The Cure for CFIUS
Sup?
If you’ve been following the news about our ongoing trade war with China (or you follow @realdonaldtrump on Twitter), you may have heard a reference to a strange acronym that sounds like an STD. I’m talking about CFIUS (pronounced si-fee-us). Stop giggling, this shit is serious.
CFIUS stands for the Committee on Foreign Investment in the United States. It’s an effort by the U.S. government to assess the impact of foreign investments (including acquisitions) on national security.
Essentially, the U.S. government has veto power over an acquisition or controlling investment by any foreign entity into a U.S.-based company or foreign company with a U.S. subsidiary. Led by the Department of the Treasury, CFIUS consists of 14 government agencies ranging from the Department of Defense to the Trade Representative. (Serious question- if you work at an agency not involved in CFIUS, does that make you an uncool bureaucrat?)
CFIUS is spreading
Since its founding in 1975, CFIUS has operated mostly in niche areas. Over the last decade, CFIUS has started to flex.
There’s been an intense focus on national security implications of one particular country – China.
Mostly, the focus has been on China’s ambitions in the semiconductor space. I could go on for 20 pages on its origins and future implications, but instead, I’m going to cop-out and advise you read this.
In 2018, bipartisan legislation expanded the scope of transactions that CFIUS reviews to include foreign investments into U.S. businesses involving critical technology, infrastructure, or personal data even when the foreign investor doesn't get control of the business.
Essentially, a Chinese investor can’t sneeze without the US government taking notice - CFIUS has been invoked in financial services, shipping, energy, manufacturing and… dating?
Late last month, CFIUS forced a Beijing-based Kunlun Tech to sell its stake of the dating and social media app, Grindr. According to some reports, Grindr was preparing for an IPO. CFIUS be like:
Grindr isn’t an outlier. Uber is about to go public and has two board seats controlled by Softbank. Or should I say ‘had’. The control of those seats are in question pending a CFIUS review - earlysignals point to them being removed completely.
CFIUS is expanding and evolving quickly, creating headaches for funds, investment bankers, operators, VCs and lawyers. Who knows who will catch CFIUS next? (ha- couldn't help myself).
The Cure for CFIUS
So imagine this. A crowd-sourced news and intelligence site for CFIUS. Almost like Reddit for CFIUS nerds. We’d call it .. CFIUSED (also in the running: CFIFUCKED)
It'd work a bit like this.
Let's say a news story breaks about, like the divestiture of Grindr. The community, which would be comprised of 'experts' would offer insights into why the deal was flagged, what’s next, what could have been done better. In the future, this can serve as research for a deal team researching possible CFIUS implications.
Have a question about a possible investor or acquirer? Without betraying specifics, the community could provide guidance. This could be crucial for smaller companies that don't have the resources to vet their investors (or who the investor of their investors is).
Once you get a bit of scale, the data collected on the site about entities flagged by CFIUS could get real interesting. Imagine if the site used machine learning to scan the web and identify possible CFIUS risks, then present them to the community to weigh-in on.
What do you think?
Special thanks to my insider group, especially Nick Klein who is a legit CFIUS expert. If you think you’re at risk for CFIUS, you should call him.