The U.S. National Counterintelligence and Security Center (NCSC) has warned U.S. technology startups that foreign adversaries such as China can use investments to steal their sensitive data and intellectual property, undermining U.S. economic and national security.
“U.S. startups can lose market share and fail if foreign threat actors obtain their proprietary data in the investment process and then use it to compete against them in global markets.”
The bulletin warned that foreign actors might use tactics to conceal their complex ownership structures or the origins of their funds by making investments through intermediaries, funds, or partners in the United States or a third country. This can help them “avoid or complicate outside scrutiny through degrees of separation,” such as evading scrutiny from the Committee on Foreign Investment in the United States, an interagency body that reviews investment deals for national security risks.
The NCSC also sounded the alarm that foreign threat actors might prey on struggling U.S. startup firms, exploiting their need for capital in exchange for intellectual property transfer.
These hostile investors could also get access to sensitive and proprietary data and technology from startup firms “under the guise of due diligence, before investing,” the bulletin said. Foreign adversaries can use these data and technology to advance their “economic and military capabilities at the expense of the U.S,” it said.
The bulletin cited a UK company that went bankrupt after transferring its technology to a Chinese investor, which later abandoned the deal after securing the intellectual property. The NCSC reported similar allegations from some U.S. and European companies, where Chinese investors withdrew investment offers after obtaining proprietary data during due diligence.
The bulletin was a collaboration with the Director of National Intelligence’s economic security and emerging technology unit, the Air Force Office of Special Investigations, and the Naval Criminal Investigative Service.
In addition, the bulletin warned that startups can be denied contracts or funding from the U.S. government “if foreign threat actors gain a footing in their firms.” They can also be influenced by foreign entities, resulting in corporate decisions that benefit foreign interests over those of the U.S. company.
The USTR found that technological sectors that Chinese venture capital investors prioritize include artificial intelligence, robotics, biotechnology, augmented reality/virtual reality, and financial technology.
Besides warning about Chinese investments in U.S. startups, the federal government increasingly imposes restrictions on outbound investments from U.S. firms to China.
