Proprietors now possess a technique to verify their financiers haven’t sourced capital from nations such as China, Russia, Iran, or Cuba. 

Above 20 venture enterprises have endorsed the Clean Capital Certification, confirming that they have neither accepted nor plan to accept funds from foreign adversaries. Included among these signers are Marlinspike Partners, Humba Ventures, and Snowpoint Ventures. Craig Cummings, a partner at Moonshots Capital, remarked, “We must prevent adversaries of the U.S. from gaining profit from our achievements, and publicly endorsing the Clean Capital Certification is a method to pledge ourselves to this responsibility as a community.” 

The commitment was developed by Future Union, an advocacy group focused on concerns of foreign meddling in the private sector. The commitment states that new innovations, in improper hands, might “promote authoritarianism, misinformation, and division.” 

For about three years, Andrew King, the executive director of Future Union, has been involved in creating the commitment, but his worries about Chinese interference have extended for longer. He recounted extended discussions with a Department of Defense colleague regarding “the harmful effects of China’s operations in the U.S.,” and the manner in which the nation exerted influence over venture capital and private equity via financial incentives to obtain access to crucial technologies.” 

King indicated that if a firm associates with Chinese investors, it stands to reason these investors — subsequently the Chinese government — might obtain confidential details about portfolio companies. 

In the domain of venture capital, this concern remains theoretical, yet it is shared by an increasing number. In September, the Financial Times conveyed that the FBI was scrutinizing California’s Hone Capital for presumably relaying information to its Chinese financial backers. Further, in February, a congressional report condemned five U.S. investment entities for financing Chinese businesses, alleging these investments bolstered China’s military and facilitated the country’s human rights violations. 

John Moolenaar, the Select Committee on the CCP’s chairman, commended the commitment. He declared, “American security and economic welfare are endangered when U.S. enterprises invest in prominent adversaries or invite CCP-supported investors onto their boards,” in his statement. “Consequently, owing to these patriotic financiers, there will be a benchmark for Clean Capital Certification available for use by Americans to measure their investments.” 

Foreign capital in defense tech  

Interestingly, a significant proportion of the firms enlisted seem involved with defense technology startups. For companies focused on defense, accepting finances from certain nations could imperil their operations with the Department of Defense.

Out of approximately 20 firms that acknowledged the commitment, larger funds that usually support defense initiatives, like Andreessen Horowitz and Founders Fund, are noticeably missing from the list. Typically, neither signatories endorse open declarations like the commitment, although a Founders Fund representative clarified that the firm does not receive funds from any countries the commitment mentions. Previously, partner Delian Asparouhov has criticized companies accepting Chinese capital as “traitorous.” 

Analogously, a16z partners Katherine Boyle and David Ulevitch articulated their perspective in a Wall Street Journal opinion piece last year. They asserted, “Whereas some American investors previously sought partnerships in adversarial countries like China, it’s now apparent they wagered on the inappropriate government.”

This may have been an indirect critique aimed at one of a16z’s long-standing competitors, Sequoia, recognized for its substantial Chinese investment arm until it segregated that unit into a separate entity by mid-2023.

Despite its significance, the commitment remains imperfect: It functions as a voluntary attestation lacking a formal review mechanism to confirm if firms uphold their claimed intentions. Additionally, although a firm might verify that their limited partners aren’t China-based, these partners could still receive funds from Chinese sources.

King highlighted the pledge as merely an initial measure, with future endeavors potentially incorporating a third-party organization to scrutinize a firm’s investors or introducing an additional certification examining the limited partners. 

He hopes that even this voluntary attestation will lead to accountability among firms. “The self attestation is made public,” he mentioned. “There’s a reputational risk and possible damage from attesting, then having other partners discover discrepancies.”