**CFIUS Blocks Saudi-Backed Investment in AI Startup Rain**
*Security Fears*
The Committee on Foreign Investment in the United States (CFIUS) has blocked a proposed investment in the AI hardware startup Rain, citing national security concerns. The funding round last year, led by Prosperity7, drew the interest of the committee, which has the power to scuttle deals deemed to threaten national security.
Rain has claimed to investors that it has held advanced talks to sell systems to Google, Oracle, Meta, Microsoft, and Amazon. However, Microsoft declined to comment, and the other companies did not respond to requests for comment.
**Investment and National Security**
The funding round brought Rain’s total funding to $33 million as of April 2022, enough to operate through early 2025 and valued the company at $90 million excluding the new cash raised. Investors, including Altman’s personal investment and Rain’s letter of intent with OpenAI, backed the company.
CFIUS, as the committee is known, has long been concerned about China gaining access to advanced US semiconductors and has grown increasingly worried about China using intermediaries in the Middle East to quietly learn more about critical technology.
Rain received a small seed investment from the venture unit of Chinese search engine Baidu without problems, but the larger Saudi investment attracted significant concerns. Prosperity7, a unit of Aramco Ventures, which is part of state-owned Saudi Aramco, possibly could have let the oil giant and other large companies in the Middle East become customers but also put Rain into close contact with the Saudi government.
Megan Apper, a spokesperson for CFIUS, says the panel is “committed to taking all necessary actions within its authority to safeguard U.S. national security” but that “consistent with law and practice, CFIUS does not publicly comment on transactions that it may or may not be reviewing.”
**CFIUS Decision and Implications**
Data disclosed by CFIUS shows it reviews hundreds of deals annually and, in the few cases where it has concerns, typically works out safeguards, such as barring a foreign investor from taking a board seat. However, it couldn’t be learned why the committee required full divestment from Rain.
Three attorneys who regularly work on sensitive deals say they could not recall any previous Saudi Arabian deals fully blocked by CFIUS. “Divestment itself has been quite rare over the past 20 years and has largely been a remedy reserved for Chinese investors,” says Luciano Racco, cochair of the international trade and national security practice at law firm Foley Hoag.
The decision to block the Saudi-backed investment in Rain may have significant implications for both Rain and the potential investors involved, as well as for other startups in similar sectors. OpenAI, for example, likely needs to find partners with deep-pocketed backers if it is to gain some control over its hardware needs.
In conclusion, the CFIUS block has raised concerns and may present significant challenges for Rain, its investors, and similar companies in the AI hardware sector.
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