ByteDance, the China-headquartered owner of short-form video app TikTok, has closed its corporate venturing unit, according to media reports from a variety of news outlets today.
News of the move comes on the same day as sources familiar with the matter told Reuters the Chinese government has drafted proposals requiring large internet companies to explicitly seek regulatory approval for any investments.
Founded in 2012, ByteDance has built an offering that includes online properties TikTok (known as Douyin in China), news and information aggregator Toutiao and video sharing platform Xigua Video.
While traditionally not on the level of peers such as internet groups Tencent and Baidu or e-commerce firm Alibaba, ByteDance had ramped up the pace of its investments and has participated in 49 funding deals since the start of 2021 according to Pitchbook data.
In addition to its investments, the company’s exits have included electric vehicle maker Li Auto, which floated in a $1.1bn initial public offering in mid-2020.
The company elected to disband its investment team following a strategic review at the start of this year that came in the wake of its founder, Zhang Yiming, stepping down as CEO in May 2021 and as chairman in November.
A ByteDance spokesperson told CNBC the decision was made to “strengthen the focus of the business, reduce investments with low connection (to the main business) and disperse employees from the strategic investment department to various lines of business”.
The news was put into perspective with proposals released by Cyberspace Administration of China today recommending that any strategic investments made by large internet companies should be approved by the government beforehand.
The proposals would apply to any internet company with more than 100 million users or with more than RMB10bn ($1.6bn) in revenue as well as any placed on the negative list by China’s National Development and Reform Commission last month. They have reportedly been shared with some of the country’s largest internet companies but remain in the draft stage.
Chinese corporates are already divesting assets. Alibaba has sold off interests in media companies such as South China Morning Post and Mango Excellent Media in the past year. Tencent revealed last month it is divesting $16.4bn of shares in e-commerce group JD.com and said earlier this month it will sell $3bn in shares of Singapore-headquartered internet group Sea.
Measures governing investment follow similar crackdowns on merger and acquisition activity, with Alibaba, Tencent and online video platform developer Bilibili all being levied with fines two weeks ago for not disclosing acquisition deals.
The extent to which ByteDance’s investments will be hamstrung by the lack of a dedicated corporate venturing team and the added regulatory burden will become clear over the coming months, but it does set a concerning precedent for China’s corporate venturing space and an internet industry already walking on eggshells.
