Tiger Global Management has built a stake in ByteDance, the Chinese owner of the viral video app TikTok, joining other global investors such as SoftBank and Sequoia Capital jostling to capitalise on the explosive popularity of short-form video.
The New York-based investment group discussed the stake in a letter to investors this week, saying it had “purchased shares over the past 21 months at a low multiple of future free cash flow”. Tiger Global did not disclose the size of the investment.
Investors valued ByteDance at $75bn two years ago following a $3bn funding round led by the tech conglomerate SoftBank, making it the second-most valuable start-up behind Alibaba’s Ant Financial.
Tiger Global began buying shares at about half that value and has added to the position through purchases in secondary markets, people familiar with the transactions said.
ByteDance’s shares recently changed hands on secondary markets at prices giving the company an implied valuation of between $90bn and $100bn, according to several people familiar with the transactions.
ByteDance and Tiger Global declined to comment.
The investment, which has not been previously reported, signals support from the prominent tech investor as ByteDance faces criticism over its treatment of politically sensitive issues, including last year’s protests in Hong Kong.
US national security regulators last year opened an investigation into ByteDance’s 2017 purchase of Musical.ly — which helped fuel the international growth of TikTok’s viral lip-syncing app — following calls by US senator Marco Rubio to review the deal.
ByteDance has sought to quell concerns in the US, hiring a team from the law firm K&L Gates to advise on content moderation and public policy.
The company is expected to be one of the big beneficiaries from population lockdowns put in place because of the coronavirus pandemic, as more people spend time inside on their phones.
Tiger Global said it estimated ByteDance would command 19 per cent of China’s online advertising market this year — which is expected to total an estimated $81bn, according to research by eMarketer. The company captured about 4 per cent of the market in 2017, according to Tiger Global.
ByteDance’s rise has challenged the dominance of China’s marquee internet companies such as Tencent, which has backed TikTok’s domestic rival Kuaishou.
ByteDance had explored a public listing in Hong Kong as early as the first quarter of this year, the Financial Times reported. The company denied the report at the time.
Tiger Global, whose venture funds manage $15.5bn of unrealised investments, is known as one of the largest investors in public and private tech companies, including the e-cigarette maker Juul and Chinese transportation group Didi Chuxing.
But the group recently faced a setback after start-up investments weighed on its public equity hedge funds last year, led by troubles at Juul following regulatory scrutiny of the vaping industry.
The firm said it had “already seen negative net revisions to the 2020 revenue forecasts” for its companies “in aggregate”, as the Covid-19 pandemic rattles capital markets and business spending.
“As always, we have been encouraging our management teams to make disciplined choices about where and how they invest and to expect that it will be more difficult to raise capital in the future,” Tiger Global wrote in the letter.
Additional reporting by Mercedes Ruehl in Singapore