TikTok faces well-funded rivals, regulatory scrutiny in U.S.

As the controversial social media company TikTok faces scrutiny from the U.S. government and possible closure, one of its chief rivals is wasting no time to try and overtake it by raising hundreds of millions of dollars and stealing users FOX Business has learned.

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Triller, an American rival to TikTok based in Los Angeles has commitments from investors of $200 million to $300 million. Triller plans to use the funds to raise awareness of its platform, enhance service quality, and attract content creators through possible direct payments, according to two people with direct knowledge of the matter.

The fundraising effort is operating in the private security market – this is where businesses do not need to make various disclosures required in the public markets. Farvahar Partners, a boutique merchant bank, is one of the leaders in the endeavor. Farvahar Partners is run by former Bank of America executive Omeed Malik.

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Despite regulatory scrutiny from the Trump administration, which believes TikTok is a tool the Chinese government is using to spy on Americans, TikTok is still the most popular provider of short videos in the world. Tiktok has 800 million active users worldwide.

But Triller, while trailing, is moving fast to catch up. A self-described “social video community where you can show the world who you are,” Triller has had its app downloaded 150 million times and boasts 65 million active users a month. Plus, the Los Angeles Times reported Tuesday that several top creators are leaving TikTok for Triller.

Triller declined to comment on these developments but did not deny it has raised hundreds of millions.

Beyond Triller, TikTok finds itself in the crosshairs of several tech players. Social network giant Facebook, Inc. is also looking to get into the short video space by launching its service, Reels, next month.

According to the Wall Street Journal, Facebook is offering money to top creators to join its fledgling service. Facebook unveiled a similar service, Lasso, in 2018 that failed to catch on.

While TikTok is a formidable competitor, people close to Triller believe it’s well-positioned to replace TikTok.

“Triller represents a form of patriotic capitalism -- national interest and excellent returns should not be mutually exclusive,” Farvahar Partners' Malik tells FOX Business,  “Moreover, even as it relates to other US apps, creators want their followers to be on a site that respects user privacy and doesn’t implement censorship. Triller doesn’t have the same historical issues Facebook does on such matters.”

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As Triller is building out its platform and raising millions and Facebook prepares to launch Reels, TikTok is weighing alternatives including selling itself to a U.S. company. TikTok is owned by Chinese parent company ByteDance. Under Chinese law, most Chinese companies are forced to share data with the People’s Republic of China—one of America’s biggest geopolitical foes.

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This data sharing arrangement has brought bipartisan criticism of the app and has heightened scrutiny and increased the possibility it may be banned in the U.S.

Presumptive Democratic nominee Joe Biden announced Tuesday that campaign employees would have to delete TikTok off their phones. The U.S. Senate is also moving to enact legislation that would ban TikTok on all federal devices.

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In a comment to FOX Business TikTok said, "Given that Lasso shut down due to lack of excitement, it’s not surprising that Facebook is trying this tactic with a product tied to Instagram. It is a playbook the industry has seen from them before. The bottom line is that millions of people genuinely love the authentic and inclusive TikTok experience, and that's something you can't simply copy.”

TikTok did not comment on Triller or heightened U.S. scrutiny.

In response to the ongoing concerns, TikTok has taken steps to try and assuage federal regulators. In March it opened a transparency center in Los Angeles to allow U.S. officials to monitor its security and data collection practices. Two months later, TikTok hired former Disney executive Kevin Mayer as CEO to ramp up its appeal to American audiences.

Also in May, TikTok released a statement that parent company ByteDance was now headquartered in the Cayman Islands, a move designed to show U.S. officials it is trying to distance itself from China.

Still, these efforts do not appear to resolve underlying security issues. Company officials are now said to be considering a possible sale or spinoff as well as a possible IPO. 

But any option presents obstacles. For a successful spinoff, it would need very deep-pocketed buyers. ByteDance is estimated to be worth $100 billion and TikTok is likely worth somewhere in the range of $20 billion to $100 billion according to Wall Street estimates.

Some private equity companies are said to be interested, but the price tag may be out of their reach. Also, to eliminate regulatory concerns, a buyer would have to purchase the entire asset and not just invest.

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Tech companies, such as Facebook and Google, could easily shell out the money to purchase TikTok, but both are facing several of their own hurdles as regulators are examining possible antitrust violations. These types of investigations could mean those companies will not be allowed to grow larger.

As for a TikTok IPO, this would come as U.Ss stock exchanges are tightening listings qualifications and cracking down on Chinese companies. Going public also demands large disclosures that have prevented some other international companies, such as Saudi Arabia’s oil giant Aramco from listing in the U.S.

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