China Targets U.S. Tech Startups through Investments, NCSC Reveals
The National Counterintelligence and Security Center (NCSC) of the United States has issued a warning to technology startups about the risks associated with foreign investments. According to the NCSC, foreign states, particularly China, are utilizing investment mechanisms to gain access to confidential data and technologies, posing a threat to U.S. national security.
In recent months, Silicon Valley companies have intensified their vetting processes for personnel and potential hires due to the threat of Chinese espionage. In some instances, American investors have even demanded that the startups they support reject Chinese capital.
The NCSC has circulated a bulletin among American companies, cautioning that foreign adversarial entities may exploit private investments, such as venture capital and private equity, to infiltrate technological startups, thereby endangering economic and national security.
NCSC Director Mike Casey stated that startups face risks when seeking potential foreign investments to expand their firms. He noted that U.S. adversaries continue to leverage early-stage investments in American startups to access their confidential data. These actions threaten U.S. economic and national security and could directly lead to the downfall of these companies.
The bulletin indicates that hostile foreign groups may exploit the financial difficulties of startups to gain access to their intellectual property and obtain confidential data under the pretext of due diligence before investing.
Rapid advancements in artificial intelligence over the past 18 months have raised increasing concerns within the industry and the U.S. government about attempts by Chinese intelligence services to steal technology.
The NCSC bulletin does not specifically mention Beijing. However, it emphasizes that Chinese venture investments focus on promising U.S. sectors, such as artificial intelligence, which is a priority for the Chinese government.
The document highlights IDG Capital, a Chinese investment firm recognized by the U.S. Department of Defense as a military company, which has invested in over 1,600 enterprises, including American ones.
Washington and Beijing are engaged in intensifying strategic rivalry, with the U.S. imposing export restrictions to hinder China’s access to and development of advanced technologies, including artificial intelligence and modern microchips.
The bulletin warns of strategies employed by foreign actors to conceal their intentions and ownership structures. These include directing investments through intermediaries in the U.S. or abroad, as well as devising investment schemes to evade scrutiny by the Committee on Foreign Investment in the United States (CFIUS), an interagency group that reviews incoming investments for security risks.
A partner at a Silicon Valley venture capital firm noted that many startups, desperately in need of capital, are willing to take risks to stand out and secure funding.
Greg Levesque, CEO of Strider Technologies, a company that protects businesses from espionage, added that China effectively employs a model of accessing advanced technologies and copying them while startups are still in their early stages of development.
According to the bulletin, foreign actors may also target startups with U.S. government contracts, threatening national security. The NCSC warns that such schemes could lead to the collapse of startups if foreign investors acquire confidential data and use it to compete with American companies. The document references a case involving a British company that nearly went bankrupt after transferring intellectual property to a Chinese investor as part of a failed deal.
The bulletin urges startups to take measures to protect against potentially unscrupulous actors, including safeguarding critical assets and limiting the data provided to investors.
