Meta-Manus deal reversal redraws lines for global AI startups

CHINA’S order to unwind Meta’s US$2 billion acquisition of Manus has sent artificial intelligence (AI) founders into panic mode, especially those with strong Chinese roots who are building outside their home country.

Even before the decision was made, the January announcement that China was investigating the Meta-Manus deal – over concerns that Chinese AI intellectual property was being transferred to a US company – had already made some founders nervous, Tech in Asia has observed.

“The announcement was the message,” says Amit Verma, founding head of technology at US-based Neuron7.ai. “Everything after that was just enforcement.”

In one instance, a founder with Chinese origins – who, like many, asked not to be named in this story – postponed going public with the funding his Singapore-based startup had received to avoid scrutiny from Chinese officials potentially misperceiving it as yet another Manus.

In another instance, a Chinese founder explicitly asked if Tech in Asia could describe their company as “Singapore-based”, as that would be “very helpful” to its growth. The founder emphasised that they were building their firm from scratch in Singapore and that its product was meant for a “global market”.

Both indicate the level of caution founders need to exercise after the country started cracking down on companies, even when they don’t have much in common with Manus other than being of Chinese origin.

While a case more blatant than Manus’ is hard to imagine, there’s still concern that China could target other firms perceived as moving AI assets to Western companies, especially as the country continues to strengthen its AI powerhouse status.

Relocating is a bust

Jeremy Ang, co-founder and CEO of Singapore-based Axium Industries, says that China’s decision shows the growing complexity for AI firms operating across borders.

“Moving headquarters is no longer a silver bullet for bypassing the national security concerns of major powers,” he says.

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Ang believes that Singapore will become an “increasingly attractive” AI hub, and founders in the city-state have the opportunity to build corporate structures that can navigate the “tech-stack decoupling” between the US and China.

That comes with a caveat because, as Manus has shown, even complete relocation isn’t enough to avoid China’s intervention in its exit strategy. Moving headquarters and laying off the entire China team doesn’t change the fact that Manus’ product was built entirely in the country using local resources.

Still, Denis Kalinin, founder of cross-border investment advisory firm DeepTech Asia, cautions against overgeneralising from the Manus case. He argues that the AI firm was an outlier because it “attracted significant media attention, involved alleged irregularities in transferring intellectual property (IP) from China to Singapore without proper approvals, and ended in an acquisition by a US strategic buyer”.

Kalinin points to several other China-related cross-border AI and robotics companies that have successfully exited through mergers and acquisitions or public listings without any incident. Manus, on the other hand, had the components to raise potential national security concerns for the country.

Tobias Leong, co-founder and CTO of Axium Industries, believes that AI talent and IP are now viewed as “core national assets,” much like semiconductors or energy reserves. In practice, that means founders have to prioritise long-term compliance and export-control strategies from day one.

“This isn’t just about a single deal,” he notes. “It’s about the new rules of engagement for the global AI ecosystem.”

Several people Tech in Asia spoke to are quite certain that founders who start in Singapore wouldn’t have to worry about getting a similar treatment to Manus.

A Singapore-based AI startup whose co-founders are Chinese believes it doesn’t share the same conditions as Manus because it was incorporated in the city-state and never employed anyone in Mainland China. The company has received funding from global investors and positions its product for the global market.

As for backers, DeepTech Asia’s Kalinin distinguishes between those with long-term conviction in China and those with more opportunistic capital. The latter, he notes, is likely to be deterred because it lacks the deep familiarity with the country’s regulatory environment that’s necessary to assess the risk.

On the other hand, investors who stay in China will intensify their due diligence, focusing more on corporate structures, IP ownership, and where that IP is actually created.

“Clear evidence that core IP is developed and held outside China will become increasingly important,” Kalinin adds.

He also notes that with Western strategic acquisitions now facing higher regulatory risk, companies may increasingly look toward Hong Kong initial public offerings. They may also consider strategic buyers from China and other geopolitically aligned regions such as the Middle East or South-east Asia.

Playing it safe

When a done deal like Manus’ could potentially be unwound, it makes sense for founders to play it safe by all means. Verma of Neuron7.ai says founders aren’t negotiating in this scenario anymore – they’re adapting.

“This isn’t a normal business risk,” he adds. “It’s a sovereign risk. And that’s a very different game.”

But what does playing safe mean?

One example is having separate entities for global and China-only operations, according to an AI startup founder in Singapore who asked not to be named in this story.

In this scenario, the company has to make sure that any data it collects from customers “won’t stay in the same server and won’t transmit between servers internally and externally”. This way, the party handling global operations won’t have to rely on anything built by the Chinese entity, which is what put Manus in China’s crosshairs in the first place.

The company’s relocation announcement also came at a time when it was on everyone’s radar. One may argue that this painted a massive target on the startup’s back, putting China on high alert.

For those watching the bigger picture, Neuron7.ai’s Verma sees this turn of events as the next phase of the split between the US and China.

“The US controls the hardware,” he says. “China controls regulatory leverage and local ecosystems. Everyone else is now navigating between the two.” TECH IN ASIA