The backlash came swiftly for Benchmark, one of Silicon Valley’s top venture capital firms, after Bloomberg News reported in late April that it was investing in an AI startup founded in China.
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If the Treasury Department decides the investment violated policy, Benchmark would be forced to divest and could face additional criminal or civil penalties, including a fine twice the value of the transaction. Lawyers unconnected to the investment say it likely won’t trigger such consequences, because Butterfly Effect is incorporated in the Cayman Islands. “I would hesitate to jump to the conclusion that this is an evasion,” says Anthony Rapa, a partner at law firm Blank Rome and co-chair of the firm’s international trade practice group, who was not involved in the transaction. (Spokespeople for the Treasury and Manus declined to comment.)
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"The New Third Rail in Silicon Valley: Investing In Chinese AI," was published in Bloomberg Businessweek on July 14, 2025.
