U.S. venture capital has a globalism problem
improving VC as statecraft
Last May, I found myself blocked on X by billionaire tech investor Marc Andreessen. My offense was asking a simple question: what percentage of his venture funds came from foreign investors? It seemed reasonable given Andreessen Horowitz’s “American Dynamism” initiative, which promised to invest in companies aligned with U.S. interests — defense, aerospace, critical infrastructure, and the like.
Why so touchy, I wondered. Was there something to hide? I wasn’t making accusations. But wouldn’t it be concerning if Putin associates, Chinese investors, and Gulf State oligarchs were involved in a fund wrapped in the American flag? Andreessen’s evasiveness highlighted a key issue: foreign money and geopolitical blinders that threaten U.S. security and innovation.
U.S. venture capital has a globalism problem. It is reliant on foreign money but often oblivious to geopolitical risks. Currently, about 25% of the capital flowing into U.S. venture capital comes from foreign partners, including sovereign wealth funds and institutional investors from countries like China, Russia, Saudi Arabia, and the United Arab Emirates.1 It’s worth questioning whether these funds may serve as vehicles for money laundering, intelligence gathering, or influence peddling. Foreign capital isn’t inherently bad, but U.S. venture capital needs to shake off its “end of history” complacency and wise up to geopolitical risks. The stakes are far too high for indifference.
It’s time for more stringent screening, greater transparency, and stronger safeguards to prevent adversaries and criminals from exploiting our innovation ecosystem. Equally important is the need to foster venture funds aligned with U.S. national interests and backed by “clean” capital. Failure to do so risks ceding technological superiority to our adversaries and empowering regimes that do not share America’s values or geopolitical goals.
Since Russia’s invasion of Ukraine, mechanisms like the Committee on Foreign Investment in the United States (CFIUS) have tightened their scrutiny of foreign investments, particularly those involving critical technologies. But this scrutiny is reactive. Why did I have to ask Marc Andreessen about his foreign investors? Shouldn’t this be public? The current lack of transparency creates a fertile ground for foreign actors to quietly influence, steal from, and spy on U.S. innovations.
To be clear, I am not advocating for heavy-handed, nanny-state regulation that stifles innovation. This is what’s happened in China, where Xi’s authoritarian policies have crippled venture capital and startups.2 America’s tech sector is an economic powerhouse and potent geopolitical asset. We need to protect its dynamism while managing the hazards of technology-driven, “technopolar” geopolitics.3
Smarter oversight isn’t enough, though. We also need a new generation of venture funds that are geopolitically aligned and funded with “clean” capital.
In-Q-Tel, the CIA’s venture arm, offers one model. Founded in 1999, In-Q-Tel bridges the gap between the intelligence community and Silicon Valley. As a nonprofit with a narrow mission, it’s a useful blueprint for government-related use cases. The Air Force’s venture program, AFWERX, provides a similar example. Unlike In-Q-Tel, AFWERX doesn’t invest directly; it facilitates investments and provides funding through programs like Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR).
Private venture capital funds offer a much more scalable approach. Take Paladin Capital. Established in the wake of 9/11, Paladin focuses on sectors like cybersecurity and critical infrastructure, maintaining close ties with U.S. government agencies. Though for-profit and private, its strategic alignment makes it a key partner in safeguarding U.S. technological leadership.
There is immense potential in encouraging more geopolitically-aligned funds like Paladin. Early last year, I spun up a business plan for a new venture fund designed to support the strategic technology objectives of AUKUS, the 2021 alliance between the U.S., UK, and Australia. It would’ve focus on sectors like space, natural resources, and maritime. Though I never launched it, it shows how the intersection of technology and geopolitics creates market opportunities for investors and geopolitical tools for governments. The exercise of writing it also prompted me to consider policy innovations. For example, why not create “opportunity zone” incentives for targeted venture capital investments across the three countries that make up AUKUS — like waiving capital gains taxes?
Venture capital has always been a tool of statecraft. The history of Silicon Valley is a case in point. During the Cold War, the U.S. government invested heavily in sectors like aerospace, defense, and computing, partnering with private firms to drive technological advancements. Firms like Fairchild Semiconductor and its “Fairchildren,” including Intel and AMD, were critical in securing the U.S.’s technological edge.
Today, in an even more charged geopolitical environment, venture capital needs to evolve into a sharper instrument of statecraft. The post-Cold War “end of history” era is long gone, replaced by a world of global power struggles defined by technology. So we must adapt.
If we fail to clean up U.S. venture capital and don’t incentivize geopolitically-aligned funds, our most cutting-edge innovations could fall into the hands of foreign adversaries. This would not only damage our geopolitical standing, but in an age of AI, quantum computing, and other transformative technologies, it could pose existential risks.
Reflecting on Andreessen Horowitz’s American Dynamism initiative, one question looms: Why should we turn a blind eye to origins of their foreign investors? If this were about nuclear weapons, complacency would be unthinkable. Yet today’s most powerful technologies, like AI, are just as consequential in geopolitical terms.
It’s time to safeguard our innovations, abandon the globalist “end of history” mindset, and adapt to an evolving geopolitical landscape. Otherwise, we risk the technology equivalent of loose nukes while missing critical opportunities to shape the future.
There are conflicting stats from places like the National Venture Capital Association (NVCA) and Pitchbook, but ~25% seems to be a consensus figure.
This is an interesting argument and I can certainly see the merits of of a targeted geopolitical VC for the US, UK etc. However, regarding your proposal for a shared opportunity area, I think your composition may be wrong. Current trends in the US are towards geopolitical isolationism, and this holds doubly true for economic concerns, where there is a genuine argument in favour of the US adopting capital controls. (https://www.phenomenalworld.org/analysis/trade-and-the-manufacturing-share/). Compare this to the likes of the UK, Australia, Canada etc, all of whom have highly open economies and will want to exist outside of such an arrangement, and an ‘AUKUS opportunity area’ isn’t likely to be a recipe for success.
Instead, I’d argue a much more viable proposition is for the ‘opportunity centre’ proposal to be based on the ‘CANZUK’ idea proposal of a semi-union between Canada, Australia, New Zealand and the UK. Much of the US’s success is in being able to act as a unified market for investment and foreign policy action due to the cultural and economic specialties of its states. While due to their geographical distance, CANZUK cannot recreate the internal trade aspects of it, they are certainly close enough culturally, economically and temperamentally that you could do the same on internal investment and foreign policy. Thus, rather than trying to fight the uphill battle of large scale collaboration in the US, I think the better solution here is to push the CANZUK angle, and instead encourage the US to pump as much money into them as possible so as to then reap the rewards (I am currently planning on writing a piece on this exact issue).
Certainly a concern, but nearly impossible to solve. LLCs investing in LLCs.
Where do you draw the line between venture capital and private equity? Yet another dimension worthy of discussion.