Silicon Valley Venture Capitalists Are Breaking Up With China

DCM Ventures, a Silicon Valley venture capital firm, began investing in China’s start-ups in 1999. The move reaped such blockbuster returns that in 2021, DCM said it planned to “double down” on its strategy of investing in China, the United States and Japan.

Yet when DCM set out to raise money last fall for a new fund focused on very young companies and promoted its “cross-Pacific” expertise, the firm described plans to invest in the United States, Japan and South Korea, according to a fund-raising memo that was viewed by The New York Times.

China was not mentioned.

DCM’s messaging is one example of an industrywide shift happening between Silicon Valley investors and Chinese start-ups. U.S. venture capital firms that once saw China as the next frontier for innovation and investment returns are backing away, with some separating their Chinese operations from their American business and others declining to make new investments there.

The about-face stems from the tense relationship between the United States and China as they jockey for geopolitical, economic and technological primacy. The countries have engaged in a trade war amid a diplomatic rift, enacting tit-for-tat restrictions including U.S. moves to curb future investments in China and to scrutinize past investments in sensitive sectors.

“It was an incredibly fruitful partnership for a long time,” Tomasz Tunguz, an investor at Theory Ventures, said of how U.S. venture firms had invested in China. Now, he said, most investors are “looking for places to invest those dollars because that market is effectively closed.”

A spokeswoman for DCM said that its strategy had not changed and that investments in China had always been “a smaller component” of its funds focused on very young companies. The firm is monitoring U.S. regulations on China to comply, she added.