Manus, an artificial intelligence start-up, began with an idea among three engineers in Wuhan, China, united by an obsession with A.I. and a shared ambition to build a global venture. From the outset, they looked beyond China.
Their big break came in March last year. Manus had drawn the attention of Silicon Valley investors with an A.I. agent capable of carrying out tasks on its own. By year’s end, Meta had agreed to acquire Manus.
It looked like a clean breakout from China’s crowded, tightly regulated market and a path to the world stage. Then, on Monday, the Chinese government stepped in and demanded that the $2 billion deal be undone.
A decade ago, Silicon Valley investors raced to back Chinese start-ups. Today, few do. Deals like Meta’s acquisition of Manus were already rare, as China’s tech sector drifted from American capital. Beijing’s intervention sharpens the split.
Investors and founders say the move reflects a fragmenting landscape. Chinese start-ups are raising money at home and building for domestic markets, while U.S. investors steer clear of the scrutiny that comes with backing them.
“Great founders and free markets used to decide who won, but increasingly, outside forces may have the final say,” said Linus Liang, an investor at Kyber Knight, a venture firm based in San Francisco.
Mr. Liang said his firm had already been cautious about cross-border investments because of the risks and complexity. But the Manus episode underscored that A.I. products and talent are now treated “like strategic national assets,” he said.
It has further chilled an already weak market. Deals involving Chinese companies and foreign investors have dropped sharply since 2021, according to PitchBook, which tracks private investment. In 2024, the number of deals was down 73 percent from the 2021 peak, while the total value of such transactions dropped to $7.8 billion from $54 billion.
Things were not always this way. In the 2010s, American investment firms flocked to China, drawn by Silicon Valley-style growth and encouraged by policymakers in Washington. Goldman Sachs and Fidelity were early investors in Alibaba, the e-commerce giant. Tiger Global and Coatue Management were early investors in Didi Chuxing Technology Company, known as the Uber of China. And General Atlantic and Sequoia Capital backed ByteDance, the parent company of TikTok.
By 2016, however, officials in the Obama administration were raising concerns about unfair competition and government interference.
Tensions escalated under President Trump, who moved to ban TikTok in 2020. Relations worsened a few years later when Congress investigated U.S. venture capital investments in Chinese companies with military ties. President Joseph R. Biden Jr. issued an executive order barring U.S. investments in certain Chinese technologies, including artificial intelligence.
Many firms have since pulled back. Some firms with a large presence in China, including Sequoia and GGV Capital, split their Chinese funds into separate firms. GGV renamed its U.S. business Notable Capital and rebranded its Asia business Granite Asia. Sequoia spun off its China unit, now called HSG.
Chinese founders must now consider the composition of their investors early on. Too much Chinese funding could scare off American investors wary of regulatory scrutiny, while global expansion may invite the kind of unwanted attention faced by companies like TikTok and the fast-fashion retailer Shein. Both moved their headquarters to Singapore, but neither shed the perception of Chinese ties.
An A.I. start-up founder in China, who has worked at major U.S. and Chinese tech companies and raised money abroad but not in the United States, said it took too much effort to convince Silicon Valley investors that a business could be separated from China.
It is not worth the effort, said the entrepreneur, who asked not to be identified to avoid drawing the attention of Chinese officials. Most founders, he added, are choosing to stay in China and raise money locally.
Some are turning instead to investors in Southeast Asia, the Middle East and Australia. While Silicon Valley venture capital firms can back companies like OpenAI and Anthropic, investors elsewhere, with fewer promising A.I. start-ups at home, remain interested in China.
Manus tried to bridge those two worlds. Founded by Chinese engineers with a Chinese parent company, it was incorporated offshore and structured as a foreign-owned entity in China with offices in Beijing and Wuhan.
Silicon Valley took notice. The venture firm Benchmark led a $75 million funding round in March 2025, and its partner Chetan Puttagunta joined the board as the founders moved the company to Singapore. By December, Manus said it had surpassed $100 million in annual recurring revenue.
Mr. Puttagunta did not respond to a request for comment.
When Meta acquired Manus, many saw a new playbook for Chinese start-ups. That is no longer the case.
Homan Yuen, an investor at Keymaker VC, a venture capital firm based in Menlo Park, Calif., said the move would slow the pipeline of Chinese companies relocating to Singapore to raise U.S. funding and expand. Over time, he added, it could strengthen China’s tech ecosystem.
“They’ll continue to build for themselves, as opposed to trying to sell or get acquired,” he said.
China requires approval for the export of certain sensitive and advanced technologies. It is now clear that regulators count A.I. products among them.
How the acquisition will be unwound remains unclear.
After Meta paid for Manus in late December, the funds were wired to Manus’s shareholders in the ensuing weeks. Venture backers, including Benchmark, distributed the proceeds to the investors in their funds, according to a person familiar with the transaction.
Clawing the money back would be complicated, if not impossible, the person said. Meta has already had access to Manus’s technology and engineers for months and has described the two teams as “deeply integrated.”
Meta said in a statement on Monday that the transaction complied with applicable law and that it expected an “appropriate resolution.” The company declined to comment further. Several Chinese firms with previous investments in Manus did not return emails seeking comment.
Benjamin Qiu, a lawyer at Pierson Ferdinand in New York who has spent two decades advising Chinese tech companies on foreign investment and cross-border deals, outlined a possible fix. Meta could sell a majority ownership in Manus to Beijing-approved investors and instead pay to license Manus’s technology, mirroring the arrangement under which American investors license TikTok’s U.S. operations from ByteDance.
But whatever the outcome, the message from the Chinese government is clear: It intends to keep top talent and technology from leaving the country.
“Beijing is nervous about a flight of tech talent together with its deemed crown jewels in A.I.,” Mr. Qiu said.
That approach might come at a cost, said Graham Webster, an academic focused on geopolitics and technology at Stanford University.
“It’s going to continue to be a drag on entrepreneurs in China if people don’t think they can sell their start-ups to the companies that want to buy them,” Mr. Webster said. “The Chinese market is huge, but it’s one-fifth of humanity. Then there’s the other 80 percent.”
Xinyun Wu contributed reporting from Taipei.
