Treasury Reviews Benchmark Capital’s Investment in Chinese-Linked Startup Manus AI

The U.S. Treasury Department is reviewing a $75 million investment by Silicon Valley firm Benchmark Capital in Manus AI, a Chinese-linked startup, according to two people familiar with the matter. The inquiry marks another flashpoint in the growing technology rivalry between the United States and China.

Benchmark recently received an inquiry from the Treasury regarding whether its financial backing of Manus AI falls under new restrictions aimed at investments in artificial intelligence and other sensitive technologies destined for "countries of concern." These measures are part of the Outbound Investment Security Program, launched under a 2023 executive order by President Joe Biden but only enforced starting this year.

Under the new rules, U.S. entities must notify the Treasury of investments that could “accelerate and increase the success of the development of sensitive technologies” in ways that might harm U.S. interests. Benchmark, Manus AI, and the Treasury Department declined to comment.

Rising Scrutiny in Tech Ties to China

The inquiry comes amid heightened concern over U.S.-China tech links. Although the United States led AI development for decades, China is catching up quickly, publishing more research and unveiling competitive models like DeepSeek R1. That model’s release earlier this year contributed to significant stock market disruptions for U.S. tech companies.

In March, Manus AI drew attention with a demo video showing its AI agent performing sophisticated tasks, from conducting research to autonomously building mobile apps and websites. The demo was heralded in tech circles as a "second DeepSeek moment."

Legal Debate Over Investment Restrictions

Benchmark reportedly consulted several U.S. law firms before investing in Manus. These firms advised that the deal would not trigger the new outbound investment restrictions because Manus does not develop its own AI models. Instead, the company builds products using pre-existing models—a practice often referred to as creating a "wrapper."

Further, the lawyers argued that Manus is not technically a Chinese-based company. Its parent organization, Butterfly Effect, is incorporated in the Cayman Islands. Manus employs staff in the U.S., Singapore, Japan, and China, and stores its data on cloud servers run by Western firms, according to a person familiar with the matter.

Despite these legal arguments, the investment drew sharp criticism within Silicon Valley. Josh Wolfe, co-founder of Lux Capital, posted that the investment “makes zero sense.” Delian Asparouhov, a partner at Founders Fund, added: “I am not saying Benchmark partners are Chinese assets… But they are def assets to China.”

Following these criticisms, the Treasury Department formally asked Benchmark whether its Manus investment should be reported under the new rules, or to justify why it would be exempt. According to people familiar with the situation, Benchmark has yet to respond but is expected to argue that notification is unnecessary based on earlier legal advice.

Potential Challenges Ahead

Benchmark’s lawyers maintain that because Manus does not train AI models—it instead fine-tunes existing ones built by companies like Anthropic and Alibaba—the company is not advancing China's AI capabilities. However, the Treasury’s enforcement of outbound investment rules remains largely untested, leaving the outcome uncertain.

Questions persist about the true nature of Manus’s technology. Although Manus does not train its own large models, its co-founder and chief scientist, Ji Yichao, recently claimed that its AI agent has demonstrated "emergent capabilities," hinting at possible advances in AI reasoning.

Ji, a well-known tech entrepreneur in China and former Forbes China cover subject, had previously released open-source AI models aimed at replicating OpenAI’s cutting-edge reasoning technologies. He noted at the time that resource constraints limited his progress but expressed a desire to share his work for broader advancement.

While improvements in AI traditionally required powerful, large-scale training, recent breakthroughs increasingly focus on "reasoning"—the repeated running of models to generate better answers. Manus’s advances in this area could make the company's work more sensitive, depending on how regulators interpret it.

Benchmark’s Prominent Role Raises Stakes

Benchmark Capital is one of Silicon Valley’s most prominent venture firms, having early investments in eBay, Twitter, Uber, and Snap. Its reputation for backing select startups amplified concerns among tech hawks after its investment in Manus.

In contrast, other major firms like Sequoia Capital have recently distanced themselves from China, with Sequoia formally separating from its Chinese arm after sustained criticism—moves that helped shape the Biden administration's new investment rules.

Broader concerns also persist that Chinese technology could be exploited for espionage. In Silicon Valley, allegations have emerged about Chinese nationals studying AI at Stanford being pressured to act as spies. Additionally, U.S. startups adopting open-source Chinese AI models like DeepSeek’s have faced scrutiny over potential security vulnerabilities.

Amid these fears, the Trump administration is reportedly considering even tighter restrictions on outbound investments to China to prevent regulatory loopholes.

Industry Voices on the Investment Debate

Benchmark general partner Bill Gurley has criticized U.S. efforts to restrict China’s AI progress. “Our nation’s recent curbs on Nvidia H20s, intended to slow China AI innovation, will enhance & accelerate Chinese AI innovation. This action will create the OPPOSITE of the intent,” he posted last month. Gurley declined to comment on the Manus investment.

At a Senate hearing last Thursday, Microsoft President Brad Smith also weighed in, emphasizing that the United States' strength has historically come from attracting global talent and supporting it with venture capital. Smith said, "If we can keep bringing the best people to the United States and if we can keep educating the best people in the United States, I believe the money will be here to help them succeed."

Smith acknowledged concerns about whether investments like Benchmark’s are in the U.S. national interest but stressed that fostering innovation domestically remains critical.

What This Means

The Treasury Department’s inquiry into Benchmark Capital’s Manus AI investment highlights the growing tension between promoting technological innovation and protecting national security. How regulators choose to interpret Manus’s activities—and whether they view them as advancing sensitive AI capabilities—could set important precedents for future outbound investment reviews.

As competition with China intensifies, Silicon Valley firms may face increasing pressure to justify where and how they place their capital. The outcome of this case could influence both investment strategies and national security policy for years to come—especially as AI capabilities and global competition continue to accelerate.

Editor’s Note: This article was created by Alicia Shapiro, CMO of AiNews.com, with writing, image, and idea-generation support from ChatGPT, an AI assistant. However, the final perspective and editorial choices are solely Alicia Shapiro’s. Special thanks to ChatGPT for assistance with research and editorial support in crafting this article.