For years, US investors who backed ByteDance, the Chinese internet company that owns TikTok, have struggled with the complexities of owning a piece of the geopolitically fraught social networking app.
Now it has become even more complicated.
A bill to force ByteDance to sell TikTok is finalizing in the Senate after passing the House this month. Questions about whether TikTok’s Chinese ties make it a national security threat are growing. And U.S. investors, including General Atlantic, Susquehanna International Group and Sequoia Capital — which collectively poured billions into ByteDance — are facing increased pressure from state and federal lawmakers to answer for their investments in Chinese companies.
Last year, a House committee began looking into US investments in Chinese companies. The Biden administration has restricted US investment 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 requiring the state’s Board of Directors to divest its stakes in Chinese-owned companies.
All of this comes on top of existing problems with owning a piece of ByteDance. The Beijing-based company has grown into one of the world’s most valuable startups, valued at $225 billion, according to CB Insights. That’s a boon, at least on paper, for US investors who put 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 private, investors can’t just sell their stakes in it. The confluence of politics and economics means ByteDance is also unlikely to go public anytime soon, which would allow its shares to trade.
Even if the sale of TikTok was easy to pull off, the Chinese government appears reluctant to relinquish control of an influential social media company. Beijing moved to stop a TikTok deal with American buyers a few years ago and recently condemned a congressional bill that would have forced ByteDance to divest the app.
For ByteDance investors, that means “their assets are in limbo,” said Matt Turpin, former China director at the National Security Council and a visiting fellow at the Hoover Institution. “They have made an investment in something that will be very difficult to liquidate.”
ByteDance declined to comment and TikTok did not respond to a request for comment.
American investors have been involved in ByteDance since the company’s inception 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. US-based growth fund Sequoia later followed suit.
General Atlantic, a private equity firm, invested in ByteDance in 2017 at a $20 billion valuation. Bill Ford, CEO of General Atlantic, has a seat on ByteDance’s board of directors. The company’s other notable US investors 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 an investment in the stars, especially as TikTok became more and more popular around the world. Taking a stake in ByteDance has helped investment firms strengthen their ties to China and open other deals in the country, a huge market with a population of 1.4 billion.
“The market is too big to ignore,” said Lisa Donahue, co-head of the Asia Americas practice at consulting firm AlixPartners.
But as the relationship between the United States and China has soured in recent years, the spotlight on U.S. investments in Chinese companies has grown brighter — and more uncomfortable. Last year, President Biden signed an executive order barring new US investment in key technology industries that could be used to bolster Beijing’s military capabilities.
More recently, lawmakers have called out American investors who have backed Chinese technology developments. In February, a congressional investigation found that five US venture capital firms, including Sequoia, had invested more than $1 billion in China’s semiconductor industry since 2001, fueling the growth of a sector the US government now sees as a threat to national security.
“China has almost run out of ESG,” said Joshua Lichtenstein, a partner at the law firm Ropes & Gray, referring to investments driven by environmental, social and governance principles, which have become a point of contention in some states.
Jonathan Rouner, who heads global mergers and acquisitions at investment bank Nomura Securities, said the situation for ByteDance’s U.S. investors shares some similarities with how geopolitics interfered with economic bets in Russia. Russia’s invasion of Ukraine in 2022 prompted multinational companies to quickly abandon their investments in Russia, resulting in losses of over $103 billion.
“It’s a cautionary tale,” Mr. Rouner said. “The parallels are obviously limited, but they are in the back of people’s minds.”
Some US investors have recently taken steps to distance themselves from China. Last year, Sequoia spun off its China operations into an entity called HongShan. HongShan managing partner Neil Shen is on ByteDance’s board of directors. Sequoia, which has 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 US investors have made significant donations to political candidates and influential groups. Susquehanna founder Jeffrey Yass is a major Republican donor and funder of the Club for Growth, an anti-tax group that also focuses on issues like free speech, which has become a key point of contention in the TikTok debate. 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 very mercenary: they protect 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 Mr. Ford at General Atlantic, have tried to keep a low profile politically, people familiar with his actions said.
To make the most of their stakes in ByteDance, US investors would need a public listing or sale, or even a federal mandate. However, it remains unclear whether the bill to force the sale of TikTok will pass the Senate. Sen. Maria Cantwell, D-Washington and head of the Senate Commerce Committee, said she supports the TikTok legislation but that it is “important to get it right.”
No resolution appears imminent, meaning scrutiny by ByteDance investors is likely to be delayed.
“From their perspective, they just want that attention to go away,” said Mr. Turpin of the Hoover Institution. “The more attention it gets, the worse it means for their investment.”
