One of the most potentially damaging vulnerabilities to a company comes in the form of a foreign adversary masquerading as a private investor. Whether seed money for early stage, highrisk start-ups, or an engine of pivotal middle market transformation, venture capital (VC) investors may provide the extra financial boost that a company needs to succeed. VC investors often gain a substantial foothold in a company through investment opportunities including capital expenditures (e.g. land and/or equipment purchases), or other operational or financial improvements to achieve growth. These investments may appear limited or are otherwise masked in a way that would not raise any alarms.
However, these seemingly nonthreatening transactions give foreign adversaries the opportunity to quietly insert board members, secure voting rights and/or access sensitive corporate data. They can then lie in wait for the right time to perform a sleight of hand that advances the interests of the foreign adversary, at the expense of the company and also, possibly, to U.S. economic or national security. By masking the true “investor,” these VC investments are able to either completely circumvent, or gain approval from, the Committee on Foreign Investment in the United States (CFUIS). 1 To safeguard against inherent or introduced risks arising from this discreet investment vector, U.S. companies must be vigilant not only at the transaction phase, but also on a continuous basis through the lifetime of the investment. Extensive due diligence on any potential investor is necessary to manage and steer the resultant business risk, even if the investment or transaction is seemingly insignificant.
Read the full NCSC paper here.
