "joint ventures" and other rediculous hoops to invest in China. The US wants free markets to go both ways.

This is just like the trade tarrifs, some pressure to convince China to play by the same rules as other developed countries when it comes to trade and IP

This is whataboutism. The US is restricting the free market - regardless of what any other country does.

It's only restricting foreign investments from certain countries like China that don't play by the rules. It's like banning someone from your store because they steal stuff.

The "free market" isn't anarchy, it's essentially a bunch of bilateral trade agreements

Nonsense. The US is restricting trade. Frankly, I'd like to see WTO step in here.

WTO will have little to say on the matter in the same way that it had little to say on the restrictions on trade China has enforced for its domestic market for decades.

Well these guys downvoting you never heard of export regulations.

Few links for those who are downvoting this comment above:

https://www.theregister.co.uk/2015/04/10/us_intel_china_ban/

https://wccftech.com/us-government-bans-intel-nvidia-amd-chi...

https://www.wsj.com/articles/u-s-agencies-block-technology-e...

https://venturebeat.com/2018/11/23/u-s-lobbies-germany-italy...

https://www.engadget.com/2018/08/14/us-defense-huawei-zte-ba...

> It's only restricting foreign investments from certain countries like China that don't play by the rules.

The US generally (in cooperation with Europe) wrote the rules on post-WWII trade.

I think China absolutely does some shady stuff, pathologically lies about doing so, and flaunts international rules they dislike.

But let's not pretend the game wasn't tilted against them (and developing countries) from the start.

There's a reason Trump is having a hard time staffing State and the Pentagon: everyone professionally qualified to serve knows how the current international system serves American interests.

(Said as an American)

The US should do whatever the US thinks it benefits the United States. China from the perspective of the US has the ridiculous restrictions on what American businesses can do. It is the high noon for the US to do the same.

It's like people forgot about the huge controversy surrounding Google doing business in China. The reason so many people were against it is because China was forcing Google to censor its search results to avoid listing anything negative about the Chinese government. The Google images search results for Tiananmen Square in the US vs China are drastically different, and that's not by Google's choosing. That's a demand from the Chinese government.

>>>>The US wants free markets to go both ways.

Are we talking about the country that pushed through many "free trade" agreements like this:

https://www.ineteconomics.org/perspectives/blog/why-free-tra...

https://clas.berkeley.edu/research/tpp-nafta-whose-interest-...

Another case where the US is shooting itself in the foot. Chinese money will now invest in local Chinese startups, which are growing very quickly, and in other countries other than the US.

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