Everything about Hone Capital, the fund colluding with China under investigation by the FBI
The FBI is investigating a Californian fund with Chinese capital, Hone Capital, which may have passed the business secrets of the startups in which it invested to China: some of these work for the American government. All the details
The FBI, the United States federal government intelligence and police agency, has launched an investigation into the Californian fund Hone Capital, suspected of transmitting the industrial secrets of technology startups to the government of China.
WHAT IS HONE CAPITAL
Hone Capital is a venture capital fund created in 2015 in California, the Silicon Valley state, whose initial capital – $115 million – came from a Chinese private equity firm called China Science & Merchants Investment Management Group. In less than three years from its creation, Hone Capital has invested in over three hundred technology startups, such as Cruise (self-driving cars), Stripe (digital payments) and Boom (supersonic planes).
The FBI suspects that Hone Capital, through these holdings, managed to obtain confidential information on the technologies, financiers and customers of the startups, and then pass it on to the Chinese authorities. The issue is also relevant because some companies in the fund's portfolio work for the US government; it also appears that part of Hone Capital's economic resources come from Chinese government funds.
THE IMPACT ON THE SILICON VALLEY INDUSTRY
The investigation can be taken as a symbol of the evolution of relations between Washington and Beijing, given that for years – as the Financial Times wrote – the industrial and financial ecosystem of Silicon Valley has welcomed investments from China; for some time, however, these flows have been put under observation by the American authorities due to the risks of espionage .
Last July the US National Counterintelligence and Security Center, a government agency, warned tech startups that adversary governments, including China's, are using the investments as a means to acquire sensitive data and threaten American national security.
CHANGE OF COURSE FROM 2019
Starting from 2019, Hone Capital has divested many of its holdings, some of which, however, have been transferred to another investment vehicle based in the United States, but still controlled by the Chinese parent company.
WHAT HAPPENED BETWEEN HONE AND ANGELLIST
Also involved in the FBI investigation is AngelList, one of the most important investment platforms in Silicon Valley, which between 2015 and 2016 received funding from Hone Capital for 80 million dollars; in exchange, the fund gained access to all syndicated trades in AngelList's system, where investors can share resources to make an investment.
WHAT WE KNOW ABOUT CHINA SCIENCE & MERCHANTS
According to the investigation documents and the statements of the Financial Times sources, Hone Capital's economic resources come from the aforementioned China Science & Merchants, a private equity company founded in 2000 in Beijing and led by billionaire Shan Xiangshuang.
China Science & Merchants' capital passes through entities based in Shanghai and the Cayman Islands and reaches a series of funds active in California, such as CSC International, CSC Upshot Ventures and – indeed – Hone Capital. Between 2015 and 2018, China Science & Merchants transferred $215 million to these companies in the United States; money that was invested in around three hundred and sixty startups.
China Science & Merchants describes itself as “one of China's first large-scale, government-approved yuan private equity fund investment and management firms.” However, Neeq was removed from the Chinese stock market in 2018 due to some irregularities.
The Financial Times writes, citing FBI investigations, that China Science & Merchants has access to Hone Capital's US servers and therefore may have obtained the data of the companies in the fund's portfolio.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/primo-piano/hone-capital-indagine-fbi-cina/ on Wed, 25 Sep 2024 14:08:48 +0000.