Past Performance is No Guarantee for Future Results: Tik Tok and Its Rise Through the App Store

Occasionally, the results are far greater than what one can predict.

Here is our story on Tik Tok and an important lesson learned:

Monday, July 6th 2015

My Partner Tom sent me and my Partner Jett email:

Zooming into the chart. Within three months, the app had gone from outside of the top 1,500 apps in the U.S. to 5th overall in the U.S. on July 5th.

By the time Tom sent that email, they were adding over 350,000 U.S. iOS installs a day and were number one overall in the U.S.

As an early-stage consumer-focused venture capitalist, there is nothing greater than seeing a consumer app, with social network-like potential, rising to the top of the app store so quickly. They were beating all of the heavyweights: FB Messenger, Instagram, Pinterest, Netflix, Snapchat, Spotify.

When something like this happens, this is our Super Bowl. We will do whatever it takes to get a look at investing.

In App Annie, the historical charts are updated with the new app name. In this case it has been changed from to TikTok.

Tuesday, July 7th, 2015

We had tried every way to get in touch with the team. Fortunately, the President of the company, Alex Hofmann, responded to an email we sent to their info@ email address.

Following a quick call and some validation of the numbers, we asked Alex, who was based in Palo Alto, to meet in person on Wednesday in San Francisco.

Wednesday, July 8th 2015

It turned out that the Co-Founders of the business were based in Shanghai. We asked for engagement data and then asked if our Partner in Asia, Akio Tanaka, could meet with the Co-Founders the next day in Shanghai.

Thursday, July 9th

By the time Akio received our email it was the morning on Thursday for him. Upon review, he cancelled all of his meetings in Beijing and flew to Shanghai to meet with the team that night. The company was operating out of the CEO’s home in a suburb of Shanghai. It turned out that they were launching the Android version of the app that evening.

Following his meeting, we hopped on a quick call that morning (Akio’s night). At this point, it became clear that we needed to make a decision within the next day.

The Deal

Given the hysteria around the growth, the company said it was “raising a $10M round at a $100M post-money valuation.” What that means in founder/VC speak is that the “Buy it Now” price is such.

Making a Decision

As one can imagine, there is a lot of analysis that goes into making an investment decision on a $10M check. In addition to the data provided from the data request above, we needed to check several boxes: Is the team good enough to scale the infrastructure for something like this? How does the engagement compare to that of other social apps? Is this a feature or a real platform? How reliant has the growth been on Instagram? Are there music rights issues? How much upside is there? Can the growth continue? Some of these we would be able to resolve, but many we would not.

On the risk and reward, investing in a social application is a) entirely binary and b) potentially the most lucrative investment one can make, even at a $100M valuation. Accel investing in Facebook at a $100M valuation is the ultimate example.

We felt quite good about the engagement, but our big worry was the pace at which the app moved up the app store.

Two things were on our mind:

  1. At the time, the apps that had the longest staying power in the app store had taken well over a year to reach the top 10 and most of them had grown consistently during that time. Snapchat, for example, took nine months from entering the top 1,500 before reaching the top 10. on the other hand, had done this in 2.5 months.
  2. Is this just a flash in the pan? Building a social network is a bit like building a sandcastle, without a solid and widening base it is difficult to ultimately maintain the growth. With this in mind, we were worried that the users were not sufficiently devoted to spending their time on the app. We had seen Yik Yak the prior summer, and had seen how fast that had fallen after growing so quickly. That business was seasonal (focused on college kids), so some drop was to be expected, but they were unable to maintain their position within the top 10.

Given these concerns, our then in-house data-scientist Morten Hustveit, decided to run an app store analysis and looked at the performance of every app that had grown at the same pace as


We passed.

Our data said that it was unlikely for an app to grow that quickly and have it actually stay at the top. There was more depth to the decision than the ranking history itself:

  1. We felt as though it could just be a utility (the amount of time each user spent in the app per day was still pretty low at the time)
  2. Was this just riding the Instagram “rails” to the top of the app store? Folks were posting their videos on Instagram, which was driving installs. Given that Instagram controls what is displayed, this was a big risk
  3. The app did not have the traditional communication features that the top social networks have

We Were Right

For three years, we felt pretty good about the decision. Although a mainstay in the U.S. top 100, it was not a consistent top 10 performer, which is where the majority of enterprise value accrues. For example, today (March 27th, 2020) in the top ten apps we have Facebook Messenger, Instagram, Disney +, Zoom, and Netflix.

We Were Wrong

On November 9th, 2017, was acquired by Bytedance, a Chinese social networking company, for ~$1B. Within ten months, they merged with another one of their apps called TikTok. The app has been on a run ever since (3M U.S. iOS installs a month) and appears to have real staying power. Bytedance has been valued in the private markets at $78B.

The Learning

We are in the business of investing in outliers. By comparing a company to that of its predecessors, one loses sight of what it can be, and focuses too much on what it will likely be.

An outlier will inherently not have performed like everyone else that came before it.

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Brendan Wales is a Partner at (, a global venture capital firm with offices in San Francisco, Berlin, Sao Paulo, Tokyo, and Beijing. Since joining in 2012, he has invested in companies such as Segment, Acorns, Shipt, HousecallPro,, and Shopmonkey.