Investors, entrepreneurs and good ideas become collateral damage in the battle between the US and China over dual-use technologies
Not long ago, globalization seemed to be an irresistible force that made physical and virtual borders obsolete. But geopolitics inevitably set in, dividing the world once again.
Today, technology is a key driver of this fragmentation. Our global ambitions to develop the most innovative, efficient and groundbreaking technologies bring us to the brink of groundbreaking scientific breakthroughs – but they also pose a challenge. Almost any civilian technology could be adapted for military purposes, making innovation increasingly complex and controversial.
In a world where any technology can be used for both good and destructive purposes, scientists and entrepreneurs are forced to consider more than just the intended use of their products. This responsibility places an undue burden on innovators, who must consider the potential misuse of products and develop mechanisms to prevent any malicious application.
To be clear, the dual-use technology dilemma is nothing new. However, it has become even more difficult to avoid these geopolitical and technological pitfalls.
Just think of the technological breakthroughs that Elon Musk has pushed forward. SpaceX, for example, originally launched satellites for civilian use. Its subsidiary Starlink was designed to improve communications and provide early warnings of events such as extreme weather in remote areas. However, since the outbreak of war between Russia and Ukraine nearly 30 months ago, Russia has illegally purchased routers destined for Ukraine, jeopardizing the transmission of important information to Ukraine and to US intelligence agencies.
The financial sector is also affected by geopolitical tensions. Governments view capital markets as strategic assets, access to which is increasingly dependent on political considerations.
In the past, life was simpler for investors in general and venture capitalists in particular. Their main job was to simply judge technology on its merits and hope that their portfolio companies would not be blindsided by superior technological breakthroughs from their competitors.
In contrast, we now live in a world where virtually any technology can potentially be used for dual purposes. When technology is adapted for abusive purposes, founders and investors are dragged into the story and often falsely accused of knowing about or supporting that abuse. These accusations can jeopardize technological breakthroughs that could significantly improve the health and well-being of humanity.
One example is mainland China-based Hesai, which is accelerating the integration of autonomous systems across industries and providing crash prevention technology for self-driving cars. The U.S. Department of Defense placed Hesai on a list of companies it believed were supporting the Chinese military. Recently, the Defense Department reversed its decision after determining that the world’s largest manufacturer of laser sensors for electric vehicles did not meet the legal criteria for inclusion. Unfortunately, damage was still done – Hesai’s inclusion on this blacklist put the company in financial and logistical difficulties and posed problems for its investors, including U.S.-based Lightspeed Ventures and China-based Qiming Venture Partners, Baidu and Xiaomi.
Unfortunately, such stories are becoming more common for many well-meaning founders and venture capital firms. With an aging population, robotics has become crucial for Chinese manufacturing companies to fill the labor shortage. One of these companies, Unitree Robotics, is also embroiled in such complications.
Unitree’s robots are widely available and can even be purchased on Amazon. But then one of Unitree’s dog-like robots appeared in a People’s Liberation Army video, equipped with a rifle the company neither made nor knew about. At the same time, its investors, including Matrix, Shunwei, Meituan and HongShan (formerly known as Sequoia China), were criticized in the Western press for supporting Unitree, even though none of these investors held more than a small minority stake and none sat on its board of directors.
Today, the instrumentalization of investing has become so extreme that it can lead to a misallocation of capital, which ultimately hurts returns. This in turn means less money for the foundations and pension funds that provide the bulk of the funding to the investment managers who then decide which technologies and which entrepreneurs to support.
The public misperception that startup companies and venture capitalists are aware of and support any form of non-civilian conversion will ultimately jeopardize innovation.
The solution cannot be for companies, investors and venture capitalists to police the potential misuse of technological innovations. Instead, industry and regulators must work together to develop responsible policies on how to use the technology only for benign purposes, while protecting the creative freedom of founders and entrepreneurs.
If both sides do not join forces, we will face an even darker world in which good ideas will die for lack of capital.
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