The FBI is investigating Hone Capital, a Palo Alto-based venture firm funded by a Chinese private equity firm, to determine if some of its capital came from the Chinese government and if it shared sensitive startup data with Beijing. Hone Capital was launched with $115 million from China’s CSC Group and has since invested in more than 360 U.S. startups, including AngelList, Stripe, and Boom. The probe comes amid continuing U.S.-China tensions that have seen U.S. firms back out of China and caused venture funding and startup creation in China to nosedive.
Hone has been feuding with two former executives since 2020. The firm sued its former CFO and Silicon Valley head, alleging fraud. They countersued, saying they’re being denied their fair share of the firm’s profits.
Hone and CSC deny any wrongdoing. Federal investigators are examining whether Hone disclosed internal information such as technology, finances, or client details to benefit Beijing, according to people close to the matter.
FBI investigates Hone Capital’s funding
Concerns have been raised during FBI interviews that some of Hone’s portfolio companies are under contract to provide services to the US government. There are also questions about whether some of Hone’s funds originated from Chinese government sources. The investigation reflects broader national security concerns regarding foreign investments in the U.S., particularly in critical tech sectors.
There are worries about the potential for espionage, intellectual property theft, and the leverage these investments might give foreign governments. Venture capitalists have a duty to ensure the success of their portfolio companies, but experts say this should not extend to divulging trade secrets. Instead, they should focus on sharing experience, business best practices, and go-to-market strategies.
The FBI has not responded to requests for comment on the ongoing investigation. The outcome may influence future policies on foreign investments and technological development.
- TechCrunch.”Hone Capital, a Silicon Valley firm, is being probed by the FBI”.
- FT.”How a Chinese billionaire’s Silicon Valley splurge caught the eye of the FBI”.
- NYPost.”FBI investigating US venture capital fund for giving trade secrets to Beijing: report”.