Manus, an artificial intelligence start-up, began with an idea between three engineers in Wuhan, China, united by a passion for AI and a shared ambition to build a global enterprise. From the beginning, they looked beyond China.
He got his big break in March last year. Manus had attracted the attention of Silicon Valley investors with its AI agent capable of acting on its own. By the end of the year, Meta had agreed to acquire Manus.
It seemed like a way out of China’s crowded, tightly controlled market and onto the world stage. Then, on Monday, the Chinese government intervened and demanded that the $2 billion deal be canceled.
A decade ago, there was a rush among Silicon Valley investors to back Chinese start-ups. Today, very few people do this. Deals like Meta’s acquisition of Manus were already rare, as China’s tech sector moved away from American capital. Beijing’s interference has intensified the divide.
Investors and founders say the move reflects a fragmented landscape. Chinese start-ups are raising money at home and building for domestic markets, while US investors shy away from the scrutiny that comes with their backing.
“Great founders and the free market used to decide who wins, but increasingly, outside forces may have the final say,” said Linus Liang, an investor at Kyber Knight, a San Francisco-based venture firm.
Mr Liang said his company was already cautious about cross-border investment because of the risks and complexity. But the Manus episode underlined that AI products and talent are now treated “like strategic national assets”.
This has further cooled the already weak market. Deals involving Chinese companies and foreign investors have declined sharply since 2021, according to PitchBook, which tracks private investment. In 2024, the number of deals fell 73 percent from the 2021 peak, while the total value of such transactions dropped from $54 billion to $7.8 billion.
Things weren’t always like this. In the 2010s, American investment companies moved toward China, attracted by Silicon Valley-style development and encouraged by policymakers in Washington. Goldman Sachs and Fidelity were its early investors. alibabaE-commerce giant. Tiger Global and Coatue Management were early investors in Didi Chuxing Technology Co., known as the Uber of China. And General Atlantic and Sequoia Capital backed TikTok’s parent company ByteDance.
However, by 2016, Obama administration officials were raising concerns about unfair competition and government interference.
Tensions increased under President Trump, who moved to ban TikTok in 2020. Relations deteriorated a few years later when Congress investigated American venture capital investments in Chinese companies with military ties. President Joseph R. Biden Jr. issued an executive order barring US investments in certain Chinese technologies, including artificial intelligence.
Since then many companies have stepped back. Some companies with a large presence in China, including Sequoia and GGV Capital, have split their China funds into separate firms. GGV named its US business Notable Capital and named its Asia business Granite Asia. Sequoia closed its China unit, now called HSG.
Chinese founders should now consider the composition of their investors in advance. Too much Chinese funding could scare off US investors from regulatory scrutiny, while global expansion could draw unwanted attention to companies like TikTok and fast-fashion retailer Shein. Both moved their headquarters to Singapore, but neither gave up the notion of Chinese ties.
An AI start-up founder in China, who has worked at major American and Chinese tech companies and raised money overseas, but not in the United States, said it took a lot of effort to convince Silicon Valley investors that a business could be separated from China.
“It’s not worth the effort,” said the entrepreneur, who declined to be identified to avoid drawing attention from Chinese authorities. He said most founders are choosing to stay in China and raise money locally.
Some are turning to investors in Southeast Asia, the Middle East and Australia. While Silicon Valley venture capital firms may back companies like OpenAI and Anthropic, investors elsewhere, who have less promising AI start-ups at home, are 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. Venture firm Benchmark led a $75 million funding round in March 2025, and its partner Chetan Puttagunta joined the board as the founders relocated the company to Singapore. As of December, Manus said its annual recurring revenue exceeded $100 million.
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 Menlo Park, California-based venture capital firm Keymaker VC, said the move would slow the pipeline of Chinese companies relocating to Singapore to expand and raise US funding. Over time, he said, this could strengthen China’s tech ecosystem.
“Instead of trying to sell or acquire, they will continue to build for themselves,” he said.
China requires approval for the export of certain sensitive and advanced technologies. It is now clear that regulators count AI products among them.
It is not clear how the acquisition will take place.
After Meta paid for Manus in late December, the funds were sent to Manus shareholders in the following weeks. Venture backers, including Benchmark, distributed the proceeds to investors in their funds, according to a person familiar with the transaction.
The person said that getting the money back would be complicated, if not impossible. Meta has already had access to Manus’ technology and engineers for months and 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 a “fair resolution.” The company declined to comment further. Several Chinese companies with previous investments in Manus did not respond to emails seeking comment.
Benjamin Qiu, a lawyer at Pearson Ferdinand in New York, who has spent two decades advising Chinese tech companies on foreign investment and cross-border deals, outlined a possible solution. Meta could sell majority ownership in Manus to Beijing-approved investors and instead pay to license Manus’ technology, mirroring the arrangement under which US investors license TikTok’s US operations from ByteDance.
But whatever the outcome, the message from the Chinese government is clear: It wants to prevent top talent and technology from leaving the country.
“Beijing is nervous about a flight of tech talent, including its coveted gems in AI,” Mr Qiu said.
That approach could come at a cost, said Graham Webster, an academic focused on geopolitics and technology at Stanford University.
“If people don’t think they can sell their start-ups to companies that want to buy them, it will continue to be a problem for entrepreneurs in China,” 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.
