One of the most powerful entities in the federal government is the little-known Committee on Foreign Investment in the United States (CFIUS), which is responsible for reviewing foreign investment transactions with U.S. businesses for potential national security threats. Originally, CFIUS was only able to review foreign investments that resulted in control of the U.S. company at issue, but the Foreign Investment Risk Review Modernization Act (FIRRMA) has significantly enhanced CFIUS’s scope to include review of minority investments. This Comment explores FIRRMA’s impact on foreign investment into the U.S. venture capital (VC) ecosystem and evaluates the uncertainty created for startups and venture capitalists (VCs) in the law’s final rules enacted by the U.S. Department of the Treasury. Specifically, this Comment proposes potential solutions that could lessen the uncertainty for the VC community without hindering CFIUS’s ability to protect national security. Finally, this Comment discusses one of the most significant policy debates of the twenty-first century, namely, the dilemma between remaining economically competitive by keeping capital markets relatively unrestricted and the equal importance of protecting national security. This Comment argues that while failing to lessen the uncertainty of the final rules may ultimately slow foreign investment into the U.S. VC ecosystem, this may be a necessary price to pay for closer monitoring of foreign investments coming from hostile foreign actors.
Jonathan Aaron Horn
Innovation Meets Regulation: FIRRMA’s Significance, the Treasury’s Dilemma, and the New Normal for Foreign Investment in the U.S. Venture Capital Ecosystem,
48 Pepp. L. Rev.
Available at: https://digitalcommons.pepperdine.edu/plr/vol48/iss3/5