After years of growing tensions between the US and China, Apple’s iPhones are now made in India, Google’s Pixel phones are made in Vietnam, and the world’s largest manufacturing contractor, Foxconn, is ramping up production capacity in Mexico. 

Policy-makers around the world were quick to respond to the sweeping American tariffs and export controls imposed on China, singing the praises of ‘friendshoring’ — attracting manufacturing capacity to allied countries — and reaping the benefits of an influx of American investors leaving China. 


Now, the US administration is poised to extend these plans to venture capital (VC). The White House is reportedly preparing an executive order establishing a mechanism for the screening of outbound investment, also referred to as ‘reverse CFIUS’ (referring to the Committee on Foreign Investment in the United States, the institution in charge of monitoring inbound investment). This will restrict American investment into Chinese start-ups, particularly in the semiconductor, quantum computing and artificial intelligence sectors. 

This executive order will create significant opportunities for US allies to attract investment into their own advanced technology sectors, just as billions have flowed into new manufacturing capacity in friendshoring countries — but only if they recognise the difference between attracting foreign investment projects and attracting VC. 

American VC firms held a record $289bn in dry powder at the end of 2022, according to Pitchbook. While rising interest rates have slowed fundraising for VCs and startups alike, much of the capital raised during the exuberant market of 2020 and 2021 has yet to be deployed.

In ‘deep tech’ sectors, such as semiconductors and quantum technologies, deploying capital means identifying the best science at the best valuations. While the US leads the world in VC investment — and high valuations — its scientific lead over Europe and Asia is smaller. This creates a funding gap for American VCs to fill, and a valuation gap from which they profit — which is why they started investing in Chinese science. With the Chinese market closing to VC investors, other markets stand to benefit. 

Indeed, VCs are already shifting away from China. Qiming, a Shanghai-based VC founded to deploy American institutional investor capital into China, opened a US branch in 2017 that invests globally. The Wall Street Journal reported in February that Sequoia, one of the largest VCs in the world, has started consulting US national security experts before making investments from its Chinese arm.

Deep-tech VCs are going further, withdrawing from China entirely. I spoke with an investor focused on semiconductors who said his fund’s Chinese portfolio companies have struggled under US export controls, so they no longer make new investments in China.


And several VC funds have been founded in recent years with an explicit focus on securing American leadership in “dual-use” technologies. Investors at two of these told me they invest internationally, but only in companies based out of American allies. 

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For economic development agencies, two challenges stand in the way of a friendshoring boom like the one experienced by the manufacturing sector.

The first is that friendshoring in VC will happen in different places to those in manufacturing. While manufacturers mainly left China for lower-wage countries in South and Southeast Asia, as well as Mexico, deep-tech VCs will redirect capital to countries with the most cutting-edge science, many located in Europe.

In the quantum sector, for example, the Chinese government is the largest public funder of quantum technologies in the world. In second place is the UK, following the British government’s £2.5bn investment in the quantum sector announced in March. The UK quantum sector will likely attract investment that would have gone to China.

While the UK’s economic development agency has a dedicated team to help connect international VCs with British opportunities, other countries that see friendshoring as a phenomenon for low-income countries may miss their chance. 

The second challenge is that many economic development and investment promotion agencies are simply not set up to attract VC. Many have strong relationships with site selection consultants — not start-up accelerators — and measure success in terms of immediate job creation, rather than in future job prospects.

The internationalisation of VC and start-up ecosystems forced regions around the world to learn a new kind of investment attraction: one that is less responsive to incentives and lacks ribbon-cutting ceremonies. This learning process is still incomplete, but the looming shift in cross-border VC flows makes it more important than ever. 

Jack Conway is a capital investment officer at the UK’s Department for Business and Trade, based at the British Consulate in Boston, US. His work focuses on attracting US venture capital investment to the UK.