Venture capital firms that once saw China as a land of opportunity must now see it as a land of risk, after the Biden administration last month announced a long-anticipated set of outbound investment restrictions that target Chinese companies developing cutting-edge artificial intelligence (AI) products and services.
For a firm like Qualcomm Ventures, the venture capital arm of chip design giant Qualcomm, the announcement is not the first sign that it’s no longer business as usual in China. In July, members of Congress wrote to the company’s leadership, demanding to know more about its investments in Chinese AI companies. For a company that has invested hundreds of millions in China, it’s a dramatic change.
At The Wire, we periodically focus on prominent firms investing in China: In the past, we’ve featured Yunfeng Capital, Shunwei Capital, and Primavera Capital. This time, we take a closer look at Qualcomm Ventures, a firm with more than $2 billion of assets under management that specializes in identifying emerging startups that focus on innovations in AI.
QUALCOMM VENTURES’ MANAGEMENT TEAM
Qualcomm set up its new $500 million investment arm, Qualcomm Ventures, in November 2000 and appointed Jeff Jacobs, the son of the company’s billionaire co-founder Irwin Jacobs, as its head. At the time, the company said QV would look to invest to accelerate the adoption of Internet and communications technologies worldwide.
The firm made a big bet on China early on in the country’s boom years. In 2003, it committed up to $100 million towards investments in early-to-mid stage Chinese technology companies, with a focus on 3G, then in its infancy. Those deals fit with the Qualcomm Ventures’ strategy of finding ways to support its parent. One beneficiary was Advanced Micro-Fabrication Equipment (AMEC), which received $8 million from Qualcomm Ventures and other investors in 2007. Today, AMEC is one of China’s leading semiconductor equipment companies and launched a successful IPO in July 2019.
“Qualcomm Ventures would go and try to invest in companies which then bring in technologies or knowledge or financial returns back to the parent company to help with the technology that Qualcomm is developing itself,” says Ngor Luong, research analyst at the Center for Security and Emerging Technology (CSET) at Georgetown University.
These days, Qualcomm Ventures lists investments in 49 Chinese companies on its website, out of 360 portfolio companies globally throughout the company’s history. Among its notable deals, the firm was an early investor in mobile phone and consumer electronics giant Xiaomi, which during a funding round in 2011 raised $90 million. Although Qualcomm Ventures’ stake in Xiaomi is not known, Xiaomi’s valuation had mushroomed to $48.5 billion by the time it launched its IPO in Hong Kong in 2018, according to PitchBook.
Parent company Qualcomm’s own ties to China have become more problematic in recent years amid growing trade tensions between the U.S. and China. Qualcomm earned $22.1 billion in revenue from its China operations in 2022, nearly two-thirds of its total revenue that year, according to its 2022 annual report.
“China is the second largest concentration of foreign investment for Qualcomm,” says Claire Chu, senior China analyst at defense intelligence firm Janes. “It operates manufacturing facilities in China; as well as R&D centers… administrative offices, sales and other operations also in China. So this is a pretty extensive history of cooperation and of investment beyond the venture capital angle.”
But Qualcomm’s deep presence in China has also made its business relationships vulnerable to restrictions arising from the U.S.-China rivalry. In 2019, the U.S. Commerce Department blocked most U.S. suppliers from providing advanced technology to Chinese telecoms giant Huawei, for example.
Qualcomm Ventures did not respond to The Wire’s requests for comment on this story.
ENABLING INNOVATION
Qualcomm Ventures has launched several investment funds to provide backing to companies developing innovative technologies. The most recent of these is the $100 million Snapdragon Metaverse Fund, focusing on extended reality (XR) technology companies.
Look below for a summary of Qualcomm Ventures’ investment funds:
MAJOR INVESTMENTS
The most recent Chinese company in Qualcomm Ventures’ portfolio to successfully go public is Huaqin Technology, a smart hardware provider which raised 5.85 billion RMB ($836 million) in its IPO on the Shanghai Stock Exchange on Aug. 8 with a market cap of $7 billion, according to PitchBook.
Below is a selection of some of the investments that Qualcomm Ventures has participated in since its founding:
ONE INVESTMENT: ZONGMU
Tsinghua University graduate Rui Tang founded ZongMu Technology in 2013 after 14 years of R&D management experience in semiconductors at Silicon Valley. The company develops autonomous driving and advanced driving assistant system technologies and products. In 2021, ZongMu raised $190 million in a funding round led by Xiaomi’s investment fund, which also included Qualcomm Ventures.
Members of Congress have questioned Qualcomm Ventures’ backing of ZongMu, with the House Select Committee on the CCP noting that ZongMu “operates at an industrial park that lists as one of its focuses ‘promoting the development of military-civilian integration.’” The park in question is the Jimei Industrial Park in Xiamen, Fujian Province, where ZongMu operates a 2,000-square meter factory.
Qualcomm Ventures also provided ZongMu with access to Qualcomm Snapdragon products, a range of high-speed mobile processors, as part of the partnership between the two companies.
“In the ZongMu case, the Snapdragon technology appears to be a critical gap that could not be filled as easily without U.S. contributions,” said a CSET report covering U.S. outbound investment in Chinese AI companies.
Increasingly all of these companies are using some form of AI in their research and development, in their customer-facing products or even just behind-the-scenes processes. So at what point is a company an AI company?
Claire Chu, senior China analyst at defense intelligence firm Janes
Qualcomm Ventures’ investments in ZongMu are the kind that seem likely to face increasing pressure following recent actions by the Biden administration. On August 9, President Biden issued an executive order that requires American businesses to notify the government of certain investments with Chinese AI companies, and also prohibits some investments that are deemed to threaten U.S. national security.
“It’s going to… bring more visibility to what exactly the [American] companies are doing, what kind of contracts they are under with the companies they are investing in,” says Luong from CSET. “But in terms of what exactly constitutes prohibited AI technologies, that’s unclear.”
Still, the U.S. government’s efforts will likely be complicated by the difficulty of defining what constitutes an ‘AI company’. Companies in various sectors increasingly use AI to do business, even if their core product or service is not directly related to AI technology.
“These industries are so closely clustered together or overlapping, it’s hard to really distinguish between sectors,” says Chu from Janes. “Increasingly all of these companies are using some form of AI in their research and development, in their customer-facing products or even just behind-the-scenes processes. So at what point is a company an AI company?”
Aaron Mc Nicholas is a journalist based in Washington DC. He was previously based in Hong Kong, where he worked at Bloomberg and at Storyful, a news agency dedicated to verifying newsworthy social media content. He earned a Master of Arts in Asian Studies at Georgetown University and a Bachelor of Arts in Journalism from Dublin City University in Ireland.