Chinese startup companies may miss American know-how as the US venture capital will soon be banned but other venture capitals are sure waiting on the sidelines.

China may start looking for other venture capitals as the US venture capital will be barred from China. (Photo: iStock)

Chinese startup companies could miss American know-how as much as they will miss the US venture capital to be banned from flowing across the Pacific by the restrictions of President Biden aimed at the firms whose products may help China’s military.

According to The China Project, although US venture capital will be blocked from the Pacific by the restrictions made by President Biden, observers have stated that China’s investment won’t suffer too badly.

In addition to barring American capital from flowing to companies that could help develop technology for the People’s Liberation Army, the proposed regulations would stem Chinese startup companies’ access to intangible benefits offered along with investment by venture funds run by US tech giants like Google. From 2014 to 2019, the US venture capital has targeted Chinese startup companies that are working with AI more than any sector, according to the data by Rhodium.

The draft regulations stated that the benefits that are accessed by Chinese startup companies included managerial assistance, access to investment and talent networks, market access, and enhanced access to additional financing. 

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The Biden Administration is concerned that the Chinese startup companies taking the American venture capital might be able to gain access to cutting-edge technology retained as advisers to American investment firms.

According to Axios Sneak Peek, the restriction proposed by President Biden would prevent US individuals and institutions from making investments in Chinese companies or in Chinese startup companies that are involved in the development of AI, Quantum Information Technologies, etc. 

The White House has justified its focus on private markets by arguing that investors offered intangible benefits that are absent in most public equity deals, connecting to various portfolio companies or Chinese startup companies.

However, it is hard to see this ban as anything other than a blanket on the US investment in privately held Chinese startup companies or Chinese tech companies as most tech companies are touting their AI efforts or will soon be. It would also be interesting if a few Chinese startup companies or Chinese tech companies accelerate IPO plans in an effort to tap foreign investments.

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