Butterfly Effect, the parent company of AI agent startup Manus, confirmed a funding round exceeding $500 million in a WeChat post. The round was led by Boyu Capital and IDG Capital, with participation from existing backers Tencent, HSG (formerly Sequoia China), and ZhenFund. This capital injection marks the first major financing event for Manus since Chinese regulators forced the unwinding of Meta’s approximately $2 billion acquisition offer. While Butterfly Effect did not disclose a valuation, Bloomberg previously reported that the company sought this raise at a $4 billion valuation, roughly double the price Meta had agreed to pay.
The regulatory intervention began after Meta announced its purchase intent in December 2025. In April 2026, China’s National Development and Reform Commission ordered the deal withdrawn, citing prohibitions on foreign investment in the sector under applicable laws. Prior to this, co-founders Xiao Hong and Ji Yichao were barred from leaving China in March 2026. Manus, which launched in March 2025 and reported $100 million in annual recurring revenue by December 2025, subsequently resumed independent operations in August 2026. The company plans to use the new funds for hiring in China and abroad, continuing its development of autonomous software agents that execute tasks such as booking trips and analyzing stocks.
The successful fundraising of $500 million underscores the resilience of domestic capital markets in supporting high-growth AI ventures despite geopolitical friction. By securing backing from prominent Chinese firms like Tencent and IDG Capital immediately after a blocked foreign acquisition, Manus demonstrates that local investors are willing to absorb significant risk to maintain control over strategic AI infrastructure. This shift highlights a decoupling trend where critical technology assets are increasingly retained within domestic ecosystems, driven by regulatory mandates rather than purely commercial preferences.
For the broader market, this case illustrates the operational complexities arising from cross-border M&A restrictions in the AI sector. The requirement for Manus to delete user data created after December 29, 2025, to separate systems from Meta reveals the technical and compliance burdens imposed when international deals collapse mid-execution. As Beijing tightens travel and approval requirements for senior AI workers at firms like Alibaba and DeepSeek, institutional investors must navigate heightened regulatory uncertainty regarding talent mobility and data sovereignty, potentially slowing the pace of global integration for Chinese AI startups.
