Silicon Valley Legal Bible（17）Douyin's Road to De-Byteisation｜ByteDance Shareholding Structure Explained
When it comes to Douyin's reorganisation of its international structure, "de-bytarisation" has been a key word throughout. Douyin's road to "de-byte-isation" began in 2021 and lasted three years, with a three-pronged approach of company name change, shareholder bloodletting, and management changes until early 2023, when Shou Zi Chew ceased to serve as Chief Financial Officer (CFO)/Chief Financial Officer (CFO) of ByteDance and assumed the full-time role of TikTok's CFO. ByteDance's new global structure takes shape in early 2023, when Shou Zi Chew ceases to be ByteDance's Chief Financial Officer (CFO) and becomes TikTok's Chief Executive Officer (CEO) on a full-time basis. ByteDance's reorganisation is arguably the biggest corporate move of any of today's giants. So why is Zhang Yiming taking a back seat? And is there a deeper meaning to the fact that all but Sequoia Capital China are US-funded? Is ByteDance, Douyin, TikTok, Feishu, Lark still the same company? Let's take a look at Douyin's "de-byte-isation" today.
Silicon Valley's 42 chapters, a legal encyclopaedia for founders. I'm Liu Xiaoxiao, a U.S. attorney, and I'm here in Silicon Valley to provide you with an in-depth explanation of the legal logic behind entrepreneurship.
1. Company name change
In May 2022, Jitterbug (Douyin) made the following three major moves in quick succession:
Beijing-based ByteDance Co., Ltd. changed its name to Douyin Co.
Beijing ByteDance Information Service Co., Ltd. changed its name to Beijing Douyin Information Service Co.
Bytedance (Hongkong) Limited changed its name to Douyin Group (HK) Ltd.
You'll notice that all the "bytes" in the company name have been changed to "Jitterbug". This shows the group's determination to "de-byte" the company.
After the name change, under the name of ByteDance Ltd. (Cayman), the global business of ByteDance has been divided into several segments, just like the idea of trademark and brand operation, with different types of business having their own trademarks and brand names.
Most of the China operations are under the name Douyin Group (HK) Ltd. to distinguish them from overseas operations such as TikTok and Lark.
The underlying reason for ByteDance's "de-byte-isation" is to prepare for its spin-off, which we'll have a special video on later. In the past, people thought of the company as ByteDance, with Douyin, TikTok, Feishu, and Lark underneath, so ByteDance's IPO would be seen as a family affair. Now that the main Chinese entities in the company's structure have been renamed from "Byte" to "Jitterbug," it's reasonable to assume that all ByteDance affiliates will use the name "Jitterbug" in its next listing in China. "Jieyin" instead of "Byte" for all of ByteDance's affiliates in the upcoming listing process in China. This is a very clever move to further reinforce the public's perception that Douyin and TikTok are two different companies.
2. Management change
The company's name change is a blatant "de-byteisation" of Douyin that we can all see, but before that, Douyin had already been making some small moves, "openly repairing the stack road and secretly carrying out a warehouse". The structure is adjusted.
As early as 2021, Zhang Yiming already announced that he would quit ByteDance, and began to gradually transfer power to Liang Rupo. Officially, Zhang Yiming retired from ByteDance because he wanted to "focus on long-term important things such as visionary strategy, corporate culture and social responsibility". What about this statement, is not exactly a grandiose statement, Zhang Yiming has long realised that ByteDance can not miss the wave of artificial intelligence. To that end, on 22 May 2023, Zhang Yiming founded Cool River Venture in Hong Kong, with Zhang Yiming as the sole director and Galaxy LLC as the sole shareholder. The address of Cool River Venture's registered office is the address of the Hong Kong office of their law firm, Baker McKenzie, so it is clear that Cool River Venture has not yet set up a physical office, and it can be surmised that ByteDance is still very much in the early stages of developing its AI business. Artificial Intelligence business development is still at a very early stage.
But from a legal point of view, it should be said that Zhang Yiming's exit is still more in line with the structure of the byte jumping (ByteDance) split - not only the business sector to split, once a hand also to retire, since the byte jumping (ByteDance) changed to jittery sound (Douyin), then the new structure should not continue to use the once overriding supreme emperor in charge, so that people can completely dispel the doubts. Then under the new structure should not continue to use the once above all byte jumping (ByteDance) of the emperor in charge, which can make people completely dispel doubts.
Including the beginning of 2023, Zhou Shouzhi on behalf of TikTok to accept the U.S. Congress questioning, also let people see, byte jumping (ByteDance) is no longer a behemoth as a whole, but split into different small departments.
But ByteDance has not had a good time without Zhang Yiming.
At first, Zhang Yiming handed over his shift to Liang Rupo.
Liang Rupo, who is he? Technical engineer, product development origin, his main work is Feishu (Feishu). After Liang Rupo took over, he elevated the status of 2B businesses such as Feishu and Volcano Engine, and did not want to bet the future on Douyin's traffic business. But less than a year later, in February 2022, Liang Rupo ceased to be the legal representative, executive director, and manager of Beijing Weibo Shijie Technology Co. Technology Co., Ltd. and other companies.
What about ByteDance after that? Ren Lifeng is back on board.
Who is Ren Lifeng? Ren Lifeng, who comes from an operations background, is mainly known for his work on Jitterbug (Douyin). I just said that Liang Rupo didn't want to develop Douyin, but Ren Lifeng came up and wanted to develop Douyin again. But also good times do not last long, this time it is only a year and a half, by December 2023, Ren Lifeng stepped down as Beijing Weibo Shijie Technology Co., Ltd (Beijing Weibo Shijie Technology Co., Ltd) legal representative, executive director, manager, and at the same time stepped down the other Shake Voice Group (Douyin Group) companies, including Beijing Birdie see (PICO Technology, Ltd.) as vice president, and currently has no position.
Such a three years twice a hand change of things let a person is incredible also have different opinions. So what is the mystery behind this? Liang Rupo left, he is not like Zhang Yiming, all the position of a brain to the next person, but according to the company's business different assignments are not the same person, which is byte jumping (ByteDance) structure split, the power of the inevitable consequences of sinking. Therefore, many people feel that they are "relegated", such as Ren Lifeng, although he went to Beijing Weibo Shijie Technology Co. Ltd. as Chief Executive Officer/CEO, but the actual authority is much worse than that of Liang Rupo, so Ren Lifeng's working condition is more negative, and later he ran away directly. Wang Di, who succeeded Ren Lifeng, is basically a passer-by.
3. Shareholders change blood
3.1 Founder's shares
Just said Zhang Yiming quit ByteDance (ByteDance)? As the founder and largest shareholder of ByteDance, Zhang Yiming's exit not only means a change in management, but also largely affects the shareholding structure of ByteDance.
If we take a look at the shareholding structure of ByteDance, we will find that, although it is a typical agreement control (Variable Interest Entity/VIE) structure overall, it is not entirely, and there are a lot of small structures interspersed within.
Another secret to tell you, even ByteDance, the commonplace agreement control (Variable Interest Entity/VIE) structure, is actually still a half-baked state until 2023, why? The shareholders of Douyin Co., Ltd., a wholly foreign-owned enterprise registered in Beijing, are all natural persons, mainly held by Zhang Yiming, and the relationship with other companies is also in the same controller, and there is no shareholding pledge agreement, so Douyin Co., Ltd. is actually not a Variable Interest Entity/VIE structure. Interest Entity/VIE) structure.
It was not until 19 January 2023, with Zhang Yiming exiting his shareholding and transferring all 98.8% of the shares of Douyin Co., Ltd. to the newly established Xiamen Xingchen Qidian Technology Co., Ltd. which was established a few months or so earlier, while Xiamen Xingchen Qidian Co. At the same time, Xiamen Xingchen Qidian Technology Co., Ltd. and Douyin Group (HK) Ltd., a Wholly Foreign Owned Enterprise (WFOE), which is 100% owned by Douyin Group (HK) Ltd. (Douyin Vision Co., Ltd.), a wholly foreign owned enterprise (WFOE) in which Douyin Group (HK) Ltd. holds 100% control, entered into a share pledge agreement. This is where the Variable Interest Entity (VIE) structure takes full shape. From here, we can also see that the company structure is a dynamic development process, even if we see this kind of giant companies, the company structure is also in a long time in an unfinished state.
3.2 Investor Shares
We have just talked about the changes in the common shares of the founders, and then we will look at the preferred shares of the investors.
Looking at the shareholding structure chart, ByteDance Ltd. (Cayman) today has three out of four shareholders who are representatives of US-based investment organisations.
Arthur Dantchik is from US fintech firm Susquehanna International Group.
Bill Ford from US private equity fund General Altantic.
Philippe Laffont from US investment organisation Coatue Management.
There is only one representative of Sequoia Capital China, Neil Shen, based in Hong Kong.
It's also clear from this that ByteDance was planning to list overseas, so it naturally rejected investment from China. If you've actually taken an investment, you'll know that getting an investment isn't just about getting monetary support, it's also about getting resources. Where you want to go public, you have to climb as much as possible on the resources of investors in this place, often your B round of investors are introduced by A round of investors, C round of investors are introduced by B round of investors. Once you get on an investor's boat, you're basically in an investor's gang, and the impact is huge.
The Silicon Valley Treasure Book of Forty-Two Chapters, a legal encyclopaedia tailored for founders. I'm U.S. attorney Liu Xiaoxiao, and we'll see you in the next issue.
