AsianFin -- Benchmark, one of Silicon Valley’s most influential venture capital firms, may be forced to divest from Chinese artificial intelligence start-up Manus following a U.S. government review, the Financial Times reported, citing people familiar with the matter.
The U.S. Treasury Department has launched an investigation into the deal, and in the worst-case scenario, Benchmark could be required to fully withdraw.
The controversy traces back to April, when Benchmark led a $75 million investment in Butterfly Effect, Manus’s parent company, valuing it at nearly $500 million — far higher than domestic Chinese investors were willing to pay. The deal quickly drew fire from Washington’s hawkish circles, who accused the venture capital firm of violating a new U.S. ban that prohibits American institutions from investing in Chinese AI companies, effective in January.
A source close to the Trump administration told the paper that Benchmark would be unwelcome in the U.S. as long as it doesn’t stand with America. Hardline lawmakers and ex-security officials in Washington have called such investments “asset transfers” and warned that “this door will soon shut completely.”
For Benchmark, a firm driven by technology bets and returns, the dispute has thrust it into the frontlines of U.S.-China geopolitical tensions and turned it into a high-profile test case of the “decoupling” red line.
Manus had been one of the most sought-after AI products in China this spring. Touted as a “general-purpose AI agent,” its popularity drove invitation codes to test for thousands of yuan on Alibaba’s second-hand merchandise platform Xianyu.
But momentum stalled after Benchmark’s investment. The company halted its expansion in China, shelved plans to launch a Chinese-language version of its app, and cut most of its workforce in China. Recruitment and technical operations shifted to Singapore.
Benchmark’s reputation in China has suffered, though some observers are more pragmatic. “Manus need computing power and overseas funding, and most AI products in China are free,” said the head of Dolphin Internet Think Tank. “The return-on-capital pressure and computing shortages are pushing Manus to go abroad.”
Manus co-founder Xiao Hong offered a more commercial rationale in a podcast last year: “Overseas users are about five times more willing to pay for software than Chinese users, and they pay in U.S. dollars. If the exchange rate is seven, that’s 5 times 7 — a market at least 35 times larger,” Xiao explained.
