Somehow, thousands of pages of sealed court documents relating to the birth of TikTok’s owner, ByteDance, were mistakenly released by a Pennsylvania court. Before they were made secret again, I read them.
The documents — emails, chat transcripts and memos — are a fascinating window into ByteDance’s origins. They show that Susquehanna International Group, the trading firm of the Republican megadonor Jeff Yass, played a bigger role in the company than previously known.
They also tell a new version of the ByteDance origin story, one with fits and starts on the way to becoming one of the world’s most highly valued start-ups.
ByteDance grew out of a Chinese real estate site.
The ByteDance origin story, as we know it, has the ring of Silicon Valley lore. As the story goes, the company’s founder, Zhang Yiming, sketched out the idea on a napkin for an employee of a Susquehanna subsidiary in 2012.
The pitch was so impressive that Susquehanna jumped onboard.
In actuality, the records show, the story begins in earnest years earlier. Susquehanna’s Chinese subsidiary handpicked Mr. Zhang in 2009 to run a real estate start-up called 99Fang. The company had good search technology that was supposed to match buyers with their perfect properties.
The company ultimately fizzled, and in 2012, Mr. Zhang wrote in an email that he was bored with real estate. He and Susquehanna stayed in contact as he developed the idea for ByteDance, which he called a “brother enterprise” to the real estate company.
Instead of matching buyers with homes, he proposed matching users with blooper videos and lifestyle content.
While still at 99Fang, the documents show, Mr. Zhang created two prototype apps: Funny Pictures and Pretty Babes. They were a hit.
ByteDance was originally called Xiangping.
An early investment memo describes plans for a company that sounds, well, a lot like TikTok.
Originally called Xiangping, which roughly translates to “share comments,” the new company was based on a simple idea: Instead of having users choose people or groups to follow, Xiangping would mine their data and select content for them.
The goal was to “pick the hottest information to jump-start the viral spreading,” reads the memo, which was prepared by Susquehanna’s Chinese subsidiary.
The documents are “remarkable,” Andrew Collier, the managing director at Orient Capital Research, told me. Although the project was clearly in flux, he added, the letter “outlines a business plan for a company that does sound a lot like the current-day TikTok.”
Mr. Zhang became the company’s founder.
Where did the TikTok technology come from?
Two former contractors are suing Susquehanna, accusing the firm of taking cutting-edge search technology to ByteDance without compensating them.
Susquehanna denies that and is fighting the lawsuit. And it is clear that the TikTok algorithm — which serves up videos that keep people scrolling — evolved over the years.
But the documents do show that ByteDance emerged from Susquehanna’s earlier investment in 99Fang. Whether the technology did, too, is a question that could end up before a jury.
Yass’s firm bet small and won big.
In 2012, Susquehanna’s Chinese subsidiary valued ByteDance at about $9 million. And it invested a little over $2 million in early money in the idea. It later contributed “hundreds of millions” more, according to court filings.
Today, the company is worth $225 billion, according to CB Insights, a firm that tracks venture capital and start-ups.
It was the venture capital equivalent of a home run.
That payoff is at risk.
Some U.S. lawmakers have raised concerns about national security. They say that TikTok has too much data on Americans and that ByteDance, a Chinese company, could use its algorithm to feed disinformation and propaganda to users.
Congress is debating a bill that would either ban TikTok in the United States or force ByteDance to sell the app.
That would be devastating to Susquehanna, which, according to reporting by The New York Times and others, owns a roughly 15 percent stake in ByteDance.
Mr. Yass is financing a libertarian group that is defending TikTok. He is also the largest donor this election cycle, with more than $46 million in contributions through the end of last year, according to OpenSecrets, a research group that tracks money in politics.
The documents are sealed again.
After reading the records, my colleague and I began asking people for comment. Lawyers for Susquehanna responded, saying the documents should not have been made public. They contacted the court, and the documents were sealed again.
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