Americans invested billions in Chinese companies. Now their money is tied up.

When investors talk about “zombie companies,” they usually mean ailing startups that just coast along, unable to grow and unlikely to ever return the money they raise.

But as dealmakers feverishly debated lawmakers’ efforts this week to force TikTok’s Chinese parent company, ByteDance, to sell the app, they talked about a new version: Chinese zombies.

China’s zombies may have thriving businesses, but they are unlikely to deliver immediate returns to investors because they are caught in a geopolitical crosshairs.

It’s not just the investors in ByteDance who, after handing it more than $8 billion, are stuck. What seemed like a massive growth opportunity just a few years ago – inspiring investors to pour money into companies like Ant Financial, PingPong and Geekplus – has turned hostile.

“There are others like ByteDance,” Evan Chuck, a partner at consulting firm Crowell, said of companies with investors that may be in this position. “It’s only going to continue to warm up.”

Selling is increasingly a matter of long-term commitment. Take TikTok. Even if ByteDance puts the app up for sale, it’s unlikely the Chinese government will allow the company’s most valuable asset, its recommendation algorithm, to be included. The country introduced new export control rules for technologies like that algorithm in 2020, just as TikTok was nearing a deal with U.S. buyers (which ultimately fell apart).

Jonathan Knee, a professor at Columbia Business School and an adviser at the investment bank Evercore, said any company that acquires TikTok would most likely own the brand, but not the underlying software and algorithms. He compared buying TikTok without its algorithm to Buy Hulu without the rights to its content. “It’s not entirely clear what you’re buying,” he said.

Many other Chinese tech companies would face similar hurdles if they tried to sell to a U.S. buyer. And China’s slowing economy has depressed company valuations, making a sale there unattractive to investors. The number of Chinese companies acquired last year, 3,151, was half of the 2019 total of 6,341, according to financial data firm Dealogic.

IPOs have become difficult. Few Chinese companies have listed in the United States since taxi giant Didi delisted its shares from the New York Stock Exchange amid a crackdown by Chinese regulators just months after its 2021 IPO. Chinese start-ups that have delisted shares on US stock exchanges fell from around 18 annually between 2018 and 2021 to just three in 2022, according to PitchBookthat follows start-ups.

Listings on the Chinese stock exchanges are also increasingly strictly controlled. The country’s market regulator vowed this week to tighten supervision of domestic stock exchange listings in light of the collapse of China’s stock market.

Billions of dollars are at stake. According to PitchBook, venture investors poured nearly $47 billion into Chinese companies in 2021. It’s not just venture capital that’s at risk. U.S. government pensions and college endowments invested about $146 billion between 2018 and 2022, according to Future Union, an advocacy group focused on exploring U.S. investments abroad.

But there is little reason to sell quickly to a local partner under duress. “Ultimately there has to be an exit option – the question is timing,” said Andrew King, who wrote the Future Union report. And given the high returns that investors in companies like ByteDance could earn without geopolitical pressure, he added, “they probably won’t want to take shortcuts.”

Investors have other routes to liquidity, such as borrowing against their investment. Investors could also wait for relations between China and the United States to improve, or bet that China values ​​the capital injection that a major deal could bring more than geopolitics.

But above all, Jonathan Rouner, head of international mergers and acquisitions at Nomura, told DealBook: “their hands are tied.” –Lauren Hirsch

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Revisiting HP’s disastrous deal

Over the past thirty years, Hewlett-Packard has made some of the most disastrous deals in Silicon Valley. One of them – his Acquisition of Autonomy for $11 billion in 2011 – will come into focus on Monday when the criminal fraud trial against Mike Lynch, the founder of the British software company, is set to begin.

HP has said it wrote down the deal by $8.8 billion due to fraud. But as DealBook’s Michael de la Merced writes, Lynch’s defense will stop at undoing the common wisdom that Autonomy cheated HP.

Most remember Autonomy as an embarrassing chapter for HP. The deal was orchestrated by Léo Apotheker, who as CEO of HP tried to transform the company into a cutting-edge software company. A key to that plan was buying Autonomy, which focused on data analytics.

But Wall Street revolted shortly after the deal was announced, and Apotheker was fired a month later. (James Stewart of the New York Times once called him a contender for worst tech CEO in history.) Lynch was fired in May 2012. In November, HP took an $8.8 billion accounting charge related to autonomy, citing “accounting irregularities” such as the backdating of contracts and the mischaracterization of hardware sales to boost revenues.

Lynch has attempted to offer an alternative account. He has blamed senior executives who clashed with him — including Meg Whitman, who replaced Apotheker as HP CEO — for Autonomy’s breakup. His lawyers have argued that HP executives, for example, knew about the hardware sales and failed to raise them as an issue.

They have pointed to internal emails showing varying calculations of Autonomy’s value, at one point estimating its value at more than $11 billion.

The autonomy agreement had lasting consequences. It was a huge black eye for HP, which has since been overshadowed by the likes of Alphabet and Meta.

And Lynch, once dubbed Britain’s Bill Gates, has been repeatedly defeated in court over the years. If he loses the American criminal trial, he risks a prison sentence of twenty years.

The curse of ‘pseudo-productivity’

Few know more about “productivity” than Cal Newport, who has published several books and hosts a popular podcast on the subject. His latest book, ‘Slow Productivity: The Lost Art of Accomplishment Without Burnout’, is a loud call for employees overwhelmed by meetings, email and messaging apps to rethink the way they work. He spoke to DealBook about why ‘slow productivity’ not only works for employees, but for companies too. The interview has been shortened and edited.

How is it okay to do fewer things for your boss?

When you agree to do something, it involves administrative overhead: emails and meetings related to that commitment. When you have too many things on your plate, you spend so much of your day talking about your work that you have very little uninterrupted time to actually do it. And the speed at which you complete things can really drop dramatically. So paradoxically, working on a small number of projects speeds up the speed at which you finish things.

This is not a zero-sum dynamic; it’s not like I’m going to make my life easier at the expense of making my employer’s bottom line worse. It makes everyone’s life better.

You’ve written that hybrid work can exacerbate administrative overhead. Many people also see hybrid work as a way to provide some relief from the unnecessary grind of corporate life. Which one is it?

With hybrid working as it is currently implemented, you do not suffer from pseudo-productivity, because you can make the effort digitally visible. The way to make hybrid work work is to say you’re at home, no meetings, no email. Home days should actually have complete intellectual flexibility. You focus on what matters, and then we can meet on office days.

What can leaders do to ensure that employees do meaningful work?

I would say: “We’re going to be explicit about the workload, and how many things you have to actively work on, and how we’re going to keep track of that, and how we’re going to ensure that you don’t have too much going on at once.”

Some executives may view such an initiative as light-hearted. They believe that they will achieve better results if employees work long hours and are overloaded. How would you convince them that they will actually make more money this way?

If you want to prove that you or your employees are tough, install a pull-up bar. But if you really want to produce good stuff, you want people to focus like a laser on one thing at a time, do the best work they are capable of, and then move on to the next thing. Being on email or Slack all day doesn’t prove you’re difficult. It’s just a demonstration that your organization is relatively haphazard in the way it does business.

Thank you for reading! We’ll see you Monday.

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