When the Pentagon designated Tencent as a Chinese military company in early 2025, the response in Silicon Valley was a collective shrug. Tencent’s stakes in American gaming firms had been public for years. The Justice Department forced Tencent to give up two board seats at Epic Games and its director appointment rights. The conversation focused on Fortnite, but that was the wrong conversation.
The same designation that produced headlines about a video game company says nothing about where Tencent’s money actually sits in the U.S. economy. It sits quietly as an undisclosed limited partner in American venture capital funds whose portfolio companies hold sensitive contracts with the Department of War, NASA, and other federal agencies. So does state-linked capital from other adversaries. The Pentagon is buying from these companies today, and none of it appears in any public filing.
For the past decade, American venture capital has been the back door through which foreign capital, including state-linked capital from countries that compete strategically with the United States, has entered the most sensitive parts of America’s deep-tech economy. The mechanism is mundane and legal. Limited-partner disclosure in U.S. private funds is voluntary. Blocker LLCs and Alternative Investment Vehicles were originally designed to shield foreign pension funds from U.S. tax filings. They now serve a second purpose. They keep the identities of foreign LPs invisible to the U.S. companies receiving the capital, the taxpayers whose grants seeded the research, and the regulators charged with protecting national security.
The result is that a single Delaware limited liability company can sit on the cap table of a defense contractor while relying on capital from Beijing, with no obligation to disclose any of it.
The pattern is documented, and it goes both ways. In February 2024, the House Select Committee on the Chinese Communist Party released a bipartisan report finding that five U.S. venture firms — GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital China, and Walden International — had collectively channeled more than $3 billion into Chinese companies tied to the People’s Liberation Army, the surveillance state in Xinjiang, and Beijing’s strategic-technology priorities. Sequoia split off its China arm shortly afterward and rebranded it HongShan. The geographic re-labeling did not change the capital flow. It only made it harder to see.
Aerospace shows what happens when the capital sits long enough. As Rep. Pat Harrigan (R-NC) has documented, Cirrus Aircraft, the largest manufacturer of piston-powered general aviation planes in the U.S., has been wholly owned since 2011 by a subsidiary of the Aviation Industry Corporation of China. AVIC is a creature of the Chinese state and a cornerstone of Chinese President Xi Jinping’s Military-Civil Fusion strategy. The same company that builds fighter jets, attack helicopters, and drones for the Chinese military now owns the most-delivered piston aircraft in America. Congress has been asleep at the controls.
The War Department keeps a list of Chinese military companies operating in the U.S. that was updated as recently as last week. Many of these entities have investments and influence in companies that the Pentagon relies on. I have first-hand knowledge of how this pipeline operates at the venture stage. I served as a whistleblower on technology transfer to Chinese entities and foreign-affiliated investors under a defense contract that was later terminated. I cannot speak to the specifics of that, since there is ongoing litigation, but I can say that what I saw is not unusual. It is the operating reality of the U.S. critical-technology stack.
First, if a fund invests in national security, it must disclose limited partner affiliations with entities the Pentagon identifies as Chinese military companies. This would include funds that invest in companies that hold contracts with the War Department and other federal entities above a defined threshold, or handle sensitive information.
Second, expand the authority of the Committee on Foreign Investment in the United States to investigate and unwind investments in defense contractors where there is foreign influence that compromises national security.
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Third, founder-protection legislation that treats whistleblower retaliation from companies and foreign LP-backed investors as a distinct category from ordinary employment disputes.
China’s quiet capture of America’s venture-capital ecosystem is happening before our eyes. The capital is here, on the cap tables of companies the Pentagon depends on, and the structures that hide it are legal. The cost is paid by the founders who built these companies and by the taxpayers whose research dollars seeded them. How we respond determines whether American venture capital remains an engine of national security or becomes a vulnerability inside it.
Stafford W. Sheehan, Ph.D., is the founder and CEO of Project Omega, a company developing technology to recycle uranium and other materials from spent nuclear fuel. He is the co-founder, and former President and chief technology officer, of AirCo.