Security risks prompt scrutiny of foreign startup investment

Concerns over national security have prompted the Treasury Department’s Committee on Foreign Investment in the U.S. (CFIUS) to force international investors to divest from two American tech startups, a move that will affect entrepreneurs and investors alike, according to a recent article by from Jeff Farrah of the National Venture Capital Association. Writing in TechCrunch, Farrah notes that historically CFIUS has targeted areas such as ports and real estate, but is beginning to focus its attention on how access to personal data can serve as a national security threat.

Last year, Congress gave CFIUS new tools to scrutinize foreign investment in technology companies and in 2019, the committee has forced Chinese investors to divest from two data-driven startups that collect personal data: PatientsLikeMe, a healthcare IT company, and Grindr, an LGBTQ app. In particular, CFIUS was worried about the potential use of locational and other personal data to blackmail individuals with security clearances or intelligence agents. Farrah provides background on CFIUS, how it engages with technology startups, and what its recent actions mean for the field moving forward.