Sequoia under investigation by US Congressional committee over Chinese Tech Investments

The House Select Committee on China has set its sights on Sequoia Capital, as it continues to scrutinize the investments of venture capital firms in Chinese technology companies. This development follows similar investigations into several other VC firms engaged in China-related investments. The committee has initiated an inquiry seeking information pertaining to Sequoia’s investments in various sectors, including artificial intelligence, semiconductor technology, and quantum computing, within China. This investigation also encompasses Sequoia’s recent restructuring, where Sequoia China was rebranded as HongShan. Lawmakers have requested detailed information from both Sequoia and Sequoia Capital China regarding the companies they have supported in China or those with significant operations in the country, especially those involved in specific technologies. The information sought includes investment amounts, the level of business expertise provided to these companies, investment criteria, and the identities of any Chinese government investors involved. In response to the committee’s inquiry, a spokesperson from Sequoia Capital stated, “We’ve received the letter, are reviewing it and will respond. Since inception, each entity operating under the Sequoia brand has been independently owned, had separate investment teams, managed their own funds, and made independent investment decisions. As announced in June, we will move to completely independent partnerships and become distinct firms with separate brands no later than March 31, 2024.” This development poses a setback for Sequoia Capital, as the firm had announced its separation from Sequoia China before an executive order was issued, which imposed certain restrictions on US entities investing in China. Analysts have suggested that this proactive move may mitigate the risk of more severe actions, such as a requirement to divest from existing investments in China. Notably, the executive order turned out to be less stringent than some had anticipated. H.K. Park, a managing director at Crumpton Global, which advises clients on compliance, commented, “In contrast to the Executive Order, the letter is a warning to all investors that the Select Committee is carefully scrutinizing past investments in addition to establishing a process to prevent certain future investments.” The committee’s letter specifically highlighted Sequoia Capital China’s investments in startups like Eversec Technology Co., 4Paradigm, DJI, DeepGlint, and ByteDance, labeling them as “problematic publicly known partnerships.” Furthermore, the lawmakers alleged that the firm had made as many as 40 investments in Chinese semiconductor companies since 2020. Sequoia is not the sole VC firm under investigation by the House Select Committee on China. GGV Capital, GSR Ventures, Walden International, and Qualcomm Ventures are also under scrutiny. The committee is concurrently working on a report focusing on US-China policy, with a significant emphasis on US business activities within China. In related news, the Biden administration has intensified efforts to restrict the export of advanced chips to China, including limiting the sale of processors designed specifically for the Chinese market.