SAN FRANCISCO (Reuters) – Danhua Capital has invested in some of Silicon Valley’s most promising startups in areas like drones, artificial intelligence and cyber security. The venture capital firm is based just outside Stanford University, the epicenter of U.S. technology entrepreneurship.
Yet it was also established and funded with help from the Chinese government. And it is not alone.
More than 20 Silicon Valley venture capital firms have close ties to a Chinese government fund or state-owned entity, according to interviews with venture capital sources and publicly available information.
While the U.S. government is taking an increasingly hard line against Chinese acquisitions of U.S. public companies, investments in startups, even by state-backed entities, have been largely untouched.
That may well be poised to change as the U.S. Congress finalizes legislation that dramatically expands the government’s power to block foreign investment in U.S. companies, including venture investments.
The new law would give the U.S. government’s Committee on Foreign Investment in the United States (CFIUS) wide latitude to decide what sorts of deals to examine, eliminating certain ownership thresholds, with a particular focus on so-called “critical” technologies.
“The perception is that a lot of the tech transfer of worry to the U.S. security establishment is happening in the startup world,” said Stephen Heifetz, a former member of CFIUS and now a lawyer…