One of Silicon Valley’s most prominent investment firms will face government scrutiny over its investments in China. Sequoia Capital has received a polite but direct request from Congress to go into more detail about how it will prevent more U.S. investment dollars from advancing Chinese interests.
Sequoia announced in June that it would split into three parts: Sequoia Capital in the US and Europe, Peak XV Partners in India and Southeast Asia, and HongShan in China (formerly Sequoia Capital China). While the company claimed it was doing so because it was “increasingly complex to run a decentralized global investment business,” it seemed clear to everyone that it was anticipating a legal requirement to divest certain lines of business in the rival superpower.
The Chinese Communist Party Select Committee, led by Mike Gallagher (R-WI), would like more assurance that Sequoia is breaking up, and whether that is enough to prevent it, as is now required after a recent executive order – US dollars end up funding Chinese efforts in quantum computing, semiconductors, artificial intelligence and other important technology sectors.
The letter, which can be read heresent to Sequoia calls the split “a step in the right direction,” but adds:
Although the Sequoia spinoff appears to resolve some of the concerns detailed above by restricting the flow, in some cases, of American management and technology expertise to troubled PRC companies, important questions remain…
Those questions are, first, whether the split could potentially and paradoxically intensify investment in proscribed industries by allowing HongShan to act without the control and oversight of its American counterpart. And second, whether HongShan could step up its investments in American startups for similar reasons.
The committee’s letter asks Sequoia to list all companies it has invested in that have headquarters or significant operations in China, along with numerous details such as ownership, Chinese government interest, decision-making processes, etc.
It also requests more information about the 50 percent of Sequoia Capital China’s limited partners who are based in the U.S. and how they have invested.
Finally, he wonders how Sequoia would respond if the United States placed one of Sequoia’s portfolio companies on a sanctions or trade restrictions list.
Some of the information requested may be confidential, changing, or simply unknown (particularly the last question, which refers to a hypothetical situation). However, the committee orders Sequoia to respond by November 1.
