More than 20 venture firms have promised not to take money from China and Russia

Founders now have a way to ensure their investors don’t take money from countries like China, Russia, Iran or Cuba.

It’s over 20 venture companies they signed a Clean Equity Certificate confirming that they have not and will not receive money from foreign enemies. Some of the signing firms include Marlinspike Partners, Humba Venturesand Snowpoint Ventures. “We need to make sure that US competitors don’t directly benefit from our success, and publicly signing the Clean Capital Certification is one way we can do that as a community,” said Craig Cummings, partner at Moonshots Capital.

The pledge was created by Future Union, an advocacy organization dealing with issues related to foreign interference in the private sector. Pledge declares that new technologies in the wrong hands “can foster authoritarianism, disinformation and fragmentation.”

Future Union‘s chief executive, Andrew King, has been working on a bailout for nearly three years, but he fears more Chinese interference. He recalled having long conversations with a friend at the Defense Department about “how damaging the Chinese operation is to the United States” and how the country “influences venture capital and private equity through monetary and other incentives.” critical technologies.”

King said that if a firm has Chinese investors, then it is possible that those investors and then the Chinese government can obtain proprietary information about portfolio companies.

In the world of venture capital, this is mostly a hypothetical fear, but one that more and more people share. In September The Financial Times reported on this The FBI is investigating California-based venture capital firm Hone Capital for allegedly passing on information to Chinese investors. And in February congressional committee report He urged five US investment firms to invest in Chinese companies, claiming that these investments support the Chinese military and create conditions for human rights violations in the country.

Congressman John Mulenare, chairman of the CCP Select Committee, welcomed the pledge. “America’s national security and economic well-being are put at risk when U.S. companies invest in our main competitor or accept CCP-backed investors on their boards,” he said. “Instead, thanks to these patriotic investors, there will be a standard for Clean Equity Certification that Americans can use to evaluate their investments.”

Foreign capital in defense technology

It is no coincidence that many of the firms on the list invest in defense technology startups. For defense companies, receiving money linked to certain countries could jeopardize their ability to do business with the Department of Defense.

Among the nearly two dozen firms that have signed the pledge, larger funds that invest in defense, such as Andreessen Horowitz and Founders Fund, are absent. Generally, no firm signs open letters as pledges, although a Founders Fund spokesperson clarified that the firm does not take capital from any of the countries covered by the pledge. In the past, he had a partner, Delian Asparouhov called firms Those who “betrayed” Chinese capital.

Similarly, a16z partners Katherine Boyle and David Ulevitch wrote an op-ed in the Wall Street Journal last year clarifying their position. “While some American investors have previously invested in rival countries such as China, it is now clear that they are betting on the wrong government.” he wrote.

It could have been a not-so-subtle dig at one of the a16z’s arch-rivals, the Sequoia. own enterprise in mid-2023.

The pledge itself isn’t perfect: it’s a voluntary certification with no formal verification process to make sure firms are keeping their word. Even if a firm certifies that its limited partners are not located in China, the limited partners themselves can still borrow money from Chinese enterprises.

King emphasized that this pledge is a first step, and future initiatives could include a third-party organization to vet the firm’s investors or another certification that looks after the limited partners themselves.

He hopes that even a voluntary bailout will hold the firms accountable. “Self-attestation is public in nature,” he said. “And there’s a reputational risk and damage that can come from being confirmed and then your other limited partners or others finding out that’s not the case.”