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What happens to DiDi now?

What happens to DiDi now?

Good morning! This Wednesday, DiDi is in hot water with the Chinese government, Nextdoor gets SPAC'd, the Pentagon drops its JEDI contract, and Aaron Levie's in a fight for his life at Box.

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The Big Story

DiDi's paradox

Since Alibaba's smashing 2014 debut on the New York Stock Exchange netted $25 billion , investors have salivated at the chance to buy into China's growth story, with dozens of Chinese companies raising $12.4 billion in the first half of this year alone. Now investors are learning the hard way that purchasing shares in a Chinese company also means being subject to its ever-growing regulatory risks.

It's now ride-hailing giant DiDi's turn in the spotlight ... for better and for worse. Just two days after going public on the NYSE and raising $4.4 billion , the company announced it was under investigation by China's Cyberspace Administration as it conducts a review of the company's data infrastructure.

  • Not only that — the administration ordered DiDi be kicked off Chinese app stores and blocked from registering new users in its home country as a result, a devastating setback for a growth-focused technology company.
  • As of this writing, DiDi shares are down about 11% from their offering price.

Powerful Chinese tech firms like Alibaba, Tencent and DiDi own detailed, real-time dashboards into major portions of Chinese life. They include everything, from what people want and buy to what they tell their friends in private to where they're going each day.

  • The Party wants to be sure it can see those dashboards, and that no one else outside the companies can.
  • As Eurasia Group tech expert Xiaomeng Lu told Protocol: "It sends a signal that Beijing is uncomfortable with Chinese tech companies' overseas listings, particularly those that may involve data-related national security implications."

DiDi's facing an impossible paradox. In the U.S., Chinese companies like DiDi face the risk of being delisted for not disclosing enough information — particularly after the passage of the Holding Foreign Companies Accountable Act, which requires companies to certify that they aren't "owned or controlled by a foreign government." But back in China, the companies may violate domestic laws by complying with U.S. disclosure rules — particularly around the sensitive question of cybersecurity.

  • DiDi's current troubles stem from China's Cybersecurity Review Measures, which were finalized in April 2020 .
  • It's part of a broad data security apparatus that Beijing is actively building. Cybersecurity reviews primarily evaluate the national security implications of the procuring and installing of "network products and services" by operators who are deemed to be "critical information infrastructure operators," of which DiDi is one.
  • The requirement that DiDi disclose its tech vendors to U.S. investors may have heightened Chinese regulators' concerns about their vulnerabilities.

More Chinese firms will IPO in the U.S. in the future, but their stars are surely dimmed. China's a huge market, rife with talent and home to many companies with innovative products and exciting growth stories. But regulatory troubles and Beijing's growing hostility to tech listings abroad means a lot of "hair" on these offerings — meaning lower valuations stateside and a higher likelihood that China's tech darlings look to Hong Kong or Shanghai instead.

Shen Lu ( email | twitter ) and David Wertime ( email | twitter )

A version of this story will be in today's China newsletter. Sign up here to get access.

A MESSAGE FROM MICRON

Recently, Micron announced new memory and storage innovations across its portfolio based on its industry-leading 176-layer NAND and 1α (1-alpha) DRAM technology. But what does "1α" mean, and just how amazing is it?

Learn more

People Are Talking

Tech talent is everywhere, Pittsburgh Mayor Bill Peduto said, but the VC industry still isn't :

  • "Part of it is a psychological belief that investors from the coast need to move a company to the coast to guarantee their success. What they're doing is raising all the incremental costs that have nothing to do with its technology. They're wasting funds on everything from rent to the cost of food."

Getting hit by ransomware "totally sucks," Kaseya's Fred Voccola said, and it's going to happen to everyone:

  • "One of the phrases I've heard from a lot of the government agencies, and agencies like FireEye … is that it's not a matter of if, it's a matter of when. It's true."

The moment for Big Tech reform is right now , Rep. Ken Buck said, and time's a-wasting:

  • "What Big Tech wants is to run the clock. If they can get to the end of this Congress and if Republicans are in charge who don't like these bills, these bills will never hit the floor. This is the opportunity to get this passed."

Spotify was never about artists making money , former exec Jim Anderson said at a music conference:

  • "I think Taylor Swift doesn't need .00001 more a stream. The problem is this: Spotify was created to solve a problem. The problem was this: piracy and music distribution. The problem was to get artists' music out there. The problem was not to pay people money."

Making Moves

Nextdoor is going public. It's merging with a Khosla-backed SPAC , and will be valued at about $4.3 billion in the deal.

Ursula Burns is Teneo's new board chair . The former Xerox CEO has also been a financial adviser to the company for the past few years.

Starboard is trying to get Aaron Levie fired from Box . The two sides are in a fight over board seats and the overall direction of the company, and the fight is spilling out into a proxy battle ahead of a shareholder meeting.

The Center for Tech Diplomacy at Purdue think tank is launching today to focus on 5G, AI, semiconductors, digital currency, cybersecurity and other tech issues in U.S. foreign policy. Mung Chiang is its first director, and Keith Krach will be chair of the advisory board.

In Other News

  • Project JEDI is no longer. The Pentagon dropped its $10 billion contract with Microsoft following legal challenges by Amazon. Government officials will instead try to strike a deal among multiple vendors to run the program. That, or there's an epic set of "Return of the JEDI" headlines coming soon.
  • The RNC may have been hacked. The hacker group known as Cozy Bear got into the Republican National Committee computer systems last week, Bloomberg reported. That same group was also suspected of breaching Democratic National Convention computer systems in 2016, and SolarWinds more recently.
  • Vietnamese workers are living at the factories where they work . In order to keep the supply chain running, about 150,000 people who build products for Samsung, Apple and others are living in tents and bunk beds in order to prevent a COVID outbreak, according to Bloomberg.
  • Private jets are causing a ruckus in Sun Valley . All the air traffic coming in and out of the Allen & Co. conference jammed the airport so badly the FAA even halted flights at other airports until all those Bombardiers and Gulfstreams landed.
  • On Protocol: Y Combinator made a Tinder for founders. Only not quite as romantic. People fill out a profile explaining what they're looking for in a co-founder, and the service finds a match. About 9,000 matches have been made so far.
  • Twitter lost its liability protection in India. A court ruling said it isn't following the country's new IT rules , which say Twitter is now responsible for everything its 100 million users in India post.
  • Google employees are getting some perks back . The company is restarting pre-pandemic services, like bus rides to work and cafeterias, as employees gradually head back to their California offices.
  • There's a new Nintendo Switch ! Sort of. The Nintendo Switch (OLED model) — quite a name, really — is mostly just more proof that Nintendo doesn't need to change its winning formula .

One More Thing

Your summer startup reads

Since it's officially vacation season, we thought we'd use this section for a while to help you while away the dog days with some good books, documentaries, podcasts and other fun things. Some may relate to work, some may not, but all will be fun.

First up is a running list of books about how startups went public , sparked by a tweet from Yehong Zhu. There's a Ph.D. in founder-ing for anyone who reads them all, but here are a few popular ones from the thread to get you started: " The Perfect Store ," a book about eBay's roots by Adam Cohen; Sam Walton's " Made in America " on the Walmart story; and " Hatching Twitter " by Nick Bilton.

Do you have any recs to add? Reply to this email and let us know! We'll be here all summer.

A MESSAGE FROM MICRON

Recently, Micron announced new memory and storage innovations across its portfolio based on its industry-leading 176-layer NAND and 1α (1-alpha) DRAM technology. But what does "1α" mean, and just how amazing is it?

Learn more

Thoughts, questions, tips? Send them to sourcecode@protocol.com, or our tips line, tips@protocol.com. Enjoy your day; see you tomorrow.

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