Warning Bells Over Undercover Financing
Greedy American Beginnings Sucking Resources and Opportunities Dry
An agreement known as the "Clean Tech Secret Shield" (CTSS) recently surfaced on TechCrunch on December 18th. This pact is signed by members of the informal alliance, Future Union, whose primary objective is to safeguard advanced technologies from falling into unwanted hands and to protect American companies from foreign influence in their politics. Over the past three years, Future Union has been focusing on deterring Chinese investors from gaining access to American technological secrets. Unregistered foreign investors pose a significant threat as their investments serve as a "legal" form of economic espionage, yet there are insufficient formal restrictions in place to deter such activities.
The companies that signed the CTSS (Moonshots Capital, Marlinspike Partners, Humba Ventures, Space Capital, Snowpoint Ventures, etc.) decided to take action to prevent foreign investors from reaping the benefits of American startups. Despite their efforts, these funds are relatively small, none of them making it into the top 10 by asset value.
The signing of the CTSS came shortly after the FBI initiated an investigation into the venture capital firm Hone Capital in September. The California-based firm was accused of participating in data theft by sharing technology secrets with Chinese shareholders. Similarly, in February 2024, US Congress members expressed concerns over defense tech companies such as GGV Capital, GSR Ventures, and Walden International receiving a combined $3 billion from Chinese companies developing AI and semiconductors. At the time, the Pentagon warned those companies that continue to cooperate with investors from unfriendly countries would be ineligible for defense government contracts.
A Leaky Shield
The CTSS hopes to encourage other American companies that rely on foreign capital to follow suit. However, Future Union's initiative has yet to garner widespread support. Notable venture capital firms in the defense sector, such as Andreessen Horowitz, A16Z, Founders Fund, and Sequoia, are conspicuously absent from the list of signatories. Some of these companies have declined to join the initiative, stating they have been wary of accepting "enemy" funds all along. Sequoia even established a separate legal entity for their division that previously relied on Chinese investments in 2023.
Critics argue that companies that have signed the CTSS are unlikely to have engaged in business with Russian or Chinese investors in the first place, making their participation a means to bolster their public image. Alexei Katkov, president of Sistema Venture Capital (part of AFK Sistema), believes that venture funds are already highly selective about foreign investments, preferring to avoid any potential reputation damage.
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- Despite the Clean Tech Secret Shield (CTSS) being signed by several investors, notable venture capital firms like Andreessen Horowitz, A16Z, Founders Fund, and Sequoia have yet to join the pact, raising questions about their intentions.
- Critics contend that the companies that have signed the CTSS may not have hadbusiness dealings with Russian or Chinese investors previously, implying that their participation might be more about enhancing their public image rather than a genuine commitment to protect American technology.
- The CTSS, intended to protect American companies from foreign influence, is facing criticism for failing to gain widespread support, with concerns that some American companies may continue to engage in business with investors from unfriendly countries, potentially compromising national security.
- As the pressure on American companies to avoid foreign investments, particularly from China, continues to grow, technology startups in 2024 might find it difficult to secure funding without certificates verifying the sources of their investments and their commitment to maintaining a lifestyle that is unfriendly to potential foreign threats.
