The big credit card companies “should have killed us when they could have.” Those were the words of early PayPal employee Todd Pearson in Jimmy Soni’s excellent 2022 book, The Founders: The Story of PayPal, and the Entrepreneurs Who Shaped Silicon Valley.
Not only did the competition not see the future of payments through the unsteady rise of PayPal, neither did the talented within Silicon Valley. As David Sacks (COO of what became PayPal) told Soni, “We had to recruit our friends because no one else would work for us.”
What’s important is that what was true about PayPal’s competition and also about coveted PayPal employees, was also true for PayPal’s investors. They were plainly skeptical simply because per Wall Street Journal columnist (and prominent investor) Andy Kessler, something like 90 percent of technology start-ups fail. Which is why it was lucky PayPal could claim a co-founder in Elon Musk, and the $13 million he invested in the nascent payments start-up.
Yet even then it nearly died quite a few times. Soni describes what ultimately succeeded as “a four-year odyssey of near-failure followed by near-failure.” Musk himself put it more pithily to Soni, that PayPal “was a hard company to keep alive.”
Realistically, every company founded by Musk was incredibly hard to keep alive. Evidence supporting the previous claim can be found in the fact that Musk is presently the world’s richest man. The higher the corporate valuation, the bigger the surprise. Get it?
If so, TikTok’s grand success in the present is similarly telling. That it’s so valuable today speaks volumes about how low the initial odds of it succeeding were.
At which point some are likely asking why a lead-up that’s largely been about PayPal and Elon Musk. What does it have to with TikTok? The answer is nothing and everything. Except that the everything part matters, precisely because it factors into what U.S. courts and the political class are doing to TikTok.
For background, consider the question posed by U.S. Court of Appeals Judge Douglas Ginsburg in September to TikTok’s lawyers. TikTok was appealing a legislative ban by Congress before the Court, and Ginsburg, when addressing TikTok’s “Chinese ownership,” asked “Why is this any different from a constitutional point of view than the statute precluding foreign ownership of a broadcasting license?”
Most pundits and editorial boards pounced on Ginsburg’s question as a damning one for TikTok since it allegedly got right to the point about the company’s foreign ownership. In reality, the question was most useful for exposing the ownership angle as a rather weak one for the American authoritarians so eager to infringe on free speech (and sources of speech) with their attempted ban of TikTok.
That’s the case simply because Chinese technology companies, including TikTok, are almost by definition American owned. To believe otherwise is to believe a nation not far removed from abject poverty is somehow dense with investors eager to not just put wealth to work, but put wealth to work in ventures set to fail with 90 percent regularity. Not very likely.
In reality, the happy rise of Chinese technology is a certain effect of American investment. As Sebastian Mallaby put it in The Power Law, his remarkable history of venture capital, “China’s technology boom was forged to a remarkable extent by American investors.”
What’s true about China’s technology boom broadly is true about TikTok singularly. Its owners are largely American, which from an investment perspective is like saying the sky is blue. TikTok is a technology company that miraculously succeeded against all odds in the U.S. and around the world. Of course its intrepid owners are American. Which brings us back to Elon Musk and Paypal.
As the difficulty of keeping PayPal alive attests, American investors are courageous while at the same time not foolish. When businesses no longer make sense, they pull the plug. And with PayPal they very nearly pulled the plug on it more than once.
Which is the point about TikTok. Not only are its owners already American, can any TikTok critic assert with a remotely straight face that TikTok’s American owners would continue to fund that which is allegedly “a tool of Chinese Communist propaganda”? Hopefully the question answers itself.
