TheChek News Flow

China tightens grip on tech, minerals and engineers as trade war spirals

Groups such as Apple contractor Foxconn hit by efforts to stop knowhow and equipment leaving the country

Beijing is tightening its grip on cutting-edge Chinese technology, aiming to keep critical knowhow within its borders as trade tensions with the US and Europe escalate.

Chinese authorities in recent months have made it more difficult for some engineers and equipment to leave the country, proposed new export controls to retain key battery technologies, and moved to restrict technologies for processing critical minerals, according to multiple industry figures and ministry notices. 

The country’s safeguarding of leading technologies comes amid added tariffs from US President Donald Trump and a trade row with Europe over cars, which threaten to spur more local and foreign groups to move production elsewhere.

Among the companies to be hit is Apple’s main manufacturing partner Foxconn, which has been leading the Silicon Valley group’s supply chain diversification into India.

People familiar with the matter said Chinese officials had made it difficult for the Taiwanese-owned contract manufacturer to send machinery and technical Chinese managers to India, where Apple is keen to build up its supply chain. 

A manager at another Taiwanese electronics company said that they too were facing challenges sending some equipment out of China to plants in India, though he noted shipments to south-east Asia remained normal.

An Indian official alleged China was using customs delays to impede the flow of components and equipment heading south. “Electronic industry supply players have been told not to establish manufacturing and assembly operations in India,” the official said, asking not to be named. Media site Rest of World earlier reported on some of Foxconn’s issues. 

Analysts say Beijing’s emerging playbook resembles the western tech transfer restrictions it has loudly criticised as unfair. The informal controls appear in particular to target China’s geopolitical rival India, with some Chinese groups saying that projects in south-east Asia and the Middle East remain unaffected. But Beijing is also increasingly rolling out formal export restrictions on key technologies that apply worldwide.

“A strong supply chain and skilled workforce are some of the few advantages China still has these days,” said an investor in one company facing issues moving some technical engineers abroad. “You don’t want to lose that to other countries.”

China’s commerce ministry last month proposed restrictions on the export of technologies related to lithium extraction and making advanced battery materials, both areas where the country has a leading position.

“China is building up a large export control muscle and being quite deliberate in what they choose to control,” said Antonia Hmaidi, a senior analyst at the Mercator Institute for China Studies. “Fundamentally it’s about keeping China central to global supply chains,” she said.

Hmaidi said Beijing was often targeting areas near the top of the supply chain where Chinese groups controlled materials and technological processes, while leaving end products uncontrolled.

Cory Combs at consultancy Trivium China said that the interventions Beijing had put forward in the battery supply chain represented “a new class of export controls”.

If adopted in full, the controls could prevent China’s battery giants with factories in Europe from moving their entire supply chain abroad. Groups such as CATL may need to continue importing battery materials like advanced lithium iron phosphate (LFP) cathodes from China instead of being able to produce or buy them locally, according to a person briefed on the matter.

Chinese breakthroughs in LFP technology have underpinned the rise of its battery giants, displacing the South Korean and Japanese groups, which once dominated the battery industry.

Attempting to catch up, Korean groups had begun partnering and buying LFP cathodes from China, which last year produced 99 per cent of all LFP cathode active materials, according to Benchmark Mineral Intelligence.

The new controls could threaten those deals. A spokesperson for a leading Korean battery producer, which asked that their company not be named, said that they had communicated their concerns to the Chinese commerce ministry. 

“We can’t rule out some adverse effects on our partnership with a Chinese company if the guidelines don’t reflect our concerns,” the person said.

Sam Adham, head of battery research at analysis firm CRU Group, said: “The Koreans need high-end Chinese tech, but [with the new export controls] they may only be able to access last year’s technologies — namely what is on the roads at the moment.”

The outlined curbs on exporting lithium extraction technology could complicate developments under way from the US to South America. A person close to CATL said the group would need to apply for export licences to use Chinese technology at a $1.4bn project in Bolivia to extract lithium from the country’s salt flats.  

Anna Ashton, founder of China focused consultancy Ashton Analytics, said Chinese groups had pioneered technology to extract and process lithium rich brines from deep underground making viable many new mining projects.

“Ironically, contracting with Chinese companies is currently the most efficient means of bringing non-Chinese sources of mined and processed lithium online,” she said.

In strategic materials and minerals, Beijing has gradually broadened its curbs to include both controlling exports of the key elements — such as rare earths, tungsten and tellurium, among others — to also restricting the technologies used for their extraction, refining or processing.

In December 2023, China expanded the controls even further, to the technology and processes that turn refined rare earths into the metals and permanent magnets used in electric vehicles, wind turbines and electronics.

“China manufactures something like 95 per cent of the world’s permanent magnets,” said an employee of a US group building up an alternative supply chain.

“The net effect of these export controls is that industrial diversification in some of these supply chains is curtailed.”

China’s commerce ministry did not respond to a request for comment. Foxconn and CATL declined to comment.

A woman alleged that she had been raped as a 13-year-old at a party following the 2021 MTV Music Awards.

A civil case against Jay-Z and Sean Combs for allegedly raping a 13-year-old female was dismissed Friday.

The Jane Doe filing had been made in mid-December in the U.S. District Court in the Southern District of New York. The accuser, whose name was not identified, claimed the incident had happened in 2000 at a party after the MTV Music Awards. The dismissal was made at the request of her attorney Anthony Buzbee of the Buzbee Law Firm.

It was dismissed “with prejudice,” meaning that it cannot be filed again. The suit had first been filed against Combs in November and Jay-Z’s name was added to it in mid-December. Combs is still facing federal charges for sex trafficking and racketeering, as well as dozens of civil lawsuits.

A media request for Buzbee, who is representing multiple other individuals who have taken legal action against Combs for alleged sexual misconduct and other charges, had not been acknowledged as of Saturday morning.

Combs, a Grammy winner, entrepreneur and founder of the Sean John label, was arrested in September for racketeering, sex trafficking and other charges. He is being detained at the Metropolitan Detention Center, a federal prison in Brooklyn, as he awaits the start of his trial on May 5.

In a statement issued Friday night, Combs’ attorneys wrote, “Today’s complete dismissal without a settlement by the 1-800 attorney is another confirmation that these lawsuits are built on falsehood, not facts. For months, we have seen case after case be filed by individuals hiding behind anonymity, pushed forward by an attorney more focused on media headlines than legal merit. Just like this claim, the others will fall apart because there is no truth to them. Sean Combs has never sexual assaulted or trafficked anyone, man or woman, adult or minor. No number of lawsuits, sensationalized allegations or media theatrics will change that reality. We will continue to fight these baseless claims and hold those responsible. This is just the first of many that will not hold up in court.”

The music mogul Jay-Z, whose given name is Shawn Carter, posted a lengthy message describing the court’s dismissal on Friday as “a victory.” “The frivolous, fictitious and appalling allegations have been dismissed,” his statement read. “This civil suit was without merit and never going anywhere. The fictional tale that they created was laughable, if not for the seriousness of the claims. I would not wish this experience on anyone on anyone. The trauma that my wife [Beyoncé Knowles], my children, loved ones and I have endured can never be dismissed.”

The Roc Nation founder continued, “This 1-800 lawyer gets to file a suit hiding behind Jane Doe and when they quickly realize that the money grab is going to fail, they get to walk away with no repercussions, the system has failed. The court must protect victims, OF COURSE, while with the same ethical responsibility, the courts must protect the innocent from being accused without a shred of evidence. May the truth prevail for all.”

In an interview with NBC News, the Jane Doe accuser said she had not come forward sooner about the alleged 2000 incident because she thought that no one would believe her. In that December interview, she also said that she had “made some mistakes” in her recollection of that night, but maintained that it allegedly happened.

“You should always advocate for yourself and be a voice for yourself,” she told NBC. “You should never let what somebody else did ruin or run your life. I just hope I can give others the strength to come forward like I came forward.”

Combs is facing dozens of allegations and multiple lawsuits for alleged sexual misconduct including drugging and raping women and men. Earlier this week he filed a $100 million lawsuit against NBCUniversal for its Peacock documentary “Diddy: The Making of a Bad Boy,” which debuted on the streaming service last month. The lawsuit’s claims that filmmaker Ari Mark’s documentary falsely accuses Combs of being responsible for the murders of a few individuals including the musician Chris “Biggie” Wallace and Combs’ former partner Kim Porter, who is the mother of four of his children.

In an interview with WWD last month, Mark said that a request to interview Combs for the documentary had been denied.

From Fusion to Geothermal, Tech’s Clean Energy Bets Are Multiplying

Nuclear fission is in the spotlight, but it’s not the only clean energy source cloud giants are banking on.

Nuclear isn’t the only source of carbon-free power that has energized the tech industry.

For years, solar and wind have been mainstays for tech companies looking to reduce the greenhouse gases emitted by their data centers and other operations. The tech industry is also forming partnerships to build power plants that use new technologies to tap geothermal energy, some of which are already operational.

The most speculative, and promising, technology getting funding is nuclear fusion—a method of releasing energy by mashing atom nuclei together. Traditional nuclear reactors create energy by splitting atoms apart. Here are the carbon-free power sources garnering the most interest from tech companies.

One of the most exciting potential sources of consistent, carbon-free electricity, fusion mimics the inner workings of stars and has many tantalizing benefits. The radioactive waste that fusion creates isn’t nearly as dangerous as that from fission, and a Chernobyl-like meltdown through a runaway chain reaction isn’t possible with fusion reactors, its proponents say.

Still, creating a fusion reactor has been a highly elusive goal, despite decades and decades of effort. But an exciting breakthrough occurred in 2022 when scientists at Lawrence Livermore National Laboratory in California said they had created a fusion reaction that generated more energy than it took to cause the reaction in the first place.

The prospect of almost limitless clean electricity, without the safety risks of nuclear fission, has prompted tech investors and cloud computing companies to open their wallets. OpenAI CEO Sam Altman is the chair of one fusion startup, Helion, for which he personally led a $500 million funding round in 2021. Last month, Helion said it had raised another $425 million from Lightspeed Venture Partners, SoftBank Vision Fund 2 and others, bringing its post-money valuation to over $5.4 billion and total funding raised to over $1 billion. Microsoft has signed a power purchase agreement with Helion to receive electricity from a fusion plant starting in 2028.

Amazon chair Jeff Bezos, meanwhile, is among the backers of a Canadian fusion startup, General Fusion, which had raised over $300 million as of last August.

Human civilization has relied on the Earth’s heat for energy for thousands of years, but it’s only in widespread use in countries like Iceland, where 66% of the nation’s heating and electricity comes from underground geothermal reservoirs. In the U.S., where less than 1% of the nation’s electricity comes from geothermal sources, most plants are concentrated in Hawaii and Western states like California and Utah that have geothermal energy resources such as geysers and volcanoes.

A new category of enhanced geothermal systems is making it easier to tap into the Earth’s heat even in areas with less surface-level geologic activity. Borrowing from the oil and gas industry’s fracking techniques, the method involves injecting water below the Earth’s surface to create steam that then drives turbines, producing carbon-free, around-the-clock electricity (commonly referred to as baseload power).

The technology has started nabbing more attention from big tech companies who need to power data centers and other operations. Google, for example, has partnered with an enhanced geothermal startup, Fervo, that has an operational plant in northern Nevada, which is supplying power through the grid to Google data centers outside Las Vegas and Reno, Nev.

Meta Platforms, meanwhile, announced a partnership last August with Sage Geosystems to create a geothermal power plant that is expected to supply electricity to Meta’s data centers starting in 2027. A combination of regulatory reforms and enhanced geothermal systems could allow the energy source to supply more than 16% of U.S. electricity generation needs by 2050, according to a 2019 report from the U.S. Department of Energy.

For years, tech companies have been pouring money into wind and solar farms to power their data centers. They are both relatively inexpensive sources of carbon-free energy, and it’s much easier to build such projects quickly compared to far more heavily regulated sources of energy like nuclear power. Amazon alone has invested in more than 40 utility-scale solar and wind projects in the U.S., Australia, Indonesia and other countries, the company says.

The chief downsides of solar and wind power is that they’re both intermittent sources that depend on how brightly the sun is shining and how forcefully the wind is blowing. Utility-scale solar and wind plants can only run for six and nine hours a day on average respectively, according to a report from Goldman Sachs. They also tend to have much larger physical footprints than nuclear and natural gas plants, which means they’re typically in remote locations. That can increase transmission costs.

Batteries can help solve the intermittency problems of solar and wind, though they’re not cheap. The costs of solar or wind plus battery storage can run around $87 per megawatt hour compared to $77 for an onsite nuclear generator, Goldman estimates. To reduce the transmission costs of solar and wind, some tech companies, including Google, are looking at colocating their data centers next to those plants.

With battery storage, solar and wind could serve about 80% of data centers’ electricity needs, but they will still need supplemental sources of baseload power, such as nuclear or gas, Goldman Sachs says.

The president has said the law is unfair to U.S. businesses. But lawyers say weakening it could end up costing corporate America big.

President Trump has long argued that a law barring companies from bribing officials of foreign governments stifles deal-making abroad and puts American companies at a disadvantage.

But when he effectively put the Foreign Corrupt Practices Act out of commission this week, the order did not elicit the cheers from corporate America that you might have expected. Lawyers who specialize in corporate corruption cases told DealBook that moves to potentially weaken the law could backfire on multinationals by actually raising the cost of doing business overseas.

The F.C.P.A. has ensnared the likes of McKinsey, Petrobras and Goldman Sachs in some of the biggest corporate bribery scandals of the past half century. It is supposed to send the message that paying or seeking bribes to win business will not be tolerated anywhere, said William Garrett, a legal expert who manages the Foreign Corrupt Practices Clearinghouse, a project developed by Stanford Law and the law firm Sullivan & Cromwell.

The F.C.P.A. isn’t dead. But it’s up for review, and the concern is it could be weakened or shelved. That could create an open season for kickbacks — a price no business wants to pay. “It’s kind of the same idea like you don’t pay kidnappers, right? Because you just embolden the kidnappers to keep doing it,” Garrett said.

A recap: Trump ordered the Justice Department to cease enforcing the F.C.P.A. for the next six months and instructed prosecutors to refrain from bringing F.C.P.A. cases until Pam Bondi, his attorney general, reviews and potentially recommends new enforcement guidelines. Bondi can extend the review period if needed.

The order raises questions about the law’s future. While it does not eliminate the F.C.P.A., it’s unclear what changes Bondi may make. And what about the S.E.C., another agency that enforces F.C.P.A. violations? Will it, too, demand a second look? Paul Atkins, Trump’s pick to run the agency, has a track record of taking a light touch to corporate enforcement actions.

Trump, too, is a wild card. Killing off the F.C.P.A. was a priority in his first term. “I need you to get rid of that law,” Trump told Rex Tillerson, his first secretary of state and a former oil executive, who played a big part in stopping that idea cold.

Now Trump is unrestrained by such obstructions.

The law has its critics. It carries harsh penalties — a maximum criminal sentence of 15 years. And the legal costs can be enormous. Goldman Sachs, a first-time violator, had to pay more than $2 billion in penalties for its role in the 1MDB embezzlement case in Malaysia. The Supreme Court has recently begun to challenge federal corruption statutes deemed too broadly written, rulings that could affect the F.C.P.A.

But the act’s suddenly shaky future is creating confusion about what is legally permissible business behavior under the Trump administration. One law firm published a blunt advisory: “Yes, bribes are still illegal.”

The F.C.P.A. has become a global standard for fighting bribery. It was ratified in 1977, but enforcement didn’t pick up until about 20 years ago. Companies found in violation of the law have paid $14 billion in fines, with roughly four in 10 defendants hailing from outside the United States, according to the Foreign Corrupt Practices Clearinghouse.

Similar anti-corruption laws can be found around the world, and U.S. and foreign multinationals are still subject to them. For that reason, Trump cannot completely overwrite the international rules of business conduct. But it might send the wrong message if one of the strongest of the laws were taken off the books.

The most immediate effect could be to the bottom lines of law firms. Trump’s pause alone isn’t likely to create a kind of bribesville on a global scale. But some legal experts wonder if multinationals will scale down their compliance operations. “If the F.C.P.A. becomes something that is not enforced, that is certainly going to hit some law firms,” Garrett said.

The U.S. must slash its deficit to 3% from an expected 7.5% before the president’s second term in office ends, otherwise bond markets will not be able to absorb the amount of new debt the Treasury issues and a death spiral will ensue, according to Bridgewater hedge fund founder Ray Dalio.

President Donald Trump has no more than three years to slash the fiscal deficit by over half before bond markets plunge the United States into a debt death spiral.

The only question is how much austerity will need to be imposed on everyday Americans already suffering from a cost-of-living crisis versus the vital contributions to productivity that technological advances could bring.

That’s the dire warning issued by billionaire investor Ray Dalio at the World Governments Summit in Dubai on Thursday. He believes the $36 trillion and counting in national debt is effectively plaque building up on the arterial walls of the U.S. financial system.

Unless the Trump administration can persuade bond investors to accept a lower return on their investment that is commensurate with fiscal sustainability, an “economic heart attack” is imminent if continued government profligacy is unaddressed.

“The United States will run a deficit of about 7.5% of GDP if the Trump tax cuts continue, which I expect,” he warned, calling on the White House and Congress to commit to cutting the deficit to 3% of GDP in the next three years.

Fears the bond market can’t soak up the supply

Following Wednesday’s red-hot inflation print, Wall Street no longer expects relief in the form of further interest rate cuts. Yields on benchmark 10-year Treasuries remained above 4.6% amid news that consumer prices increased more than expected in January.

The faster prices rise, however, the higher the premium bond investors will demand to hold fixed-income securities like sovereign debt. This would put further pressure on the share of government spending that must be allocated just to service the growing national debt.

Since bond markets must act like a sponge to keep borrowing costs low, Dalio fears at some point they will no longer be able to soak up the ever-increasing amount of Treasuries issued.

At that point they’ll choke, interest rates will soar, the U.S. will have to borrow more and more money just to pay down fewer and fewer IOUs. At that point the debt death spiral ensues.

“When I calculate the supply and demand over the next year and three years,” said Dalio, “we have an immediate issue.”

U.S. government must move fast—even if it breaks things

White House economic advisor Kevin Hassett revealed on Monday the administration’s plan for getting inflation under control: “increase supply and reduce aggregate demand.”

Barring material advances in output per hour worked, however—e.g., through AI- or robotics-enabled productivity gains—or significantly more overtime, growing the former is harder given Trump’s plans for the largest ever mass deportation of undocumented immigrants.

Therefore Trump will need to achieve that much more of the latter. But lowering aggregate demand is little more than a fancy term for deliberately depressing growth, typically through government spending cuts known as austerity.

Dalio argued the U.S. no longer had the luxury to form a consensus in society over the breadth and scale of the cuts needed to get to a 3% deficit. Time has run short, and now it is an imperative to move fast, even at the cost of breaking things.

Society would then have to see, collectively, what kind of damage ensues and then pick up the pieces afterwards. “Since achieving that must be of paramount importance, you do it,” he said referring to austerity. “Then you find out what’s tolerable.”

Eleven startups joined The Crunchbase Unicorn Board in January, including five from the healthcare sector. Health-related startups that joined included companies working on genetic research, drug development, scanning services, AI agents and in-home healthcare.

The remaining six new January unicorns hail from multiple sectors, although artificial intelligence impacts the majority of them — driving advances in health, professional services, computer vision, data storage and space technology.

In December, our unicorn board topped $1 trillion in collective funding raised for the first time. Unicorns are private companies valued at a billion dollars or more, and now total 1,565, per the board.

January’s 11 newcomer count is above the average of nine monthly new unicorns we saw in 2024.

• Body-scanning health company Neko Health raised a $260 million Series B led by Lightspeed Venture Partners. The 7-year old Stockholm-based company was valued at $1.8 billion.
• Healthcare model developer Hippocratic AI raised a $141 million Series B led by Kleiner Perkins. The 1-year-old Palo Alto, California-based company, which builds AI agents to assist patients, was valued at $1.6 billion.
• Health science research company Aragen Life Sciences raised a $100 million private equity round led by Singapore-based Quadria Capital. The 23-year-old Hyderabad, India-based company was valued at $1.4 billion.
• Genetic database research company Truveta raised a $320 million Series C from public healthcare companies Regeneron Pharmaceuticals and Illumina alongside 17 U.S. healthcare providers. The 4-year-old Seattle-based company was valued at $1 billion.
• European home healthcare company Cera raised a $150 million funding part equity and debt led by Chicago-based PE firm BDT & MSD Partners and London-based Schroders Capital. The 8-year-old London-based company was valued at $1 billion.

• Data storage company DDN, formerly called DataDirect Networks, raised $300 million in private equity led by New York-based Blackstone Group. The 26-year-old Chatsworth, California-based company was valued at $5 billion.

• Mercor raised a $75 million Series B led by Felicis
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  . The 2-year-old San Francisco-based company was valued at $2 billion. It’s a recruiting startup for contract jobs in areas of expertise such as medicine and law required by AI model developers.

• Sales enrichment platform Clay raised a $40 million Series B led by Meritech Capital Partners. The 7-year-old New York-based company was valued at $1.25 billion.

• Netradyne, a provider of computer vision technology for fleet driver safety and training, raised a $90 million Series D led by Point72 Ventures. The 9-year-old San Diego-based company was valued at $1.35 billion.

• Loft Orbital, a space tech company that leases space on its satellites, raised a $170 million Series C led by Axial Partners and Tikehau Capital. The 8-year-old San Francisco-based company, which was founded in Paris, was valued at $1 billion.

• Digital asset and crypto bank Sygnum raised a $58 million funding led by bitcoin investor Fulgur Ventures. The 7-year-old Zurich-based company was valued at $1 billion.

Japan’s economy expands for third straight quarter

Growth buoyed by stronger corporate spending despite onset of interest rate rises

Japan’s GDP expanded at an annualised rate of 2.8 per cent in the October to December 2024 period, significantly exceeding consensus analyst estimates and marking the third straight quarter of expansion.

The preliminary report, released by the Cabinet Office on Monday, showed a quarter-on-quarter, inflation-adjusted real GDP expansion of 0.7 per cent, versus the median forecast of a 0.3 per cent rise, according to analysts polled by Reuters.

Japan’s overall GDP figure was further boosted by corporate spending, which rose 0.5 per cent quarter on quarter.

The yen strengthened 0.3 per cent to ¥151.89 per US dollar.

Though subject to revision, the GDP growth figure signalled that Japan’s economy remained in fair shape despite the ructions that accompanied the Bank of Japan’s move last year to “normalise” monetary policy and begin a cycle of interest rate rises.

In January, the BoJ increased rates to about 0.5 per cent — the highest level in 17 years — and signalled more rises to come as inflation remains entrenched. 

Most economists now expect the BoJ to raise rates at least once in 2025, with many pinpointing the central bank’s meeting in July as the most likely date.

Several economists who had forecast GDP growth would decelerate to an annualised rate of about 1 per cent in the fourth quarter, had expected the overall numbers to be dragged down by private consumption as record-high rice prices and warmer weather hit spending on food and winter clothing.

Private consumption, which represents about half of Japan’s economic output, rose 0.1 per cent in the quarter, bucking most analysts’ expectations of a contraction.

On Friday, the government is due to release January’s reading of national consumer price growth. Analysts at Goldman Sachs expect that the new core index, which excludes fresh food and energy, will show inflation rising at 2.6 per cent year on year, accelerating slightly from December.

High prices for rice, which is not counted as fresh food, have begun to push up the cost of rice products, including processed foods and restaurant meals.

Talk of backdoors in encrypted services is once again doing the rounds after reports emerged that the U.K. government is seeking to force Apple to open up iCloud’s end-to-end encrypted (E2EE) device backup offering. Officials were said to be leaning on Apple to create a “backdoor” in the service that would allow state actors to access data in the clear.

The U.K. has had sweeping powers to limit technology firms’ use of strong encryption since passing a 2016 update to state surveillance powers. According to reporting by the Washington Post, U.K. officials have used the Investigatory Powers Act (IPA) to place the demand on Apple — seeking “blanket” access to data that its iCloud Advanced Data Protection (ADP) service is designed to protect from third-party access, including Apple itself.

The technical architecture of Apple’s ADP service has been designed in such a way that even the tech giant does not hold encryption keys — thanks to the use of end-to-end encryption (E2EE) — allowing Apple to promise it has “zero knowledge” of its users’ data.

A backdoor is a term typically deployed to describe a secret vulnerability inserted into code to circumvent, or otherwise undermine, security measures in order to enable third parties. In the iCloud case, the order allows U.K. intelligence agents or law enforcement to gain access to users’ encrypted data.

While the U.K. government routinely refuses to confirm or deny reports of notices issued under the IPA, security experts have warned that such a secret order could have global ramifications if the iPhone maker is forced to weaken security protections it offers to all users, including those located outside the United Kingdom.

Once a vulnerability in software exists, there is a risk that it could be exploited by other types of agents, say hackers and other bad actors wanting to gain access for nefarious purposes — such as identity theft, or to acquire and sell sensitive data, or even to deploy ransomware.

This may explain why the predominant phrasing used around state-driven attempts to gain access to E2EE is this visual abstraction of a backdoor; asking for a vulnerability to be intentionally added to code makes the trade-offs plainer.

To use an example: When it comes to physical doors — in buildings, walls, or the like — it is never guaranteed that only the property’s owner or key holder will have exclusive use of that point of entry.

Once an opening exists, it creates a potential for access — someone could obtain a copy of the key, for example, or even force their way in by breaking the door down.

The bottom line: There is no perfectly selective doorway that exists to let only a particular person pass through. If someone can enter, it logically follows that someone else might be able to use the door too.

The same access risk principle applies to vulnerabilities added to software (or, indeed, hardware).

The concept of NOBUS (“nobody but us”) backdoors has been floated by security services in the past. This specific kind of backdoor typically rests on an assessment of their technical capabilities to exploit a particular vulnerability being superior to all others — essentially an ostensibly more-secured backdoor that can only be exclusively accessed by their own agents.

But by very nature, technology prowess and capability is a movable feat. Assessing the technical capabilities of unknown others is also hardly an exact science. The “NOBUS” concept sits on already questionable assumptions; any third-party access creates the risk of opening up fresh vectors for attack, such as social engineering techniques aimed at targeting the person with the “authorized” access.

Unsurprisingly, many security experts dismiss NOBUS as a fundamentally flawed idea. Simply put, any access creates risk; therefore, pushing for backdoors is antithetical to strong security.

Yet, regardless of these clear and present security concerns, governments continue pressing for backdoors. Which is why we keep having to talk about them.

The term “backdoor” also implies that such requests can be clandestine, rather than public — just as backdoors aren’t public-facing entry points. In Apple’s iCloud case, a request to compromise encryption made under the U.K.’s IPA — by way of a “technical capability notice,” or TCN — cannot be legally disclosed by the recipient. The law’s intention is that any such backdoors are secret by design. (Leaking details of a TCN to the press is one mechanism for circumventing an information block, but it’s important to note that Apple has yet to make any public comment on these reports.)

According to the rights group the Electronic Frontier Foundation, the term “backdoor” dates back to the 1980s, when backdoor (and “trapdoor”) were used to refer to secret accounts and/or passwords created to allow someone unknown access into a system. But over the years, the word has been used to label a wide range of attempts to degrade, circumvent, or otherwise compromise the data security enabled by encryption.

While backdoors are in the news again, thanks to the U.K. going after Apple’s encrypted iCloud backups, it’s important to be aware that data access demands date back decades.

Back in the 1990s, for example, the U.S. National Security Agency (NSA) developed encrypted hardware for processing voice and data messages that had a backdoor baked into it — with the goal of allowing the security services to intercept encrypted communications. The “Clipper Chip,” as it was known, used a system of key escrow — meaning an encryption key was created and stored by government agencies in order to facilitate access to the encrypted data in the event that state authorities wanted in.

The NSA’s attempt to flog chips with baked-in backdoors failed over a lack of adoption following a security and privacy backlash. Though the Clipper Chip is credited with helping to fire up cryptologists’ efforts to develop and spread strong encryption software in a bid to secure data against prying government overreach.

The Clipper Chip is also a good example of where an attempt to mandate system access was done publicly. It’s worth noting that backdoors don’t always have to be secret. (In the U.K.’s iCloud case, state agents clearly wanted to gain access without Apple users knowing about it.)

Add to that, governments frequently deploy emotive propaganda around demands to access data in a bid to drum up public support and/or put pressure on service providers to comply — such as by arguing that access to E2EE is necessary to combat child abuse, or terrorism, or prevent some other heinous crime.

Backdoors can have a way of coming back to bite their creators, though. For example, China-backed hackers were behind the compromise of federally mandated wiretap systems last fall — apparently gaining access to data of users of U.S. telcos and ISPs thanks to a 30-year-old federal law that had mandated the backdoor access (albeit, in that case, of non-E2EE data), underscoring the risks of intentionally baking blanket access points into systems.

Governments also have to worry about foreign backdoors creating risks for their own citizens and national security.

There have been multiple instances of Chinese hardware and software being suspected of harboring backdoors over the years. Concerns over potential backdoor risks led some countries, including the U.K., to take steps to remove or limit the use of Chinese tech products, such as components used in critical telecoms infrastructure, in recent years. Fears of backdoors, too, can also be a powerful motivator.

Many venture industry observers have wondered whether Andreessen Horowitz, a firm that manages $45 billion, has its sights on eventually becoming a publicly traded company.

Co-founder Marc Andreessen said he isn’t “chomping at the bit to take the firm public,” on this week’s Invest Like the Best podcast. But he discussed his goal of building a16z into an enduring company, drawing inspiration from JP Morgan and publicly traded private equity firms.

Historically, venture capital firms have been partnerships consisting of a “small tribe of people sitting in a room together, trying to bounce ideas off of each other when they make investments,” Andreessen said on the podcast.

The problem with the partnership model, he said, is that it’s highly dependent on the ideas and expertise of those people at the table with “no underlying asset value,” as he described it. Once the original partners retire, the firm loses a lot of its value, even if a new generation of investors takes over.

“But even if they can keep it going, there’s no underlying asset value. That next generation is just going to have to hand it off to the third generation,” he said. “That’s probably going to fail on the third generation. It’s going to be on Wikipedia someday: that firm existed, and then it went away.”

The partnership model can be lucrative. A16z’s billions under management generates sizable money management fees for the firm, in addition to profits made when its investments succeed.

However, Andreessen said he constantly reminds internal staff and limited partners that the company isn’t raising money just to harvest the fees. It’s to give the company the cash to invest in growing companies.

“When we go for scale, it’s because we think it’s necessary to support the kinds of companies we want to help our founders build,” he said.

Andreessen says his bigger goal for a16z is to create a company that lasts. An alternative to a partnership is to build an investment company that’s managed like a business, which means it has management, multiple layers of staff, division of labor with specializations, and training programs, Andreessen said.

There are certainly precedents of small partnerships evolving into large corporations, which Andreessen can use as a model for a16z’s ambitions.

“Goldman Sachs and JP Morgan, 100 years ago, looked like little venture capital firms,” he said. “Then their leaders, over time, turned them into huge franchises and big public companies.”

He named other examples, too, of private partnerships turned into large publicly traded companies like big private equity firms. Blackstone, which now has a market capitalization of over $200 billion, went public in 2007. Apollo, KKR, and Carlyle held their IPOs soon after Blackstone, and TPG listed on Nasdaq in early 2022.

Andreessen argues that as these companies grew from partnerships into large corporations, their long-term success became less dependent on a few key investors.

“A big part of what we’ve been trying to do is build something that has that kind of enduring aspect to it,” he said.

In many ways, Andreessen Horowitz already looks more like an operating company than many VC firms. A16z has dozens of people in its marketing group and large teams that help portfolio companies recruit talent and sell their products. The firm runs separate crypto, bio and health, and American dynamism strategies.

But maybe there’s another reason Andreessen is keen to restructure away from the classic VC system. When it comes to partnerships, he says, “It actually turns out in most cases, what you discover is that people actually don’t like each other that much.”