The China Countdown – Tik-Tok, Tik-Tok

Do we care where a consumer internet company was founded?

Lets start with the fact that I am British. Bear with me, it’s relevant. I can still remember my middle school geography when the teacher told the class that the pink parts of the world map were “ours”. There was a lot of pink. it was 1966 and I was 12.

The £ was no longer the currency of world trade and the empire had been in decline since about 1870 (its peak). The $ was triumphant ,and the US was the center of the world, but the map was still pink in lots of places. It took another 30 years for that to change.

So I am not suggesting that China (playing the role of the rising economy) is going to eclipse the USA (playing the role of Britain) any time soon. That said, the end game is already written. China will be an enormous global economy, just from its domestic buying power, and the US will not be able to retain the singular position it has had since before World War Two. Li Autos (one of several Chinese Tesla competitors) just completed a US IPO on the NASDAQ, raising $1.1 billion. I bought the stock for a long term hold, along with its competitor NIO.

Companies now internationalise very fast. FaceBook, LinkedIn, Google, Amazon and Netflix all benefit from that. There is no reason to believe that companies originating outside the USA will not benefit from the same tailwinds.

So, Tik Tok. Clearly it is a very successful company founded in China. And it spent a lot of money getting into its current position. Mainly cash from investors spent on Facebook ads. It now has a strong position and our President wants to ban it, or have Microsoft, or somebody else, buy it.

This is unlikely to be the last time a strong overseas company becomes strong in the US market. And asset seizures, bans or otherwise seem to be a bad precedent for a nation with many global companies to set. This week’s discussion and newsletter focuses on China,Tik Tok and the future of global innovation.

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This week’s video is here:

Reads of the Week

Venture

Startups

Podcasts of the Week

• From Seed to Series A: What VCs look for when investing in an early stage company – Reid Hoffman & Sarah Guo
• a16z Podcast: Working, Making, Creating in Public… and Private

Tweet of the Week

• @jason – I want to start a private school in my back yard and will pay a good teacher a big salary.

—Reads of the Week

Why is Silicon Valley so chilled about the cold war with China?

Financial Times

The US-China tech war has kicked up a gear. In the space of seven days, the White House has threatened to ban Chinese video app TikTok, launched a campaign to purge Chinese telecoms carriers, cloud providers and apps, and barred US companies and citizens from transacting with WeChat, the Chinese messaging and payments app.

This is a notable escalation. At the start of the Trump administration, Chinese companies were still trying to buy US tech assets. Now even their own apps are being prohibited in the US.

Yet the US tech sector looks remarkably untroubled. Investors are partying like it’s 1999: the Nasdaq Composite minted a new record high this week, up 22 per cent in this plague year.

Mark Zuckerberg Says A Ban On TikTok Would Set “A Really Bad Long-Term Precedent”

Buzzfeed News

Facebook CEO Mark Zuckerberg told his employees Thursday that banning TikTok in the United States would set “a really bad long-term precedent.”

Speaking at the social network’s all-hands meeting, the billionaire Facebook founder was asked to address the acquisition talks between TikTok, the popular video app owned by Chinese company ByteDance, and Microsoft. President Donald Trump has threatened to ban the app from the United States unless an acceptable company purchased it. Facebook’s employees wanted to know if their social network was interested in acquiring the short-form video app, which Zuckerberg had previously identified as a competitor.

Trump Bans Dealings With TikTok, WeChat

TVNewsCheck

NEW YORK (AP) — President Donald Trump has ordered a sweeping but vague ban on dealings with the Chinese owners of social media apps TikTok and WeChat on security grounds, a move China’s government criticized as “political manipulation.”

The twin executive orders issued Thursday — one for each app — add to growing U.S.-Chinese conflict over technology and security. They take effect in 45 days and could bar the popular apps from the Apple and Google app stores, effectively removing them from U.S. distribution.

China’s foreign ministry expressed opposition but gave no indication whether Beijing might retaliate.

It Doesn’t Matter Who Owns TikTok

Gizmodo – Shoshana Wodinsky

When Microsoft officially emerged as the frontrunner for a potential acquisition of the teen-fave-turned-national-security-concern TikTok earlier this week, tech critics ‘round the globe found themselves with an endless set of questions that seemingly nobody could answer. Why would a company as corporate as Microsoft be throwing its hat into the tweenage market? Did President Donald Trump seriously just ask for the U.S. Treasury to get a cut of what’s promising to be a multibillion-dollar deal (even though that’s not how any of that works)? Would a buyout even solve any of the alleged privacy concerns surrounding TikTok, or would it just spew out a litany of new ones?

TikTok row: China hits out at US ‘smash and grab’ as tech dispute deepens

The Guardian

• On Monday, a spokesman for China’s ministry of foreign affairs said China firmly opposed any US action against Chinese software companies over national security concerns .
• The US has offered China the “choice of submission or mortal combat in the tech realm”, state media in Beijing have said, as the two rival powers manoeuvred on the thorny issue of splitting up TikTok .

It’s Not Just TikTok. Chinese Firms Face More US Roadblocks

Wired

• “These Chinese software companies doing business in the United States, whether it’s TikTok or WeChat, are feeding data directly to the Chinese Communist party, their national security apparatus,” Pompeo said.
• Now, though, Tencent and other Chinese companies face US hostility not unlike what Facebook dealt with in China.

Microsoft’s TikTok: But why?

On my Om

• Does Microsoft have some sort of a quid-pro-quo in place with the US Government that makes them the most preferred nation when it comes to buying this company?
• But weirdness aside, Microsoft’s possible take over of TikTok’s operations in the US, New Zealand, Canada, and Australia, brought up one question that continues to nag me: Why Microsoft?

Is TikTok a Good Buy? It Depends on What’s Included

The New York Times

• The hit video app appears headed for a shotgun wedding after President Trump has decided to force its owner , the Chinese tech conglomerate ByteDance, to sell TikTok to an American acquirer or be barred from operating in the country.
• By all accounts, TikTok’s core algorithm — which selects videos for the central feed users see when they open the app, called the “for you page” or FYP — could be the most valuable asset the company owns.

Microsoft’s Roots in China Have Positioned It to Buy TikTok

Feed: All Latest

• That year, then-CEO Bill Gates created Microsoft Research China, an engineering outpost in Beijing to tap into a pool of talent and establish ties to the country’s tech scene.
• In the following years, Microsoft launched internet operations in China when other US tech companies were stymied.

— Venture

Venture capital is still soaring, but the business is changing

The Boston Globe

• In the first half of the year, according to data from the National Venture Capital Association, VC firms in the United States collected $42.7 billion in what they like to call “dry powder” — money to invest in startups.
• Greeley, a cofounder of Flare Capital Partners in Boston, says that discussions about what to do in 2020 “were happening in the fall, pre-COVID,” and that “2019 venture capital performance was great.”

Inside Rounds Have Become a Sign of Strength at the Series B

Tomasz Tunguz

• Inside rounds, new financing rounds led by existing investors, have historically been primarily the territory of companies who cannot raise from outside investors at attractive terms.
• Each chart shows the difference in round size led by existing investors in red and new investors in blue.

SPACs: A Brief Overview

Elad Blog

• SPACs are quick to set up as (i) they are a shell company without an underlying operating business or projections and (ii) most people running SPACs have ties to crossover or public market investors and investment bankers so can raise SPAC money quickly.
• This means many SPACs end up with a 3-way negotiation on valuation, governance, and other items between the owners & operators of the SPAC, the investors in the SPAC, and the target private company.

SPACs Are the New Hot Thing on Wall Street

Barron’s

“Bet on me” is essentially the pitch that backers of blank-check companies known as special purpose acquisition companies, or SPACs, make to investors. While that’s usually not enough to persuade seasoned investors to part with their money, it has worked like a charm in these times of booming markets and practically free money.

— Startups

Announcing the YC Startup Library

Y Combinator

We’re excited to announce the launch of the YC Startup Library, found at ycombinator.com/library. Over the last 15 years, YC has invested in and worked with more than 2,000 companies, and we’ve seen and learned from their successes and failures.

— Podcasts of the Week

From Seed to Series A: What VCs look for when investing in an early stage company

Greymatter

Greylock general partners Reid Hoffman and Sarah Guo discuss the all-important topic of raising early stage capital (with updated guidelines for the current economic environment). From understanding what metrics matter to team-building and reference-checking potential board members, this Greymatter episode provides entrepreneurs practical advice and unique insight from some of Silicon Valley’s most active and experienced investors.

a16z Podcast: Working, Making, Creating in Public… and Private

Andreessen Horowitz

Eghbal offers a new taxonomy of communities — including newer phenomena such as “stadiums” of open source developers, other creators, and really, influencers — who are performing their work in massive spaces where the work is public (and not necessarily participatory).

• So what lessons of open source communities do and don’t apply to the passion economy and creator communities?

— Tweet of the Week

A major Silicon Valley investor wants a teacher to set up a ‘microschool’ in his backyard — and he’s offering to beat whatever salary they’re making. He’ll also throw in a $2,000 Uber Eats gift card.

Business Insider

• Jason Calacanis, a top Silicon Valley investor, took to Twitter to say he was interested in creating a similar “microschool.” He posted that he was looking for a teacher to instruct a handful of kids in his Bay Area backyard, and even offered a $2,000 Uber Eats gift card to a referrer.
• In response to the pod inequity question, Calacanis said he’ll accept applications based on merit for 100% scholarships to his microschool, and will likely hire a teacher currently out of work.