On April 28, the New York Times published an article on April 18, "How an Obscure Chinese Real Estate Startup Paved the Way for TikTok", detailing a public court record that tells the story of the birth of ByteDance, its bumpy road to success, and the role played by Jeff Yas, a huge donor to the Republican Party.
At that time, the Tiktok non-divestiture sale ban bill had just passed the House of Representatives vote and was about to enter the Senate, and the final results this week showed that the Senate had voted to pass, and US President Biden had signed it into law, and TikTok was facing a situation of banning it without stripping and selling.
The following is the full text:
In 2009, long before Jeff Yass became a huge donor to the Republican Party, his company, Susquehanna International Group (SIG), invested in a Chinese real estate start-up with a sophisticated search algorithm.
The company, called 99Fang, promises to help buyers find the perfect home.
Records show that employees at one of Yas' Chinese subsidiaries were so deeply involved behind the scenes that they conceived the company's idea and handpicked the CEO. They stated in an email that he was not the real founder of the company.
As a real estate company, 99 House ultimately failed. But according to the lawsuit filed by the former SIG contractor, the incident is significant due to the impact it has had.
They say 99Fang's CEO, as well as search technology, has re-emerged in ByteDance, another joint venture of the SIG.
TikTok's owner, ByteDance, is now one of the world's most valued startups, valued at $225 billion, according to CB Insights, a company that tracks venture capital.
ByteDance is also at the center of the storm on Capitol Hill, with some lawmakers arguing that the company poses a threat to U.S. security. They are considering a bill that could dissolve the company. Mr. Zhang, who was selected by the SIG to manage the real estate website, became the founder of ByteDance.
Court documents reveal the complex origin story of ByteDance and TikTok.
These records include emails, chat messages, and memos from within the SIG. They describe a medium-sized business experiment, a tense relationship between founders and investors, and ultimately a powerful search engine that only needs one purpose.
The records also show that Yas's company is more deeply involved in TikTok's origins than previously known.
The New York Times and elsewhere have widely reported that the SIG owns about 15% of ByteDance, but the documents make it clear that the company is not a passive investor. It boosted Zhang's career and completed the company's vision.
The SIG is at risk of tens of billions of dollars as lawmakers debate whether TikTok gives its Chinese owners the power to foment discord and spread disinformation among Americans. As the founder of the SIG, Yas could reap billions of dollars in interest as a result of the outcome of this debate.
Yas, a former professional poker player, is also the largest single donor in this election cycle, giving more than $46 million by the end of last year, according to OpenSecrets, a research organization that tracks political funding.
According to court documents, the SIG has handed over Yas's emails as part of this case. But the emails are not included in the publicly available database, so Yas's personal involvement in the formation of ByteDance is unknown.
The records surfaced in a lawsuit in Pennsylvania. Former SIG contractors accused the company of bringing cutting-edge search technology to ByteDance without compensating them. The SIG denied the allegations, saying ByteDance did not receive any technology from the real estate site.
A spokesman for the company said: These claims are baseless and we will actively defend ourselves.
The record was unsealed in April.
After The New York Times downloaded the documents and began asking questions, SIG's lawyers said the documents were inadvertently made public. The judge has resealed them.
Lawyers for both sides declined to comment. ByteDance, Yas and Zhang Yiming either did not answer questions or did not respond to messages seeking comment.
Despite the controversy between the two sides over the origins of ByteDance's technology, the documents make it clear that the company itself emerged from the 99-room real estate business.
"Our search, image processing, recommendations, etc. are very powerful. Mr. Zhang wrote in a 2012 email, "But the ability of these things to be applied to real estate is very limited. 」
Instead of matching homes for buyers, Zhang Yiming made a plan to match users with easy content and developed a prototype page called Funny Pictures and Pretty Babies.
He described the new project as a sister business that will share technology with real estate websites.
Years later, a director of SIG China wrote to a colleague that the housing land deal had led to the birth of ByteDance.
How it all started
In 2005, SIG created its Chinese subsidiary, SIG China, to invest in startups.
An early investment was Cool News, a portal focused on job postings, housing advertising, and tourism. Zhang Yiming, who was in his early 20s at the time, was the site's technical director, and SIG China saw him as a promising talent.
He left the company to work at Microsoft. But in 2009, when SIG China was preparing to spin off Kuxun's real estate division into its own business, the investment firm poached Mr. Zhang back and appointed him as the chief executive of the new company, 99 Housing.
"We have re-hired a top engineer from the housing pipeline to lead the technical team. SIG China employees wrote in an internal memo.
But the records show that the relationship between Mr. Zhang and SIG China is complicated.
He claims to be the founder of Room 99 but owns a small stake, according to the filing.
In 2011, Gong Tian, managing director of SIG China, vented his frustration with Zhang Yiming in an apparent equity dispute.
"Neither Kuxun nor Room 99 was founded by him. Mr. Gong wrote in a letter to a colleague. The full context is not yet known, but he seems to suggest parting ways with Zhang at the end of the message: "We'll let him go. 」
By 2012, real estate was no longer exciting for Mr. Zhang. After researching the life of Apple founder Steve Jobs, he said in an email to SIG China that he realized he needed to change careers. As people buy mobile phones, social media opportunities keep popping up. He suggested that the search technology for Room 99 needed to be used differently.
Over the years, the SIG's guidance of Mr. Zhang's career has never been part of the ByteDance story.
SIG employee Joan Wang wrote in a Chinese blog post that she met with Mr. Zhang at a coffee shop to discuss the future of ByteDance. She wrote that he drew it on a napkin.
In an internal investment memo, she wrote that Zhang sought SIG's understanding and permission to leave Room 99 and create a new company.
Pretty babe and a big gamble
A shift in focus is common in venture capital. It's not uncommon for a big change like moving from real estate to social media. The most successful start-ups – Facebook, WhatsApp, Alibaba – have evolved in scope, but have not changed dramatically in purpose.
By March 2012, the nascent project had a new name: Xiangping, which roughly translates to sharing comments, according to court documents.
The memo reads that Mr. Zhang has created a prototype app called Pretty Babes, which users seem to love it.
Ms. Wang wrote in the investment memorandum that by selecting content for users, it is possible to design virality and increase stickiness. In other words, the new company doesn't let users search for what they want, but chooses it for them.
"Social networking technologies will be used to track user behavior, predict user interests, and build relevance and recommendation engines," the memo reads.
ByteDance's technology has evolved, but TikTok still offers videos that users want to view and share. This management is at the heart of TikTok's efforts to ban it.
Some lawmakers worry that such a powerful algorithm is in the hands of a Chinese-owned company.
In 2012, SIG China valued the startup at about $9 million, with an investment of just over $2 million. The company has since contributed hundreds of millions of dollars in further investments, its lawyers said in court filings.
Since then, the company's story has been well known. It rebranded itself to ByteDance and acquired the lip-syncing app Musical.ly and used it as the basis for TikTok.
By 2018, ByteDance had become one of the most valuable private technology companies in the world.
It's not uncommon for SIGs to bet on unproven founders. What's unique about ByteDance is that it pays off so well.
"Part of it is because they see something. Steven Kaplan, who studies private equity and venture capital at the University of Chicago's Booth School of Business, said. "Part of the reason is that they're lucky. 」
What's next?
The Pennsylvania court case may eventually go to a jury, but no trial date has been set.
(Addendum: At the time of publication of this article on the 18th), the House of Representatives passed a bill in March that could force the sale of TikTok, and the Senate could vote as soon as next week. (Addendum: Now the Senate has passed and President Biden has signed it into law.) ）
In addition to campaign contributions, Mr. Yas has funded a major advocacy campaign through the Libertarian Growth Club to prevent TikTok from being banned.