Why VC Firm Eight Roads Is Giving Up on China

For years, the smart money in venture capital flowed across borders, chasing innovation wherever it could be found. That era is decisively over. According to a Bloomberg report, Eight Roads, a venture capital fund backed by the billionaire Johnson family of Fidelity Investments, is now planning to sell its entire portfolio of Chinese technology holdings. This is not a strategic trim; it’s an exit, involving about 40 companies at discounts reportedly as steep as 80%. The reported reason—"heightened tensions between Beijing and Washington"—is a polite way of saying that the political risk of holding Chinese tech has become too great to bear, even for long-term investors.

Why is this happening now?

The decision by a seasoned investor like Eight Roads to sell a portfolio once valued at around $1 billion for what could be pennies on the dollar underscores a profound shift in risk calculation. The primary driver is geopolitics. In January 2025, the US imposed new restrictions on American investments in China’s advanced technology sectors, including semiconductors and AI. This was followed by escalating trade friction and tariff hikes under the Trump administration. For venture capital firms, which often invest with a 10-year or longer time horizon, this level of regulatory and political uncertainty has become untenable. The risk is no longer just about whether a startup will succeed, but whether a successful company will be rendered inaccessible or worthless by future government actions.

Is this an isolated case?

Eight Roads' move is a high-profile example, but it is far from an isolated case. It represents a broader "great unwinding" of US venture capital from Chinese tech, a trend that has been accelerating. The most significant signal of this shift came in 2023, when the legendary Silicon Valley firm Sequoia Capital announced it was splitting its globally renowned brand into three independent entities, with its highly successful China arm rebranding as HongShan.

The move by Sequoia, a titan of venture capital, was a watershed moment, acknowledging that operating a unified global tech investment firm across the US and China was no longer tenable. Other major firms have followed suit. GGV Capital, another prominent cross-border fund, also announced last year a similar separation of its US and Asia operations.

The pressure is not just coming from within the VC firms themselves. Their own funders—the Limited Partners (LPs) like large US pension funds and university endowments—are facing increasing political and regulatory pressure to reduce their exposure to Chinese technology investments, starving many China-focused funds of new capital. The calculus for many has shifted from seeking high growth to mitigating the profound political risk of being caught on the wrong side of US-China relations.

But isn't China's AI scene booming?

Yes, which makes this trend all the more complex. The retreat of capital is happening even as China's domestic AI industry shows surprising strength. The release of highly efficient models from startups like DeepSeek in late 2024 and early 2025 stunned Silicon Valley and proved China's capacity for genuine innovation, even under US chip export controls. This has created a bifurcated view: while some investors see the technological prowess and are cautiously re-engaging, others, like Eight Roads, see the overarching political risk as too great to ignore. The "pull" of technological innovation is, for some, being decisively overridden by the "push" of geopolitical risk.

Who is buying what Eight Roads is selling?

The fire sale creates an opportunity for a different class of investor. According to reports, the potential buyers for Eight Roads' assets include Chinese tech-focused private and venture capital funds. This points to a significant transition in the funding landscape for Chinese startups. Where they once relied heavily on US dollar-denominated funds from global VCs, they are now increasingly turning to domestic, yuan-denominated capital. This shift could accelerate China's goal of technological self-sufficiency by ensuring that its emerging tech champions are funded and controlled from within, further deepening the divide between the US and Chinese tech ecosystems.

What does this mean for the future of tech investing?

The great unwinding of US venture capital from Chinese tech marks the end of an era of unfettered globalization in the tech sector. Capital, once considered borderless in its pursuit of innovation, is now being rerouted along geopolitical fault lines. For US investors, it means potentially missing out on the next generation of high-growth Chinese tech companies. For Chinese startups, it means a more challenging funding environment and a greater reliance on state-aligned or domestic capital. Ultimately, this financial decoupling is as significant as the supply chain decoupling in semiconductors, creating two increasingly separate and competitive technological spheres.

Reference Shelf:

• Billionaire Johnson Family’s VC Fund to Exit China Tech Holdings (Bloomberg)
• The Contentious U.S.-China Trade Relationship (Council on Foreign Relations)
• US still reigns over China in tech race, but gaps are quickly closing: Harvard report (SCMP)