Can the feds “unwind” your investment or acquisition by an international company or investor?

As entrepreneurs, let’s face it, we know that startup capital matters – and the right amount of capital at the right time can be the difference between success, and crushing failure. Figuring out how to get investors just got harder if you were considering investors outside of the United States.

So, are there really circumstances that the U.S. government could unwind an investment transaction you just completed? Even if that meant your business collapsed?

Due to the currently invigorated CFIUS, the answer is yes!

Now, the Committee on Foreign Investment in the United States (CFIUS) is making moves under the latest rules, effective February 13, 2020, which has significantly enhanced the Committee’s ability to conduct national security reviews of inbound investments.

Aside from the obvious drama with Tik Tok (which wasn’t a new investment but a U.S. subsidiary of a foreign firm), these issues have affected a number of companies.

Some examples include an order unwinding the acquisition by Beijing Shiji Information Technology Co., Ltd. (Shiji) of StayNTouch, Inc. (StayNTouch).  The acquisition was completed in September 2018, but the unwinding was ordered in March of 2020, based on national security concerns.  StayNTouch apparently had data about Americans that raised concerns at CFIUS.  

Some other transactions seem to be voluntarily terminated or unwound under CFIUS scrutiny. Even large companies U.S. companies have run into challenges with CFIUS oversight under a wide variety of situations including Cypress Semiconductor Corp., Grindr, Qualcomm, Lattice Seminconductor, , PatientsLikeMe and Cofense. Firms which get quick scrutiny include Chinese and Russian investors, but European acquisitions have also been either scrutinized or blocked.

What causes CFIUS to exercise jurisdiction over a transaction?  Well, generally speaking “national security concerns”.  However, they have become very specific in terms of key and emerging technologies.  If your technology is subject to any type of export or import regulations, you’d better check in with your lawyer about CFIUS issues!  Some of the most prominent affected industries include encryption, geospatial imagery, aerospace, marine technologies, chemical, electronics, and  biotechnology.

Does your U.S. business develop, produce, test, design, manufacture or fabricate any export-controlled items?  If so, and you accept any foreign investment, your company, large or small, may be subject to mandatory CFIUS filings.  And these filing apply whether or not you actually export the controlled items.

If you are raising startup capital and you’d rather avoid the CFIUS drama, consider our InvestorFind™ database search.  Our goal is to save you TONS of time by providing at least 20-25 “Perfect Investor” candidates with our custom searches. And you can specify the country of those investors!  At least twenty potential investors who already want what you have! Think about the amount of time that will save (and we know because we’ve been spending the time for you!)

———————-

If you are planning to raise funding for your startup,
Click to Get our FREE VentureWrench Guide to Investor Capital
50 pages of insider insights to help you succeed!!

Nicole Toomey Davis Awards Interviews