Another day, another U.S. company forced to divest of Chinese investors

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Jeff Farrah Contributor

Foreign investment scrutiny continues to creep into the startup world via a once obscure U.S. government agency that has new tools and a shift in focus that stands to impact young, high-growth companies in huge ways. The Committee on Foreign Investment in the U.S., or CFIUS, recently made waves when it forced Chinese investors into two American companies to divest because of national security concerns.

There is much to learn from these developments about how government concerns over foreign investment will affect startups and investors going forward.

It is important to understand how we got here. CFIUS has long had the authority to review investments for national security concerns when the investment delivers “control” of a U.S. entity to a foreign entity — and control is defined broadly to mean the ability to determine important matters of the business. CFIUS is the body that rejected Broadcom’s acquisition of Qualcomm to name one well-known example.

The Treasury Department-led body can tap a few powers if it has concerns about an investment, such as blocking it outright, requiring mitigation measures, or—as we saw recently—forcing a fire sale of assets long after a deal is complete.