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Keep An Eye On the U.S.-China Tech War

Keep An Eye On the U.S.-China Tech War
By Andy Gordon
Date September 23, 2020

The U.S. government doesn’t trust big Chinese tech companies. Their close ties to the Chinese government mean that they can be used as instruments of the Chinese state. Hence, Trump’s ultimatum to TikTok to transfer ownership to willing U.S. buyers. 

The Chinese internet colossus Tencent is next on the White House’s hit list. And in this burgeoning tech war between the U.S. and China, there’s no telling who could be next.

But while all this is playing out in the headlines, things got a little more interesting at home. Yesterday, the CIA announced an interesting recruiting initiative for its new entity, CIA Labs. 

CIA Labs will  research and develop various technologies including artificial intelligence, data analytics, biotechnology, advanced materials and high-performance quantum computing.

This puts CIA Labs in direct competition with Silicon Valley. Silicon Valley has dozens — if not hundreds — of companies madly scrambling to offer the best solutions in these very same areas. And getting top talent is key to their efforts. 

Government salaries pale in comparison to what venture-backed firms can offer. 

So, for the first time ever, the CIA is letting its officers file patents on the intellectual property they work on — and collect a portion of the profits. They can earn 15% of the total income from their new invention with a cap of $150,000 per year. That would double most agency salaries. 

Now, I’m sure the CIA would argue that what they’re doing is different than what China does… That they’re being open and transparent, as opposed to what’s done in the shadows in Beijing. 

But, listen, I had my cup of coffee with the CIA back in the Reagan days (yes, that far back!). And, I can assure you, a lot of what’s done in the CIA is not open to the public. 

What’s good for the goose is good for the gander. If we have every right to be worried (and we do) about the relationship of Chinese tech to a very powerful central government, they have good reason to be worried about what the CIA is doing. 

At the same time, this latest turn of events is nothing new. The government and Silicon Valley share a history that goes back to the very beginning of post-WW2. 

It all started right after the war ended. That’s when Fredrick Terman stole 11 top researchers from Harvard and brought them to Stanford. He landed his first government contract in 1946

By the start of the Korean War in 1950, Stanford was the CIA’s go-to institution for classified Cold War technology research. And Terman encouraged his students to form companies rather than become a university researcher or professor. 

The rest, as they say, is history. Fairchild was founded later that decade and eventually spawned more than 60 chip companies over the following two decades. The 1950’s also saw the launch of venture capital investing. The first Silicon Valley IPOs like Varian and HP took place then. They captured the attention of both east coast “risk capital” investors and San Francisco’s angel investors. 

The U.S. government — including the CIA — continues to actively support high-tech companies today. Its fingerprints are all over tech startups. I was just talking to the founder of a wood-burning stove company. He says the Department of Energy gave his company a $2 million grant to develop cleaner-burning stoves. 

Grants are a somewhat passive conduit to the startup community. The CIA has chosen more active ways to become involved. It works closely with other government agencies like the Intelligence Advanced Research Projects Activity to do basic but expensive research. It also maintains relationships with other venture capitalists working in the tech fields it’s interested in. And, amazingly, it also has its very own venture capital firm — In-Q-Tel

But tech is a global business. National borders are quickly breached when a superior tech solution appears. And it’s going to be a bigger problem for both China and the United States as both governments increasingly involve themselves in the tech sector. And there’s no consensus right now on what constitutes reasonable protective measures. 

Up to now, I’ve applauded startups that have benefited from government grants and other forms of government support. After all, it’s non-dilutive capital (my favorite kind!). But it’s getting complicated. How will such support affect the company’s global market reach down the road? That question is becoming increasingly relevant to companies and their investors. 

We’re swimming in murky waters. What a shame.

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