As Silicon Valley pivots to patriotic capital, China ties linger
Investors with China links are backing cos developing tech that U.S. wants to counter Beijing
Silicon Valley’s surge in funding for U.S. defense and swing to patriotic ideals threatens a previous fixation for many of those investors: China. “Patriotic capital” can be found around the San Francisco Bay. The investment firms that helped launch Facebook , Google and Airbnb are backing startups building battlefield software, military drones and autonomous submarines. Venture capital powerhouse Andreessen Horowitz has labeled it “American Dynamism” investing.
As the investors target what they hope will be a huge business opportunity—bringing better defense technology to the U.S. and its allies—their new marching order is out of sync with Silicon Valley’s years of investing in China.
Government officials and researchers said many of these patriotic tech investors and their startups remain dependent on and benefit from deep connections to China, one of the main adversaries the U.S. military is looking to use defense startup technology against.
It is a sign of how entangled the two regions remain in finance and tech, said Nathan Picarsic, co-founder of Horizon Advisory, a China-focused research and consulting firm.
“Building a tech ecosystem, divorced from exposure to China—and fully aligned with American national interest—is a hard thing,” he said. “It requires more than narrative.”
Venture capitalists invested for years in a globalized tech industry , instructed by U.S. policies to build relations with China to encourage reform there. They are adjusting to the view that the Asian nation is one of the biggest threats to U.S. security.
Many technology companies say China is still crucial to their global operations and supply chain. Skeptics say that rhetoric aside, patriotic entrepreneurs and investors are chasing the latest market trend.
As once-hot sectors such as fintech, Web3 and the metaverse cooled, investors have sought new places to invest. Meanwhile, the wars in Ukraine and the Middle East , as well as China’s military buildup, have made selling to the military more palatable and potentially profitable.
“Will people invest solely in something because it is patriotic?” said Rebecca Gevalt , who helps run a venture fund, Dcode Capital, which has an advisory arm to educate startups and the federal government about how to work together. “The answer is no. The investment interest in this is people think they can make a good return on the money.”
Thus far, the patriotic investing efforts haven’t yielded large orders from Defense Department buyers.
Venture capitalists invested $42 billion into the top 100 national-security startups, ranked by size and growth, according to a report from Silicon Valley Defense Group, a nonprofit that tries to connect Silicon Valley companies with the Pentagon. The estimated total revenue those companies make from federal government contracts is between $2 billion and $5 billion, it said.
San Francisco organization Future Union, which promotes investing for the national interest , recently published an inaugural report listing a group of 100 venture capitalists it says are “working to preserve democracy.”
In 2023, Sequoia Capital, one of the early investors in Apple and Google, made its first defense investment— Mach Industries, which is building hydrogen-powered weapons systems. The firm has also funded military drones and battlefield simulation technology.
Startup accelerator Y Combinator in San Francisco, which helped launch Airbnb, has recruited defense-tech startups for the first time this year to join its program. It hasn’t funded China-based startups since 2019, said a spokeswoman.
Andreessen Horowitz, one of Silicon Valley’s biggest crypto investors , last month announced a $600 million fund for American Dynamism. The firm has made only a small number of investments in China.
“We are bringing our founders to Washington, and we are having conversations to explain, ‘We are building this,’” said Katherine Boyle , one of the firm’s partners leading American Dynamism investments.
Venture capitalists who long ignored or resented Washington are now chasing contracts with the U.S. government. Silicon Valley investors are hosting events for senior defense officials, holding court with members of Congress and spending more on lobbying.
Sen. Lindsey Graham (R., S.C.) was a featured speaker at an event in Washington on technology and national security called the Hill & Valley Forum.
“I see people in Silicon Valley as patriots,” he told a crowd stacked with Washington insiders and tech investors at the event on May 1.
Some venture capitalists leading the charge toward patriotic investing were part of earlier waves of making big investments in China . Some are now rethinking their relationships with the country.
“The world was flat, and we always had the sentiment that economic growth would bring us all together,” Roelof Botha , Sequoia’s managing partner, said at the Hill & Valley Forum. “And that proved to not exactly be true.”
Sequoia’s U.S. fund is also an investor in Bytedance, the Chinese parent company of Tiktok, which risks being banned from the U.S. for national-security concerns.
Investing in Chinese companies has been a common practice among investors, and while frowned upon by some in recent years, it isn’t illegal. Yet the stark pivot from China to U.S. national security leads some skeptics to question the staying power and sincerity of the patriotic wave.
Thomas Tull , a longtime technology investor and former Hollywood producer, sold his movie production company, Legendary Entertainment, to a Chinese buyer for $3.5 billion in 2016.
After leaving the entertainment industry, he raised a roughly $3 billion fund and began investing in defense companies, including Anduril Industries, which makes autonomous weapons, surveillance and counterdrone systems.
Some of his business ties with China linger. A former co-chairman and fund sponsor of IDG Capital—an investment firm recently designated by the U.S. government as a Chinese military entity— sits on the board of Tull’s company.
Andreessen Horowitz’s idea of American Dynamism is vast. It has given the label to Flexport, a San Francisco-based shipping and logistics company that is backed by Chinese and Russian investors. Flexport declined to comment.
Another American Dynamism company is Bright Machines, a San Francisco-based robotics company. It has a Chinese subsidiary and uses facilities in Mexico and Israel for manufacturing as well as research and development. A Bright Machines spokesman said the Chinese unit is no longer active and its international operations are helping the company meet U.S. manufacturing needs.
Sequoia was a focus of a congressional committee report published in February, blasting it for investments its former China unit made in Chinese chip companies and AI startups that supply the Chinese military and contribute to human-rights abuses. Four other venture-capital firms were similarly criticized in the report.
A Sequoia Capital spokeswoman said the China unit had been split off into an independent firm with a new name, Hongshan. The congressional committee that probed Sequoia’s China ties said the split was insufficient.