US venture capital firms are pushing tech start-ups like HeyGen to cut ties with Chinese backers amidst increasing regulatory scrutiny and geopolitical tensions. HeyGen’s move to relocate to Los Angeles highlights the challenges faced by Chinese VCs in the evolving AI sector.
US Tech Sector Pressures Chinese Venture Capital to Divest
HeyGen, a generative artificial intelligence start-up, is an example of the increasing pressure from US venture capital firms on tech start-ups to sever ties with Chinese backers. Founded in Shenzhen during the pandemic, HeyGen has since relocated to Los Angeles. Co-founded by former Snap software engineer Joshua Xu, the company recently asked its Chinese investors, including IDG Capital, Baidu Ventures, HongShan, and ZhenFund, to sell their shares to US counterparts, sources familiar with the matter revealed.
In March, HeyGen completed a funding round led by Silicon Valley’s Benchmark, during which Chinese investors significantly reduced their stakes. This move comes amidst Washington’s growing scrutiny of Chinese tech groups and cross-border investments. Last year, Washington banned some US fund investments in China’s AI sector but hasn’t restricted Chinese minority investments in American tech companies to date.
HeyGen’s relocation allows it to access advanced AI chips and cater to higher-paying customers like Salesforce, Nvidia, Volvo, and Amazon. The company raised $5.6 million at a $75 million valuation last November in a funding round led by Conviction Partners, with founder Sarah Guo replacing HongShan on HeyGen’s board.
US investors aim to “clean up the cap table” due to escalating geopolitical tensions, according to Guo. This trend reflects US investors’ fear of stricter rules against Chinese investment in tech, as stated by Benjamin Kostrzewa, a partner at law firm Hogan Lovells. Chinese VC firms are also grappling with domestic challenges, such as sector bankruptcies, a weak IPO market, and sluggish economic growth.
Prominent Chinese VCs, including HongShan’s Neil Shen, acknowledge the need to diversify investments as geopolitical dynamics evolve, yet HeyGen’s example underscores the hurdles Chinese VCs face in maintaining a foothold in the rapidly expanding AI sector.
Shen has been vocal about investing in Chinese founders abroad, leveraging China’s engineering talent and supply chain to build international companies. Despite these efforts, the most exciting US AI companies are actively rejecting Chinese investment, reflecting a broader industry sentiment.
