What is CFIUS and do I need to worry about it?
Takeaway: Yes, you absolutely need to worry about CFIUS; it is a powerful, secretive government body that has the authority to review and block any foreign investment into your A&D or deep-tech startup on national security grounds.
For most startups, the nationality of their investors is a minor detail. For any company working on advanced, dual-use, or "critical" technologies—which includes nearly every startup in the aerospace, defense, AI, and even synthetic biology sectors—the nationality of your investors is a matter of U.S. national security. The primary government body responsible for policing this is the Committee on Foreign Investment in the United States (CFIUS).
Ignoring CFIUS is not an option. A failure to comply with its mandatory filing requirements can result in penalties equal to the full value of the investment and can lead to the forced divestment of a foreign investor years after the deal has closed.
What is CFIUS?
CFIUS is an inter-agency committee of the U.S. government, chaired by the Secretary of the Treasury, that is empowered to review any transaction that could result in the control of a U.S. business by a "foreign person". Its sole mission is to determine if that transaction poses a risk to U.S. national security.
When is a CFIUS Filing Mandatory?
While some CFIUS filings are voluntary, recent changes in the law (FIRRMA) have created a mandatory filing requirement for certain transactions. A filing is now mandatory if your company is a "TID U.S. Business" (Technology, Infrastructure, or Data) and a foreign investment provides the investor with certain control or access rights.
For a startup, the most common trigger is the "T" for Technology. If your company is developing a "critical technology," which explicitly includes anything controlled under ITAR or most of the Commerce Control List, then a foreign investment that grants the investor a board seat or access to material nonpublic technical information will trigger a mandatory filing.
Who is a "Foreign Person"?
The definition is broad. It includes not just foreign individuals and corporations, but also any entity "over which control is exercised or exercisable by a foreign national." This means that even a U.S.-based venture capital fund can be considered a "foreign person" if it has foreign Limited Partners who have significant control rights within the fund. This requires you to conduct diligence on your investors' own internal structure.
The CFIUS Review Process
A CFIUS review is a confidential, national security-focused process.
The Filing: You and your foreign investor must jointly submit a formal declaration or notice to CFIUS.
The Review: The committee's member agencies (including the Departments of Defense, Justice, and Homeland Security) will review the transaction to identify any potential national security risks.
The Outcome: CFIUS can clear the transaction, impose a "mitigation agreement" to resolve any identified risks, or, in rare cases, it can recommend that the President of the United States block the transaction entirely.
CFIUS is a powerful and increasingly active regulator. For any deep-tech startup, understanding your potential obligations under CFIUS is a critical part of a responsible fundraising strategy.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.