Investors, entrepreneurs, and good ideas are becoming collateral damage as the U.S. and China battle over dual-use tech

Not long ago, globalization seemed an irresistible force, making physical and virtual boundaries obsolete. However, geopolitics inevitably set in, leading to a divided world once again.

Today, technology is a leading driver of that fragmentation. Our global ambitions to create the most innovative, efficient, and groundbreaking technologies puts us on the brink of transformative scientific breakthroughs—but it also presents a challenge. Nearly every civilian technology could be adapted to have military applications, which makes innovation increasingly complex and contentious.

In a world where any technology can be used for both benign and destructive ends, scientists and entrepreneurs are being forced to consider more than just the intended application of their products. This responsibility imposes an excessive burden on innovators, forcing them to ponder the potential misuse of products and come up with mechanisms to thwart any malicious application.

To be clear, there is nothing new about this dilemma of dual-use technology. However, avoiding these geopolitical and technological traps has become even more complicated.

Consider the technological breakthroughs that Elon Musk has pioneered. Originally, for example, SpaceX launched satellites for civilian use . Its subsidiary, Starlink, was meant to improve communications and enable early warnings of events like extreme weather in remote areas . However, since the Russian and Ukraine war broke out almost 30 months ago, Russia illegally purchased routers intended for Ukraine, compromising the delivery of critical information to Ukraine and U.S. intelligence.

Finance is another area that has been impacted by geopolitical tensions. Governments regard capital markets as strategic assets, access to which has become increasingly subject to political considerations.

In the past, life was simpler for investors in general and venture capitalists in particular. Their primary responsibility was to simply assess the technology on its merits and hope that their portfolio firms wouldn’t be blindsided by superior technological breakthroughs by competitors.

By contrast, now, we live in a world where virtually every technology potentially has dual-use applications. When technology is adapted for malign use, founders and investors are pulled into the narrative and are often wrongly accused of knowing about or supporting that misuse. These accusations can compromise technological breakthroughs that could greatly enhance the health and well-being of humanity.

Consider mainland China-based Hesai , which helps accelerate the integration of autonomous systems in various industries and provides technology to help avoid crashes for self-driving cars. The U.S. Department of Defense added Hesai to a list of firms the DOD believed to be aiding the Chinese military. Recently, the DoD reversed its decision after it determined that the world’s biggest maker of laser sensors for electric vehicles did not meet the legal criteria for inclusion. Unfortunately, there was still damage—including Hesai on this blacklist in the first place placed financial and logistical difficulties on the company and posed problems for its investors, including U.S.-based Lightspeed Ventures and Chinese-based Qiming Venture  Partners, Baidu, and Xiaomi .

Unfortunately, for many good-intentioned founders and venture capital firms, such stories are becoming all too common. Given its aging population, robotics has become critical for Chinese manufacturing firms to compensate for the labor shortage. One such company, Unitree Robotics, has also been caught up in such complications.

Unitree’s robots are widely available, and can even be purchased on Amazon . But then one of Unitree’s doglike robots was featured in a People’s Liberation Army video, refitted with an attached rifle that the company neither made nor knew about. At the same time, its investors, which include Matrix, Shunwei, Meituan , and HongShan, (formerly known as Sequoia China), were criticized in the Western press for their backing of Unitree even though none of these investors had more than a small minority holding and none sat on the board of directors.

Today, the weaponization of investing has become so extreme that it threatens to lead to the misallocation of capital, ultimately impacting returns. That, in turn, means less money for the endowments and pension funds that provide the bulk of the finances to investment managers who make the decisions about which technology and which entrepreneurs to support.

The public misperception that founding companies and venture firms are aware of —and support —any form of refit for other purposes than civilian applications will ultimately jeopardize innovation.

The solution cannot be for companies, investors, and venture capital firms to police the potential misuse of technological innovations. Instead, industry and regulatory bodies must work together to develop responsible guidelines on how technology can be used for benign purposes only while protecting the creative space for those founders and entrepreneurs.

Unless both sides can join hands, we face a far darker world in which good ideas will die for lack of capital.

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