Chinese tech giant invests alongside CIA fund in British Army software

·3 min read

Chinese technology giant Tencent has disregarded rising tensions between Beijing and the West to invest in a British start-up building simulation software for the Army.

In a deal said to be too financially insignificant to trigger a National Security review, the Chinese gaming company took part in a £15m funding round for Hadean, which develops technology to allow tens of thousands of virtual soldiers onto digital battlefields.

In a further twist, Tencent joined the funding round alongside In-Q-Tel, a US venture capital investor backed by funds from the CIA.

Hadean has also secured funding from the Government’s Future Fund, the start-up rescue fund launched by Rishi Sunak during the pandemic. It is being advised by experts from the National Security Strategic Investment Fund (NSSIF). London-listed Molten Ventures also invested.

Launched in 2018, the NSSIF invests in highly sensitive defence start-ups and is closely linked to GCHQ. It also offers start-ups access to security experts at the heart of Britain’s intelligence community.

The deal therefore means the British Government, a CIA-backed fund and one of China’s biggest technology companies are partners in the same venture.

Craig Beddis, Hadean’s chief executive, said the company had been “highly cognizant” of the origin of its investments and said shareholders such as Tencent would have “no access” to sensitive technology. He added that the stake was too small to warrant notification under the UK’s National Security and Investment Act, the spearhead of a clampdown on Chinese investments in Britain.

Mr Beddis said: “Tencent is obviously huge in the metaverse and gaming, which explains why we took the investment.”

Tencent has previously backed companies including Epic Games, the developer of Fortnite, social media company Snap and digital bank Monzo. It recently snapped up UK-listed game developer Sumo Group.

The Chinese company’s prolific backing of Western companies has continued despite heightened tensions with Beijing and a growing crisis over Taiwan.

Whitehall officials have grown increasingly hawkish over Chinese investment, ordering Huawei telecoms equipment to be removed from 5G networks. Ministers are also investigating the takeover of a Welsh chip plant by a Chinese-backed company.

Tencent, however, has previously seen its investments in the US waved through by regulators in Washington DC and the UK.

Hadean has worked with games companies including Minecraft and Epic Games on technology that can add scale to support thousands of players at once.

The company previously broke the record for the most players in any one game environment, hosting a 14,000 player starship battle in science fiction game Eve Online.

Its “distributed computing” technology is also being used by defence contractors and the Ministry of Defence. In July, Hadean announced it had been awarded a contract with the British Army to develop a land warfare training simulator for soldiers.

Mr Beddis said: “The ability to replicate [virtually] what we do in the physical world lends itself very well to training for the defence sector.”

The start-up, founded in 2015, has positioned itself as providing backbone software for the so-called “metaverse”, a concept that sees virtual reality and the physical world increasingly blurred. It provides software to massive multiplayer video games, virtual concerts and digital conferences.

Despite a downturn in tech valuations, funding has continued to pour into companies seen as well placed to profit from spending on metaverse technology.

Earlier this year Improbable, which is also developing technology that can power giant multiplayer simulations, raised £115m from Silicon Valley investors Andreessen Horowitz.