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author | gardenia editor | ours

how can the huge profits from us vc/pe investments in bytedance be realized?

a few days ago, the website of tiktok's parent company bytedance showed that philippe lafont, founder of coatue management, left the company's board of directors.it is reported that coatue has begun contacting secondary market brokers, hoping to sell part of bytedance shares at an overall valuation of us$230 billion to us$240 billion.at the same time, bytedance also announced a new director - french billionaire and founder of iliad telecom group xavier niel.

so far,bytedance’s board of directors includes ceo liang rubo, arthur dantchik, founder of susquehanna international, william e. ford, ceo of the blackstone group, and neil shen, managing partner of sequoia china.

american investors have been involved in the investment of this chinese super unicorn since its establishment in 2012. according to public information,these investors have jointly invested nearly 10 billion us dollars in bytedance. according to the latest news, bytedance is now valued at 268 billion us dollars, which is about 1.9 trillion rmb, and zhang yiming's personal wealth has reached 340.2 billion rmb.

as one of the most watched private companies in the world, every move by bytedance may affect the current situation and future of the global internet industry.

also a few days ago, bytedance was exposed to be seeking a loan of us$9.5 billion, which is the largest corporate loan record in asia except japan, but just a month ago, it was exposed to be seeking a us$5 billion loan refinancing.bytedance finalized a total of us$5 billion in loans in 2021, with half of the loans being term credit and half being revolving credit. the deal attracted widespread attention in the industry at the time. public data shows that more than half of the funds from the loan were used to refinance existing debts, and the other part was invested in the company's business expansion in overseas markets such as the americas, europe, and latin america.

now, as the loan matures, new loan moves, investors and shareholders selling their shares one after another, and news that tiktok has communicated to employees through internal channels that it plans to lay off a large number of operations and marketing teams have led to endless speculation about its financial situation. is bytedance really short of money?

some commentators pointed out that bytedance's refinancing may be to reduce financing costs, optimize debt structure or meet other financial needs. as tiktok faces the threat of a ban in the united states, the introduction of a french billionaire to the board of directors may also be to seek more solid support in the european market. as the ipo path is unclear, coatue hopes to return cash to lps by selling some shares. this change coincides with the preparations for the upcoming tiktok legal battle, and it also makes the outside world pay more attention to the future direction of bytedance.

the investor who left bytedance is a well-known figure. in 1999, after working at tiger fund for three years, philippe lafont raised $45 million to establish coatue management. with the strategy of "longing leading tmt companies + shorting high-bubble tmt companies", coatue became one of the best performing hedge funds on wall street.currently, coatue management manages assets of us$40 billion and has invested in a number of american star companies such as snap, uber, lyft, grab, airtable, as well as chinese companies such as ant financial, meituan, didi, mafengwo, bitmain, zuoyebang, heytea, manner, and agora. in 2020, it invested in xpeng motors together with alibaba, xiaomi and qatar investment authority.

coatue entered china around 2015. in the past few years, its style was highly consistent with that of its headquarters in the united states. it both tried to grab shares of super unicorns' d and f rounds regardless of price. this included participating in didi's us$3 billion financing in 2016, participating in meituan's d and f rounds of financing, and investing in the cd rounds of unicorns in niche areas such as agora and ofo.later, the investment scope began to expand to the consumer, logistics, and biomedicine fields, and many mid-range and ab round projects also caught coatue's attention.

especially after 2020, consumption has become coatue's new favorite.it has successively invested in consumer companies such as heytea, guming, ximuyuan, nongfu spring, manner, and calorie technology, and bought stocks of relx e-cigarette parent company relx technology and ideal auto in the secondary market. the change in investment strategy is also reflected in fundraising. in 2019, coatue raised a $700 million early-stage fund, coatue early stage fund lp, which is also its first early fund since the establishment of private equity. interestingly, a few months later, hillhouse also established an early investment department to invest in innovative companies in the fields of medical care, consumption, technology, and the internet.

let's talk about the background of the new billionaire. xavier niel is the founder and chairman of iliad, a french internet mobile operator. in the 2024 forbes global billionaires list, his net worth is 10.5 billion us dollars, about 74.4 billion yuan. in 1987, 19-year-old niel dropped out of school and founded his first company, minitel. after selling it, he became a millionaire at the age of 24. in 1995, he invested in world-net, the first internet service provider in france, and withdrew for 50 million us dollars seven years later. in 1999, he founded free, an internet service provider, which is now the second largest internet service provider in france. the parent company iliad was listed on the paris stock exchange in january 2004. after the telecommunications industry was booming, he began to invest. in 2010, he founded kima ventures fund, known as "the most active seed fund in the world", investing in more than 100 start-ups around the world every year. in 2010, he became the co-owner of le monde, one of the largest newspapers in france. in september 2022, it purchased a 2.5% stake in british telecommunications company vodafone through investment firm atlas investissement.

so far,bytedance’s board of directors includes ceo ruby liang, arthur dantchik, founder of susquehanna international, william e. ford, ceo of general atlantic, xavier nie, founder of french telecom operator iliad group, and neil shen, managing partner of sequoia china.

since bytedance was founded in 2012, american investors have been involved in the company's investment. according to public information,these american investors have jointly invested billions of dollars in bytedance.

in,susquehanna international made its first investment in 2012.currently owning about 15% of the company, its co-founder jeff yass is seen as one of bytedance's most powerful backers today, with a tiktok stake worth $33 billion.

sequoia china, 2014 investment,at that time, the company was valued at only $500 million. according to media reports, in 2014, sequoia china participated in bytedance's series c financing and acquired a 10% stake. in addition, sequoia capital's global growth fund also invested in bytedance. in 2020, sequoia capital purchased additional bytedance shares through the secondary market. people familiar with the matter revealed that all of this added up to a book value of more than $22 billion for sequoia capital's bytedance shares.

in 2017, general atlanticwith a $2 billion investment, bytedance's valuation doubled from $11 billion to $22 billion. it was also in that year that bytedance acquired musical.ly and renamed it tiktok. in addition, other well-known american investors include kkr, carlyle, softbank, tiger fund, etc.

according to public information, bytedance employees hold about 20% of the total shares, the founders hold 20%, and investors hold 60%. from a small startup to the world's largest unicorn with a valuation of hundreds of billions of dollars, the huge returns from these investments, how to convert paper wealth into cash is the real problem.

a week before philip's departure, the information reported that coatue had approached private stock secondary market brokers to discuss selling some of his bytedance shares, worth hundreds of millions of dollars.coatue hopes to sell at an overall valuation of us$230 billion to us$240 billion. although this is slightly lower than the us$268 billion valuation when bytedance repurchased the company in december last year, the valuation was only tens of billions of dollars when it first invested in bytedance in 2017, and additional investments were made in the following years. this is a huge return no matter how you calculate it.

the secondary market was born in the united states in 1982 and developed rapidly during the internet bubble at the end of the 20th century.in the years after the dot-com bubble burst, many private equity funds wanted to exit their invested projects as quickly as possible, which led to the rapid development of the secondary market, with the transaction share increasing rapidly from 2%-3% of the total primary market to nearly 5%. today in the us market, secondary market sales of start-ups are becoming more and more common after the collapse of technology stocks, mainly because investors' interest in ipos has dropped significantly.these sales allow vcs to return cash to lps. some large startups, including stripe, revolut and figma, have arranged such sales for their investors.

the information pointed out that since the ipo path is still unclear, coatue hopes to return some cash to lps by selling some shares. according to pitchbook, a us agency that specializes in tracking the venture capital industry, sig and softbank sold more than $100 million worth of bytedance shares in march this year. in this difficult situation, bytedance's investors are trying to find ways to protect their interests.

bytedance has also been working hard to appease investors who are eager to cash out. in 2022, bytedance first offered a $3 billion stock repurchase plan, and in december last year it was $5 billion and an employee stock repurchase plan, but it still could not meet the needs of major investors to sell shares on a large scale. for major shareholders, it may not be possible to find any buyers who agree to the current valuation price, so it will be difficult to sell. bytedance is currently valued at $268 billion, which is half of its peak level - in 2021, it was reported that bytedance's valuation reached $400 billion.the united states' political suppression of tiktok is obviously one of the important reasons for the shrinking valuation. in addition, as bytedance's listing prospects in the united states are bleak, investors' poor exit channels will also suppress valuations.

not long ago, there was news that nicole iacoppetti, head of tiktok's content strategy and policy, would leave. she had "helped tiktok withstand the first wave of us bans" in 2020. combined with bytedance's recent $9 billion loan refinancing, tiktok's large-scale layoffs, and investors selling shares, people can't help but speculate about bytedance's future overseas path.

a special committee of the u.s. house of representatives reported in february that u.s. venture capital firms have invested at least $3 billion in china over decades, helping to build and strengthen china's key industries, including injecting $1.9 billion into artificial intelligence companies and $1.2 billion into semiconductors. the report also specifically mentioned five u.s. venture capital firms - sequoia capital, qualcomm ventures, walden international, ggv capital (formerly granite global ventures) and gsr ventures. the funds invested by these institutions in china basically come from u.s. limited partners such as pension funds and university endowment funds.

investors all hope to create outstanding performance, and investing in unicorns is certainly one way to stand out. in the past, us dollar funds were the favorites of chinese startups, especially technology and internet companies, with high valuations and no shortage of money. from tmt, going overseas to consumption, web 3 and now aigc, there has never been a lack of us dollar outlets in the primary market. however, nowadays, some high-quality projects are only willing to accept rmb investment due to policy and ipo listing environment issues, and us dollar funds are disliked.

the founder of a drone company told reporters that they had received investment from us dollar funds in the early days. in subsequent rounds, they introduced rmb funds in order to obtain more local industrial resources. they were required to buy back the shares held by these us dollar funds, forcing the us dollar investors out.“because we need to explain to the state-owned shareholders who are in compliance with regulations and who are the investors behind the us dollar shareholders on the board of directors.”

on the other hand,from 2023the increase in us interest rates and the global economic downturn and increasing uncertainty have caused investment institutions to almost stop providing funds for new projects. in particular, the collapse of silicon valley bank has further worsened the valuation of unicorns from the source of funds. according to the 2024 global unicorn list, the value of 170 companies this year has dropped compared to last year, of which 42 have been "downgraded" and dropped out of the list due to valuations below us$1 billion.

in today's market environment, institutional activity has obviously shrunk, financing scale has shrunk significantly, and valuations are revised downward at any time, which has become a very normal phenomenon. chen fei, a partner of a leading pe, told reporters,“a valuation down round will trigger anti-dilution clauses.the founding team must compensate other investors in various ways. some old shareholders will also require the company to complete a certain increase in financing within a specific period of time in the investment agreement, similar to a bet. however, many high-valuation projects, especially those after 2021, have not been listed as expected, and new financing is difficult to obtain. the conflict of interest between investors and the founding team is particularly intense, and quarrels are common. some investors even begin to demand drag-along clauses in order to protect their rights. "

since the beginning of this year, the domestic a-share market has tightened the requirements for companies to go public, and the policy is inclined to the listing of unicorns or innovative companies. many traditional companies have turned to hong kong for listing. in the past, when unicorns went public, institutions could still make money. but now, valuation inversion and listing below the issue price have become the norm. most of the pe institutions that entered the last 1-2 rounds did not make money, and there have been more and more voices in the past two years that they lost money in the b and c rounds.

dollar funds have entered the chinese market for more than 20 years, bringing funds and experience to drive the development of china's venture capital industry. now layoffs, salary cuts, and budget control have become almost the norm, and they have to face the new reality of no investment and no fundraising. even the new fund managed by tiger global only raised $2.2 billion, far below the target of $6 billion, and the smallest fundraising amount in the past decade. according to dealogic data,foreign capital in china's venture capital market plummeted 60% year-on-year to $3.7 billion in 2023, only 10% of the peak in 2021. seven of the world's top ten pe firms (warburg pincus, carlyle, kkr, tpg, bain capital, eqt, blackstone, cvc, advent international and apollo) did not make any new investments this year. winston ma, a law professor at new york university, previously said: "the decoupling between american funds and chinese technology startups is further expanding."

today, due to geopolitics and the withdrawal of the capital market, the global private equity investment market is experiencing cycles and pains, whether it is rmb funds or us dollar funds. how to be consistent with the times is a new proposition for all investors and entrepreneurs.