Are you safeguarding your growth strategy from foreign capital risk?
Foreign investment can fuel transformation — but for leadership teams, the risks now stretch far beyond the balance sheet. Here’s how to protect your strategy.
When Haylo Labs announced in August that it had acquired Plessey Semiconductors, the move looked like a textbook growth story. The Plymouth-based chipmaker, more than a century old and one of Europe’s micro-LED pioneers, had found a new owner with ambitious plans for expansion. Haylo pledged a £100 million investment over the next five years to scale research and manufacturing, while its founders spoke of creating a “very large UK public company” in the emerging field of optical computing.
Yet beneath the headlines was a detail that raised eyebrows in Whitehall and beyond: the deal was financed by up to $100 million from Goertek, a Chinese technology group. Structured as a loan through a Hong Kong subsidiary, the funding gives Goertek the right to claim up to a quarter of Plessey’s value in the event of a future sale or listing. The arrangement passed review under the National Security and Investment Act (NSI Act), but the questions it raised will resonate with many boards.
Growth often depends on foreign capital, but capital now comes with scrutiny. You cannot view investment purely as fuel for expansion — you must weigh its reputational, regulatory, and strategic impact from the very start.
Regulation is only the first hurdle —
The UK government’s National Security and Investment Act, introduced in 2022, marked a turning point for inward investment. For the first time, acquisitions in specified sectors could be subject to direct review by the state, with powers to block, unwind, or impose conditions.
“Perhaps the single most significant regulatory development in recent years affecting UK investment and M&A derives from the introduction of the National Security and Investment Act in 2022,” says Simon Wilson, corporate partner at Spencer West LLP. “The regime encompasses specified sectors and business areas deemed high risk and, having worked on transactions where this has surfaced as a potential issue, I can tell you that its scope is wider than you might first consider.”
Wilson points out that the consequences of failing to comply are severe: “The range of penalties for breach of the Act include fines of up to £10 million or 5% of worldwide turnover (whichever is greater); and imprisonment for up to five years. The associated reputational risk for a business is clear. Transactions can also be blocked or unwound by the government.”
For executives considering foreign investment, you cannot treat regulatory checks as a box-ticking exercise at the end of the process. You need to factor NSI assessment into your planning from the outset — mapping whether your sector falls under its remit, preparing for notification, and allowing additional time in your deal calendar.
And while this is the most visible risk, clearing the regulatory bar does not mean the scrutiny is over.
Even if government approval is secured, the question remains: how will your stakeholders view the source of capital? Customers, investors, and employees are increasingly alert to political and ethical dimensions of cross-border finance. That makes reputation a second hurdle for boards, often just as formidable as regulation.
“When you’re looking at foreign investment, it’s key is to think about the regulatory and reputational impact right from the start,” says Kiley Tan, lawyer at The Legal Director. “Too often legal checks are left until late in the process, or only get attention when something has already gone wrong, and that puts leadership in a difficult position. Boards need to understand where the capital is coming from, what ties it brings, and how it will be viewed by regulators, investors and end customers.”
Traditionally, due diligence has flowed in one direction: acquirers assessing the seller. But in today’s climate, Tan argues that sellers must turn the lens back. “It’s normally the acquirer who does due diligence on the seller, but in today’s climate sellers should also be checking out the acquirer – and doing it thoroughly. Political, economic and social risks can damage reputations just as much as financial ones.”
For leadership teams, this means developing the discipline to walk away. If the source of capital is opaque, or the cultural intentions of the acquirer remain unclear, there is no shame in stepping back. In fact, signalling caution may strengthen your credibility with investors who expect responsible stewardship of growth.
Governance gives you control —
So how do boards turn awareness into action? Regulation and reputation both point to the same conclusion: governance is your best defence.
Tan emphasises that the work should begin long before contracts are signed. “Doing this work early and writing clear governance into contracts gives leaders much more control. It helps them shape the deal on their own terms and avoid nasty surprises, while showing investors that growth is being handled responsibly. With scrutiny of overseas capital only set to rise, a proactive approach is the safest way to protect both strategy and reputation.”
This means not just carrying out parallel due diligence, but codifying cultural expectations in shareholder agreements and ensuring management retains a meaningful voice post-deal. It also means transparency: proactively disclosing how you have managed risk signals maturity to your investors and reduces the chance of reputational surprises later.
Taken together, these steps form an executive toolkit:
Assess regulatory exposure early. Don’t wait until due diligence to discover whether a deal requires NSI notification.
Investigate your counterparty. Apply the same rigour to foreign investors that they apply to you.
Write protections into contracts. Secure influence over cultural fit and operational independence.
Communicate proactively. Show stakeholders that growth capital has been tested, not just taken.
The bottom line —
You cannot control the geopolitical climate. You cannot predict when a regulator will intervene, or when a funding source will become politically sensitive. But you can control how your board approaches foreign investment.
Handled well, overseas capital can accelerate your strategy, strengthen your position in global markets, and attract fresh talent. Handled poorly, it can damage your reputation and stall your growth.
The question for leadership teams is no longer whether to take foreign investment. The question is whether you have built the governance, diligence, and communication structures to protect your strategy when you do.
Because in today’s climate, securing the money is the easy part. Safeguarding your company’s future is where the real work begins.