China's Effect on the U.S. VC Game A VC pro explains the benefits and drawback of finding funding overseas.

A major macroeconomic tipping point occurred in 2014: The New York Times reported that Chinese investment in the U.S. had surpassed U.S. investment in China. The investment in this case is general, not just venture capital. However, in my VC world, it has become increasingly common to see tech startups score financial backing from groups in China.

I view this as a double-edged sword. On one hand, money is the lifeblood of a startup, and fundraising traction in any form is crucial. On the other hand, if a business needs to go across the ocean to nab these funds, it leaves me wondering why.

There are two big reasons. The most common is that the startup founders happened to know angel investors in China. I can hardly fault that, since the first fundraising option for most entrepreneurs is to call on their network of friends and family (and fools). On top of that, our respective governments greatly encourage such investments.

Investment in the U.S. is a well-known part of the Chinese geopolitical strategy—think about all the T-bills they own. Here in the States, we encourage it through programs such as EB-5 that grant conditional visas for high-net-worth foreigners who invest at least $500,000 in U.S. companies to help them grow.

Compliance makes this dynamic tricky, though. For larger investments, there is a laundry list of agencies in both countries that regulate such activity. Even on the smaller EB-5 end, there are a host of economic-development hurdles, like job creation and rural targets, which must be carried out and reported. For most startups, it's a struggle to put together audited financials each year; few have the money and manpower needed to add a new layer of costly accounting and legal expenses to stay on the right side of transnational regulations.

The second reason U.S. founders chase after Chinese investment is that they see the country as an important part of their business plan, either as a market for their products or as a manufacturing base. Moves like this usually make VCs here nervous, and not merely over concerns about intellectual-property theft or the unknowns that come with dealing with the Chinese government. No, these deals make us uneasy because we understand the intimate relationship needed among investors, customers and the startup to succeed. Pulling that off between two continents is challenging.

Don't get me wrong—if you've got a lead on potential investments from China, you owe it to your startup dream to look into it. Just understand that there could be a high cost. The onerous regulatory and reporting requirements might not be your first concern when you're struggling to make payroll, but you can't ignore them. And very few startup budgets cover multiple trips overseas—something to consider, since your first 30-hour round-trip flight to meet with your investors won't be your last.