ByteDance slashes investment arm as deal curbs chill China tech

TikTok’s owner is dissolving the internal venture capital and investing team that makes bets on promising startups, according to sources. (his file photo taken on August 5, 2020 shows an employee walking outside the headquarters of ByteDance, the owner of video sharing app TikTok, in Beijing.)

BEIJING: ByteDance Ltd has downsized its powerful investment arm, anticipating China will soon tighten curbs on the prolific deal-making that turbocharged the growth of the countrys largest Internet companies.

TikTok’s owner is dissolving the internal venture capital and investing team that makes bets on promising startups, according to sources.

A separate strategic investments arm, which focuses on backing companies that can help its own businesses, is undergoing a radical overhaul that will see it pull back from deals as well, the sources said.

The retreat comes as regulators threaten to smother the flurry of deals that ByteDance, Tencent Holdings Ltd and Alibaba Group Holding Ltd cut annually, which Beijing regards as helping shore up dominance over spheres from social media and gaming to e-commerce.

The Cyberspace Administration of China (CAC) is drafting guidelines that will require any company with more than 100 million users or over 10 billion yuan (US$1.6bil or RM6.61bil) of revenue to seek the watchdog’s approval before making investments or raising funds, Reuters reported yesterday, citing sources.

Beyond those three Internet players, other companies that meet that criteria include food delivery giant Meituan, embattled ride-hailing leader Didi Global Inc, the Twitter-like Weibo Corp, search leader Baidu Inc and Inc, Alibaba’s closest rival.

Even smaller players like livestreaming firms Bilibili Inc and Kuaishou Technology wouldn’t be exempt.

ByteDance would be among the first to take pre-emptive action.

While the CAC’s guidelines as reported have yet to go into effect, its goal of exerting influence over data security through scrutinising funding activity is clear.

The Internet industry overseer has issued a spate of other regulations governing overseas listings and the complicated structures through which startups receive foreign capital.

ByteDance made the decision early this month to focus on strengthening its business and reducing the number of investments, the company said in an emailed statement.

It will also redeploy part of its strategic investments team to other business lines, it said without elaborating.

News of ByteDance’s overhaul was first reported by Chinese media including Jiemian.

It’s unclear whether Alibaba and Tencent will follow suit.

Since late-2020, antitrust regulators have levied fines on scores of deals cut during the go-go era of the past decade, chilling investment across much of the internet sector.

China’s Internet companies have achieved massive scale partly through an unprecedented investment spree over the past decade.

Alibaba and Tencent in particular had evolved into industry king-makers, vying to lock in stakes and board seats in up-and-coming startups.

Meituan, JD and Didi achieved scale in part because of their ties to Tencent and its WeChat ecosystem of a billion-plus users.

In recent years, ByteDance – one of the few tech successes that have eschewed investment from Alibaba and Tencent – had also ramped up its own pace of acquisitions, to expand into new arenas such as educational gadgets and services.

ByteDance’s strategic investment arm has been headed by Zhao Pengyuan, who reports directly to TikTok CEO Chew Shouzi, the sources said. — Bloomberg

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