Tech investors face ‘new era’ of China restrictions after Biden order limits funding in A.I., chips
US President Joe Biden speaks on how “Bidenomics” is helping clean energy and manufacturing, at Arcosa Wind Towers in Belen, New Mexico, on August 9, 2023.
Jim Watson | AFP | Getty Images
The Biden administration’s executive order restricting U.S. private equity and venture capital investments in Chinese technology finally landed on Wednesday. For U.S. tech investors who’d already grown wary of the budding cross-Pacific rivalry, the ruling is the clearest signal yet that the world’s second-biggest economy is off limits.
Biden is specifically targeting investments in technologies like semiconductors, quantum computing and artificial intelligence on concern that China’s advancements in those areas run counter to U.S. national security interests. The new measure is expected to go into effect next year.
U.S. investors have been steadily retreating from China due to a combination of a weakening economy and the fraught geopolitical environment. Combined U.S. private equity and venture investments in China fell to an eight-year low in 2022 in terms of capital deployed, a trend that continued into the first half of this year, according to PitchBook data.
“We’ve had conversations with with our own clients who have said, ‘Yeah, look, we’ve really been pulling back on on our presence in China for a little while,'” said Elena McGovern, co-head of the national security practice at private equity advisory firm Capstone, in an interview. “This is the first time that the U.S. government is imposing restrictions on how U.S. capital flows out of the country, how U.S. investors are making investment decisions. So that is a new era.”
Political pressure has been bipartisan. Last month, the House Select Committee on the Chinese Communist Party sent letters to four U.S. venture firms, expressing “serious concern” about their investments in Chinese tech startups. And in July, legendary VC firm Sequoia Capital said it would split its international business into three parts, with Neil Shen helming its powerful Sequoia China unit.
At this point, any technology that can be used to enhanced China’s military strength or surveillance capabilities is of notable concern to the White House.
“U.S. money should not be used to finance Beijing’s military development,” said Eric Reiner, managing partner at Vine Ventures, which backs early-stage companies in the U.S., Israel and Latin America. “A lot of these firms that have been investing in China and setting up offices there are really playing with fire.”
While AI, computer processors, and quantum computing are areas of stated concern, many investors and experts say they have to move forward with the expectation that the ban will widen, essentially making any deal in Chinese technology too risky to pursue.
“It’s likely to deter investments in those sectors, even beyond what is explicitly prohibited,” said, Adam Hickey, a former deputy assistant attorney general for the Justice Department’s national security division who’s now a partner at law firm Mayer Brown. “Most investors want to avoid being seen as acting against U.S. national security interests.”
Steve Sarracino, the founder of Activant Capital, said “I don’t know anyone that’s doing early-stage China investing from from the U.S.” The only exception, he said, were “hedge funds, who really are in the business of calculating geopolitical risks.” Activant has offices in the U.S., Germany and South Africa.
The U.S. government’s ongoing hostility towards China carries its own risks. For one, there’s a ton of investment money in and around China that can fill the vacuum and potentially generate huge returns. There’s also the challenge of dealing with existing investments.
For example, major U.S. venture firms have invested in ByteDance, the parent of mobile video app TikTok, which has faced the threat of a potential ban in the U.S. or a forced sale to keep operating. Investors want to maximize their returns, which could be huge should ByteDance go public.
TikTok CEO Shou Zi Chew testifies before the House Energy and Commerce Committee hearing on “TikTok: How Congress Can Safeguard American Data Privacy and Protect Children from Online Harms,” on Capitol Hill, March 23, 2023, in Washington, DC.
Olivier Douliery | Afp | Getty Images
ByteDance reportedly scrapped a planned U.S. listing in 2021 after the company learned it needed to deal with potential security concerns. That same year, China cracked down on domestic companies that traded on U.S. exchanges. With the tech IPO markets still largely closed and U.S.-China tension only building, it’s not clear when or how ByteDance investors will realize their gains.
Other investors worry that if relations eventually improve between the two countries, U.S. firms will be at a disadvantage when it comes to finding and getting into deals. Rebuilding trust will likely be a particular challenge.
“If you already had a presence there, you will have an advantage when things open up,” Sarracino said. But that’s not the case for firms that weren’t in China or those that pared back their operations in the country, he said.
Reiner says the investment returns that could be generated from Chinese companies aren’t worth the global threat posed by having China own and control sensitive technologies.
“I wonder if the executive order itself is even really necessary,” he said, “or if we really should be spending our time securing our resources and incentivizing China not to spy on our important and proprietary technology.”
WATCH: Biden doesn’t want U.S. dollars funding China’s military
Meta’s Mark Zuckerberg plans to visit South Korea, scheduling key meetings during the trip, according to a statement by Meta on Wednesday, which did not provide further details. Reportedly, Zuckerberg is anticipated to meet with Samsung Electronics chairman Jay Y. Lee later this month to discuss AI chip supply and other generative AI issues, as per the South Korean newspaper Seoul Economic Daily, citing unnamed sources familiar with the matter.
Alex Wong | Getty Images News | Getty Images
Meta extended its ban on new political ads on Facebook and Instagram past Election Day in the U.S.
The social media giant announced the political ads policy update on Monday, extending its ban on new political ads past Tuesday, the original end date for the restriction period.
Meta did not specify the day it will lift the restriction, saying only that the ad blocking will continue “until later this week.” The company did not say why it extended the political advertising restriction period.
The company announced in August that any political ads that ran at least once before Oct. 29 would still be allowed to run on Meta’s services in the final week before Election Day. Other political ads will not be allowed to run.
Organization with eligible ads will have “limited editing capabilities” while the restriction is still in place, Meta said. Those advertisers will be allowed to make scheduling, budgeting and bidding-related changes to their political ads, Meta said.
Meta enacted the same policy in 2020. The company said the policy is in place because “we recognize there may not be enough time to contest new claims made in ads.”
Google-parent Alphabet announced a similar ad policy update last month, saying it would pause ads relating to U.S. elections from running in the U.S. after the last polls close on Tuesday. Alphabet said it would notify advertisers when it lifts the pause.
Nearly $1 billion has been spent on political ads over the last week, with the bulk of the money spent on down-ballot races throughout the U.S., according to data from advertising analytics firm AdImpact.
Watch: Tech still investing big in AI development despite few breakout products.
Technology
Jeff Bezos and OpenAI invest in robot startup Physical Intelligence at $2.4 billion valuation
Sam Altman, CEO of OpenAI, attends the 54th annual meeting of the World Economic Forum, in Davos, Switzerland, January 18, 2024 (L), and Amazon CEO Jeff Bezos speaks during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 2, 2021.
Reuters
Physical Intelligence, a robot startup based in San Francisco, has raised $400 million at a $2.4 billion post-money valuation, the company confirmed Monday to CNBC.
Investors included Amazon founder Jeff Bezos, OpenAI, Thrive Capital and Lux Capital, a Physical Intelligence spokesperson said. Khosla Ventures and Sequoia Capital are also listed as investors on the company’s website.
Physical Intelligence’s new valuation is about six times that of its March seed round, which reportedly came in at $70 million with a $400 million valuation. Its current roster of employees includes alumni of Tesla, Google DeepMind and X.
The startup focuses on “bringing general-purpose AI into the physical world,” per its website, and it aims to do this by developing large-scale artificial intelligence models and algorithms to power robots. The startup spent the past eight months developing a “general-purpose” AI model for robots, the company wrote in a blog post. Physical Intelligence hopes that model will be the first step toward its ultimate goal of developing artificial general intelligence. AGI is a term used to describe AI technology that equals or surpasses human intellect on a wide range of tasks.
The news comes days after OpenAI launched a search feature within ChatGPT, its viral chatbot, that positions the AI startup to better compete with search engines like Google, Microsoft‘s Bing and Perplexity. Last month, OpenAI also closed its latest funding round at a valuation of $157 billion.
Physical Intelligence’s vision is that one day users can “simply ask robots to perform any task they want, just like they can ask large language models (LLMs) and chatbot assistants,” the startup wrote in the blog post. In case studies, Physical Intelligence details how its tech could allow a robot to do laundry, bus tables or assemble a box.
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