Sequoia Capital, a prominent investment firm for Silicon Valley tech startups, is facing governmental scrutiny over its investments in Chinese tech companies. On Thursday, it was reported that the venture capitalist received a letter from Congress asking it to detail what measures it has taken to prevent US dollars from being used for advancing Chinese interests.
The House Select Committee on China is seeking information regarding Sequoia’s investments in Chinese companies involved in artificial intelligence, semiconductors, and quantum computing. The Committee led by Representative Mike Gallagher of Wisconsin also wants to know about Sequoia’s recent split into three separate firms.
House Select Committee On China Quizzes Sequoia About Its Investments In China
The letter called out the VC giant’s investments in Chinese startups Eversec Technology Co., 4Paradigm, DJI, DeepGlint, and TikTok’s parent company ByteDance, which are all regarded by the US government as “problematic publicly known partnerships”. The Committee claims that since 2020, Sequoia made as many as 40 investments in Chinese semiconductor companies.
Back in June, Sequoia announced that it would be splitting into three separate entities – Sequoia Capital in the US and Europe, Peak XV (15) Partners in India and Southeast Asia, and HongShan in China. The split, which will go into effect in March 2024, comes during a time when tensions are on the rise between the US and China, two of the world’s largest economies.
Sequoia China, which was the initial name for the VC’s Chinese subsidiary, was later rebranded to HongShan.
Joe Biden Signed Executive Order Restricting Us Investments In China
In August, President Joe Biden signed an executive order that placed some restrictions on American entities investing in China. The White House had declared a national emergency to deal with Chinese advancements in sensitive technologies and products that are critical to the military, intelligence, surveillance, and cyber-enabled capabilities.
In its letter, the Select Committee on China requested further assurance that Sequoia is in fact splitting up and whether its actions are sufficient to prevent US dollars from funding Chinese companies involved with developing quantum computing, semiconductors, and AI technologies.
Analysts say that since the company acted before the executive order was issued, it could possibly face mild enforcement actions, such as a demand to divest from its existing investments in China.
Lawmakers Want To Know More About American Interest In The Chinese Tech Sector
The lawmakers have requested Sequoia Capital and HongShan (Sequoia China) to provide a detailed list of all companies it has invested in that are either based or have significant operations in China, along with other information on the dollar amounts, business expertise provided to the entities, investment criteria, names of Chinese-government interests, the decision-making process, and so on.
The letter also asks for more information on the limited partners of Sequoia Capital China who are based in the United States and how they have invested. The final question was how the company would react if the US were to add one of its portfolio companies to a sanctions or trade restriction list.
Meanwhile, a spokesperson for Sequoia Capital in the US confirmed in a statement that they received the letter. The statement read that each entity operating under the Sequoia brand is independently owned, has separate investment teams, manages its own funds, and makes independent investment decisions. The tech sector investment giant also confirmed that it will be moving to “completely” independent partnerships and become distinct firms with separate brands by March 31, 2024.
On Tuesday, the Biden White House amped up its efforts to keep advanced US-built chips out of China, which includes a restriction on the domestic sale of processors primarily designed for the Chinese market.
Sequoia is not the only VC firm being targeted by the US government. The House Select Committee on China has also launched investigations into GGV Capital, GSR Ventures, Walden International, and Qualcomm Ventures.