No US venture firm is bigger in China than Sequoia Capital. But as tensions rise, even Sequoia is pulling back.
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From a report out this morning in The Wall Street Journal:
Sequoia Capital has started screening some investments its China arm is considering in technology companies there for U.S. national-security concerns, according to people familiar with the matter, as Washington steps up efforts to stop American money from funding China’s development of sensitive technologies.
Sequoia doubled down on China as recently as last year, raising a record $8.5 billion to invest there. But now, the firm is pulling back:
Between 2021 and 2022, Sequoia China made at least 20 investments in Chinese semiconductor and related companies. Since the screening process was implemented in the autumn of 2022, the firm hasn’t made any investments in Chinese semiconductor or quantum-computing startups from its new funds, which were raised in July 2022.
As dominant as Sequoia is in America, it’s even bigger in China. The firm has a piece of almost every major Chinese tech company, from Bytedance to JD to Meituan.
Even as Sequoia faces scrutiny from US regulators, China may also crack down on its investments. After all, does an increasingly nationalist CCP want foreigners owning some of China’s most important technology?
Personally, I never invest in China. The country lacks the rule of law.
This means no matter how well I do, the government can come and take it all away in an instant.
Don’t believe me? Consider the sudden ban of education tech companies, driving their stocks to near zero overnight.
It’s unwise for US investors to put money in China. But there are advantages for the US government in letting it happen.
Major investors like Sequoia usually have information rights and a board seat. They’re privy to tons of confidential information about a company.
Having that information in the hands of a US firm could serve our strategic interests.
In all, I think China’s tech sector is toast. Top entrepreneurs are leaving and investors are spooked by a Communist government run amok.
There are plenty of other promising markets out there.
Would you invest in China? Why or why not?
Have a great weekend everyone!
More on tech:
I See Negative Gross Margin Businesses
Top VC Firms Have Great Returns…Right?
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Photo: “China’s Growth Context: Neil Shen Nanpeng” by World Economic Forum is licensed under CC BY-NC-SA 2.0.
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