The letters, which began landing in dozens of companies’ email inboxes in the spring, reflect the broadly held view among U.S. officials and lawmakers that the United States failed in recent years to adequately screen investments pouring in from China and other countries — particularly low-profile venture-capital investments that didn’t make the headlines. The 2018 Foreign Investment Risk Review Modernization Act, or FIRRMA, aimed to address that by boosting CFIUS’s funding and powers.
Tech executives say the inquiries are part of a growing chill in U.S.-China relations that has made Silicon Valley companies more cautious about accepting foreign investments and caused some China-backed venture-capital funds to curb their activity.
The decoupling can be seen in data showing that Chinese venture-capital investment in the United States dropped to a six-year low in the first half of 2020, to $800 million, according to research provider Rhodium Group. VC investment by U.S. firms in China hit its lowest level in four years, at $1.3 billion.
Michael Borrus, the founding general partner of XSeed Capital, said CFIUS scrutiny is causing investors and companies to think twice about deals.
“We’ve had Chinese VCs or Chinese families who have been interested in putting money in” to some companies where XSeed Capital is a shareholder, Borrus said. “In the current environment, we’ve decided it’s too complicated.”
Start-ups decide which investments to accept, but existing shareholders often have a say in the matter, Borrus said. “You have discussions with companies, ‘You need to think about this very seriously, it could open you up to CFIUS investigations … if you have alternatives, you should consider them,’ ” he said. “They usually see the wisdom.”
In addition to boosting CFIUS’s work, the government is also sending national-security officials to visit venture capitalists and other tech leaders in Silicon Valley to advise them to exercise caution about accepting Chinese investments, industry executives say.
Some tech companies have overlooked the CFIUS emails because they are brief and cryptic, requesting a phone call to discuss a confidential matter, tech-industry lawyers said.
CFIUS is particularly focused on companies and apps that collect sensitive personal information on users, such as location or financial data, and on companies involved in technology seen as critical for national security, such as certain types of battery technology and biotechnology, lawyers said, requesting anonymity to discuss sensitive matters. The committee is mostly inquiring about Chinese investment, but on a few occasions has asked about Russian investors.
CFIUS, an interagency committee chaired by the Treasury Department, has several powers to influence foreign investments it sees as risky. The committee can impose conditions, such as limiting a foreign investor’s access to information on the company’s research and development, or mandating that the company’s board members be government-approved. In extreme cases, CFIUS can advise the parties to abandon or unwind a deal, or kick the matter up to the president for a formal ban or divestment order.
The Treasury Department declined to comment for this story.
CFIUS’s more aggressive role stems from the authority FIRRMA gave the committee to scrutinize more types of foreign investment, including minority shareholdings and real estate transactions. The legislation also gave CFIUS funds to set up a new enforcement arm.
The Treasury Department introduced the enforcement arm in a tweet this summer, linking to a Web page that included an email address where the public can send tips about transactions that might carry national-security risks.
The email tip line “has the potential to ratchet up CFIUS enforcement activity by giving commercial competitors a mechanism to create CFIUS troubles for their rivals seeking foreign investment,” the law firm Wilson Sonsini Goodrich & Rosati warned this summer.
The 2018 FIRMMA law made it mandatory for companies to report to CFIUS some investments involving foreign governments or certain technologies. Previously, it had been optional for companies to notify CFIUS of planned transactions. If they did and CFIUS cleared them, it protected the parties from further CFIUS interference. If they didn’t, they ran the risk CFIUS could take an interest in their deal after it closed and demand changes.
“CFIUS is increasingly contacting parties that didn’t make filings,” said Stephen Heifetz, a lawyer at Wilson Sonsini. “We’ve heard about matters going back almost 10 years. Historically, it was unusual for [CFIUS] to reach back more than three years. But there is in theory no time limitation, and we are increasingly hearing about long reach-back periods.”
CFIUS’s scrutiny of TikTok shows how a foreign investment can raise alarms years after the fact.
The committee only late last year began probing the November 2017 acquisition that helped TikTok’s owner build its U.S. presence. In that deal, Beijing-based ByteDance spent about $1 billion on a karaoke app, Musical.ly, that was popular with American tweens, and rebranded the app as TikTok.
TikTok’s quick rise in the U.S. was shadowed by signs that Beijing was influencing the videos that could appear on the app. In September 2019, The Washington Post reported that a search for “#hongkong” on TikTok yielded few images of the city’s pro-democracy protests, while such images were common on Twitter.
The Post also reported that ByteDance imposed strict rules on what could appear on the app, in keeping with China’s restrictive view of acceptable speech, a policy that sparked a backlash from the company’s U.S. employees.
In October 2019, Sen. Marco Rubio (R-Fla.) asked CFIUS to review the 2017 Musical.ly acquisition out of concern that TikTok was “censoring content” around the world to satisfy Beijing’s leaders.
CFIUS opened a review the following month. In keeping with protocol, it did not publicly disclose the probe or the reasons behind it, but when it concluded its review nine months later, it suggested TikTok’s access to user data was a primary concern.
In August, the Treasury Department said CFIUS had advised President Trump to order ByteDance to divest its U.S. business.
“CFIUS conducted an exhaustive review of the case and unanimously recommended this action to the President in order to protect U.S. users from exploitation of their personal data,” Treasury Secretary Steven Mnuchin said in a statement.
A Trump executive order that same day ordered ByteDance to sell within 90 days, a deadline that expires Nov. 12.
Source: – The Washington Post
Defying expectations, global VC investment rose in Q3 – Wealth Professional
In 2020, VC-backed exit activity has so far surged to nearly US$250 billion; Q3 alone saw that activity reach US$155.7 billion as IPOs from Snowflake, JFrog, and Unity Software pushed through. That represents another quarter-on-quarter advance, coming right after the US$49.2-billion record in Q2 2020.
“After several quiet quarters, the IPO market for VC-backed companies rocketed into high gear in Q3’20, with a number of high-profile unicorns making successful exits,” said Conor Moore, Co-Leader, KPMG Private Enterprise Emerging Giants Network KPMG International. “Given the recent filings by several other unicorns, coupled with the explosion of SPAC transactions, Q4’20 looks on-track to continue the record-setting pace.”
While total investment is on an upswing, KPMG said VC deal activity extended its losing streak, dropping for the sixth straight quarter to reflect the lowest volume reported since Q4 2013. The number of global angel/seed-stage deals fell to 1,650, the lowest since Q4 2012; global early-stage deal volume (1,716) likewise descended to its deepest since Q2 2014.
Against the VC landscape’s transformation amid COVID-19, pharma and biotech proved to be hotbeds of VC investment in Q3 2020, led by a US$600-million raise by CureVac in Germany. By the end of the quarter, total year-to-date VC investment in the space had reached US$31 billion, comfortably above the US$27.1 billion it reported for all of 2019.
“While overall VC investment has remained surprisingly resilient given the number of diverse challenges being faced around the globe, the extended decline in funding for early stage companies causes some concern,” said Kevin Smith, co-leader, KPMG Private Enterprise Emerging Giants Network, KPMG International.
Digital Technology Supercluster makes $10 million investment, rounding out $60 million COVID-19 program – BetaKit
The Digital Technology Supercluster has made $10.7 million in follow-on investments to five projects under its COVID-19 stream, rounding out the Supercluster’s $60 million budget for the pandemic-focused program.
Bill Tam said these latest follow-on investments are a testament to the Supercluster model.
The COVID-19 program was created at the beginning of the pandemic to invest in digital solutions that protect the Canadian economy as well as public health. The creation of the program followed a decision in March from the federal government to refocus some of the Superclusters in order to help in the fight against the pandemic.
The COVID program’s $60 million came from the Digital Technology Supercluster’s $153 million budget.
The $10.7 million in follow-on investments come as a recent report from the parliamentary budget officer found that the Superclusters were far behind on their spending goals as of March 6. The report found the federal government’s five Superclusters had dolled out just $30 million instead of the $104 million they had been projected to spend by that time.
Bill Tam, co-founder and chief operating officer of the Digital Technology Supercluster, emphasized that the reporting conducted by the parliamentary budget officer did not capture the Supercluster’s momentum since March.
Tam claimed that, since March, the Digital Technology Supercluster has already completed its entire year’s worth of investments.
According to targets the Supercluster shared with BetaKit, the Supercluster was set to have about $170 million deployed by both itself and private sector partners, into 40 to 45 projects.
As of October 21, the Supercluster and its private sector partners have invested a collective $223 million in 67 projects since the inception of the initiative, according to the Supercluster’s annual report. Tam said he expects the Supercluster will have fully invested its $153 million budget by March 2021.
“I think the grand experiment of the Supercluster model is working,” Tam said, noting that the Supercluster’s ability to double down on these collaborations presents an opportunity to change the shape of Canada’s innovation economy.
The five projects that received the cumulative $10.7 million have previously received financial support from the Supercluster under its COVID-19 program as “feasibility studies.”
“Our follow on investment thesis is really about being able to double down.”
Tam told BetaKit the feasibility studies allowed the project organizers to determine whether a technology or innovative idea is appropriate for a large-scale project with the intention of developing an application for co-investment.
“We have feasibility assessment vehicles in order for these teams to actually have a sandbox with which to collaborate on initiatives,” Tam said. “Our follow on investment thesis is really about being able to double down.”
The projects receiving follow-on funding include:
COVID Cloud: $3.18 million
Originally called Beacon, this project is developing a digital technology platform to help track how SARS-CoV-2 is evolving over time and across specific geographic regions. The project’s initial investment from the Supercluster totalled $250,000.
Lifesaver: $2.85 million
This project aims to fill COVID-19 information gaps by consolidating and harmonizing vast arrays of data. Lifesaver’s initial investment from the Supercluster totalled $250,000.
Raven2: $1.62 million
Raven2 extends the scope of the team’s original work by finding new, safe COVID-19 therapeutics that could be sold commercially in Canada and worldwide. The project’s initial investment from the Supercluster was $250,000.
Scaling Safe Food Delivery for Canadians
This project will see startup Food-X Technologies develop an e-grocery solution that aims to help retailers offer online grocery sales at scale. The project’s initial investment from the Supercluster totalled $250,000.
Screen O/S: $450,000
This project is focused on improving COVID-19 screening for the education sector and film industry after a successful two-month assessment of their on-the-spot screening technology. The project’s initial investment from the Supercluster was $87,000.
Tam said although the program’s COVID-19 budget has been fully deployed, there is still an opportunity for follow-on investment from the Supercluster’s broader $153 million budget. All projects that receive investments from the Supercluster are able to receive follow-on funding, including those not part of the COVID-19 program.
Image source Unsplash. Photo by Christina @ wocintechchat.com.
Amazon announces $100 million logistics investment in Mexico – TheChronicleHerald.ca
By Daina Beth Solomon
MEXICO CITY (Reuters) – Amazon.com Inc said on Thursday it has invested $100 million in opening new warehouses in Mexico, including its first shipping centers outside the populous capital area, in a bid to offer faster deliveries.
The new sites include two so-called fulfillment centers – one near the northern city of Monterrey and another near the central city of Guadalajara – as well as a support building in the State of Mexico, just outside Mexico City.
Amazon also opened 12 delivery stations, bringing its total to 27 across the country, it said.
“The construction of a solid infrastructure network allows the company to stay closer than ever to clients, and thanks to that, it’s possible to offer fast deliveries,” Amazon said in a statement.
Monterrey and Guadalajara are the two biggest metropolitan zones of the country after the sprawling Mexico City area.
The new facilities represent 69,000 square meters (742,710 sq ft) altogether and create 1,500 direct and indirect jobs, Amazon said.
Amazon in total now runs five fulfillment centers, two support buildings and two classification centers in Mexico, where it launched its marketplace in 2015.
Enrique Alfaro, the governor of Jalisco state that is home to Guadalajara, said the new local warehouse would help more small and medium sized businesses ship their products faster and at lower costs.
Amazon is also striving to make inroads in Brazil, where it recently opened its fifth and biggest fulfillment center in the country, with 100,000 square meters (1,076,391 sq ft).
In both countries, which are the biggest economies in Latin America, Amazon is vying with local rivals for shopper loyalty, despite its ranking as the world’s biggest online retailer.
(Reporting by Daina Beth Solomon; Editing by Amy Caren Daniel)
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