For years, American investors who backed ByteDance, the Chinese internet company that owns TikTok, have struggled with the complexities of owning a piece of a geopolitically complicated social media app.
Now it has become even more complicated.
A bill to force ByteDance to sell TikTok is making its way through the Senate after passing the House this month. Questions are mounting about whether TikTok's ties to China make it a national security threat. And American investors, including General Atlantic, Susquehanna International Group and Sequoia Capital, which collectively invested billions in ByteDance, face increased pressure from state and federal lawmakers to answer for their investments in Chinese companies.
Last year, a House committee began examining U.S. investments in Chinese companies. The Biden administration has curbed US investments in China. In December, a Missouri pension board voted to divest from some Chinese investments, following political pressure from the state treasurer. And Florida passed legislation this month to require the state's Board of Administration to sell its stakes in Chinese-owned companies.
All of this adds to the existing problems of owning a piece of ByteDance. The Beijing-based company has become one of the world's top-rated startups, valued $225 billion, according to CB Insights. This is a boon, at least in theory, for American investors who poured money into ByteDance when it was a smaller company.
However, in reality, these investors have an illiquid investment that is difficult to convert into gold. Since ByteDance is a private company, investors cannot simply sell their stakes in it. A confluence of politics and economics means ByteDance is unlikely to go public anytime soon, which would allow its shares to list.
Even if the sale of TikTok were easy to achieve, the Chinese government appears reluctant to give up control of an influential social media company. Beijing moved to stop a TikTok deal with American buyers a few years ago and recently condemned the congressional bill forcing ByteDance to divest the app.
For ByteDance investors, that means “their assets are stranded,” said Matt Turpin, former China director at the National Security Council and visiting fellow at the Hoover Institution. “They have made an investment in something that will be very difficult to convert into liquid.”
ByteDance declined to comment and TikTok did not respond to a request for comment.
American investors have been involved in ByteDance since the company started in 2012. In addition to TikTok, the company owns Douyin, the Chinese version of TikTok, as well as a popular video editing tool called CapCut, and other apps.
Susquehanna, a global trading company, first invested in ByteDance in 2012 and now owns about 15 percent of the company, a person familiar with the investment said. The Chinese arm of Sequoia Capital, a Silicon Valley venture capital firm, invested in ByteDance in 2014 when it was valued at $500 million. Subsequently, the US-based Sequoia Growth Fund followed suit.
General Atlantic, a private equity firm, invested in ByteDance in 2017 at a valuation of $20 billion. Bill Ford, CEO of General Atlantic, holds a seat on ByteDance's board of directors. Other notable US investors in the company include private equity firms KKR and Carlyle Group, as well as hedge fund Coatue Management.
For years, these companies were able to keep ByteDance as a star investment, especially as TikTok became increasingly popular around the world. Owning a stake in ByteDance helped investment firms strengthen relationships in China and open other deals in the country, a vast market with a population of 1.4 billion.
“The market is too big to ignore,” said Lisa Donahue, co-head of the Asia practice at consulting firm AlixPartners.
But as the relationship between the United States and China has deteriorated in recent years, the spotlight on American investments in Chinese companies has grown brighter…and more uncomfortable. Last year, President Biden signed an executive order banning new US investments in key technology industries that could be used to enhance Beijing's military capabilities.
More recently, lawmakers have criticized American investors who supported Chinese technological advances. In February, a congressional investigation found that five U.S. venture capital firms, including Sequoia, had invested more than $1 billion in China's semiconductor industry since 2001, fueling growth in a sector that the U.S. government now considered a threat to national security.
“China has almost been brought into the ESG fold,” said Joshua Lichtenstein, a partner at law firm Ropes & Gray, referring to investing guided by environmental, social and governance principles, which has become a point of contention in some. state.
Jonathan Rouner, who heads global mergers and acquisitions at investment bank Nomura Securities, said the plight of ByteDance's U.S. investors shared some similarities with the way geopolitics scrambled economic bets on Russia. The Russian invasion of Ukraine in 2022 pushed multinational companies to quickly abandon their investments in Russia, causing losses of more than $103 billion.
“It's a warning,” Rouner said. “The parallels are obviously limited, but they are in the back of people's minds.”
Some American investors recently took steps to disengage from China. Last year, Sequoia spun off its Chinese operation into an entity called HongShan. HongShan Managing Partner Neil Shen sits on ByteDance's board of directors. Sequoia, which had been in China since 2005, said its global footprint had become “increasingly complex” to manage.
HongShan did not respond to a request for comment.
Some of ByteDance's American investors have made significant donations to political candidates and influential groups. Jeffrey Yass, founder of Susquehanna, is a major Republican donor and funder of the Club for Growth, an anti-tax group that also focuses on issues such as free speech, which has become a key point of contention in the debate over TikTok . He, through Susquehanna, was also the largest institutional shareholder in the shell company that recently merged with former President Donald J. Trump's social media company.
“There are donors who are largely mercenaries: they are protecting their interests or their business interests,” said Samuel Chen, a political consultant at the Liddell Group. Others, he said, are ideological. “Yass does both,” he said.
Other investors, such as General Atlantic's Ford, have tried to keep a low political profile, people familiar with their actions said.
To make the most of their holdings in ByteDance, US investors would need a public listing or sale, even one that is federally mandated. But it is still unclear whether the bill to force the sale of TikTok will pass the Senate. Sen. Maria Cantwell, a Washington Democrat and chairwoman of the Senate Commerce Committee, has said she supports the TikTok legislation but that it is “important to get it right.”
No resolution appears imminent, meaning scrutiny from ByteDance investors is likely to persist.
“From their perspective, they just want this attention to go away,” said Turpin of the Hoover Institution. “The more attention it gets, the worse it will mean for your investment.”
