The “Splinternet” and Startups

The last few years have surfaced tense dynamics between the United States and China. From trade wars, allegations of IP theft, and that crazy Bloomberg story about spying microchips (this one received a lot of criticism, so don’t read too much into it). Most recently, the tensions have reached an all-time high. The U.S. and much of the western world’s concerns over Huawei’s phones and 5G initiatives were undoubtedly a tipping point, and now President Trump’s (and India’s for what it’s worth) ban on TikTok are widening a chasm that will have far-reaching implications for the startup and finance world.

The last decade created many advancements for technology and investors. The introduction of smartphones, 4G, Amazon Web Services, and the most significant economic expansion in history all paved the way for global opportunities. Before this, most venture capital dollars were kept local, but over time U.S. venture capitalists increasingly funneled money into Chinese startups, and vice versa. Regardless of this trend, it hasn’t always been a harmonious relationship. Due to the political differences between the two nations, and China’s desire to restrict access to specific internet material (dubbed the “Great Firewall of China”), there has always been a block for some U.S. companies to operate in the country. Twitter, Google, and Facebook are all banned for Chinese citizens’ access, although many use VPNs to circumvent this policy. This means that a “splinternet” or two internets has always existed in some form.

There are a few ways these recent political battles can play out. One possibility is that as countries continue to implement 5G networks and eventual low-orbiting communication satellites such as Starlink, regional internets will emerge, separating open democracies and closed communist nations. Given that The U.S. and Europe have strong ties, it’s likely that new startups will have significantly decreased addressable markets to only these regions. Conversely, China’s influence on Southeast Asia, Africa (where they have been investing heavily, i.e., Belt and Road Initiative), and some Latin American countries would also have separate markets. These separations would complicate startup growth strategies and further complicate investor capital access in certain regions.

As emerging markets continue to focus on investors, it’s essential for us as a nation to keep having influence and partnerships in as many places as possible. By supporting entrepreneurs in emerging localities, we not only help the economic expansion of those regions, but we receive a benefit by bringing more global knowledge and solutions to the table. Isolating our markets and our distribution of capital would ultimately lead to less opportunity worldwide, and I, for one, don’t want to see that happen.

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