Will the Committee on Foreign Investment in the United States (CFIUS) prohibit a venture fund from investing in critical technology areas if a majority of its Limited Partners' funding comes from foreign entities?
Companies in certain critical technologies or other types of industries or geographical proximity to national security matters (i.e., airports, submarine bases) may require investors to represent that the investor is not owned or controlled by foreign persons. That’s because if a foreign person obtains a certain level of control over the company, then the investment transaction will require review by CFIUS.
Here’s the traditional representation that companies concerned with Defense Production Act matters will request from their investors:
CFIUS Foreign Person Status. The Purchaser is not a “foreign person” or a “foreign entity,” as defined in Section 721 of the Defense Production Act of 1950, as amended, including all implementing regulations thereof (the “DPA”). The Purchaser is not controlled by a “foreign person,” as defined in the DPA. The Purchaser does not permit any foreign person affiliated with the Purchaser, whether affiliated as a limited partner or otherwise, to obtain through the Purchaser any of the following with respect to the Company: (i) access to any “material nonpublic technical information” (as defined in the DPA) in the possession of the Company; (ii) membership or observer rights on the Board of Directors or equivalent governing body of the Company or the right to nominate an individual to a position on the Board of Directors or equivalent governing body of the Company; (iii) any involvement, other than through the voting of shares, in the substantive decision-making of the Company regarding (x) the use, development, acquisition, or release of any “critical technology” (as defined in the DPA), (y) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the Company, or (z) the management, operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA); or (iv) “control” of the Company (as defined in the DPA).]