AI Superpowers: China, Silicon Valley, and the New World Order

by Kai-Fu Lee

“guiding funds,” a mechanism that uses government money to spur more venture investing. The funds do that by increasing the upside for private investors without removing the risk. The government uses money from the guiding fund to invest in private venture-capital funds in the same role as other private limited partners. If the startups that fund invested in (the “portfolio companies”) fail, all the partners lose their investment, including the government. But if the portfolio companies succeed—say, double in value within five years—then the fund’s manager caps the government’s upside from the fund at a predetermined percentage, perhaps 10 percent, and uses private money to buy the government’s shares out at that rate. That leaves the remaining 90 percent gain on the government’s investment to be distributed among private investors who have already seen their own investments double. Private investors are thus incentivized to follow the government’s lead, investing in funds and industries that the local government wants to foster.