The recent hot public opinion news has pushed Jack Ma and Alibaba to the forefront. Everyone knows that Jack Ma has caused trouble, which has led to Ant Finance's temporary listing, and has temporarily shattered the dreams of those Internet people who are hoping to realize their financial freedom through Ant's listing.
Today we will review Yahoo’s venture capital in Alibaba back then, and see what stages of venture capital have, the characteristics of each stage, and the practical significance of the venture capital.
Before analyzing the venture capital case, let’s talk about a few concepts.
1. What is venture capital?
Visit investment, also known as venture capital, is a professional venture capitalist or investment institution that raises capital from investors (such as wealthy individuals, pension funds, university endowments and enterprises, etc.) and invests these funds into small and medium-sized high-tech enterprises with huge growth potential. By investing and monitoring enterprises, enterprises can help enterprises grow rapidly and develop in an all-round way, and obtain high returns through smooth exit. Venture capital is a key financial force supporting the development of high-tech enterprises and plays a crucial role in the development of high-tech industries.
2. What is the venture capital cycle?
The venture capital cycle is usually divided into: fundraising period, entry period, monitoring period and exit period.
The life cycle of high-tech startups is usually divided into: seed stage, start-up stage, growth stage, expansion stage, maturity stage, Pre-IPO, and post-listing stage. Different stages corresponding to them will generate different venture capital needs. Venture capital VCs are usually required during the seed, start-up and growth stages of high-tech startups; private equity PE investment is usually required during the expansion, maturity, early IPO and after listing.
Next, we analyze the characteristics of different stages of venture capital through Yahoo's venture capital case in Alibaba.
3. Introduction to Alibaba background
Let’s first review Alibaba’s development history (the following information is compiled based on Alibaba’s public annual report).
Alibaba Group (referred to as "Alibaba") is an 18-member entrepreneurial team led by Jack Ma. It started its business operations in Jack Ma’s apartment in Hangzhou in March 1999; on June 28 of the same year, it was registered and established in Cayman in accordance with the Cayman Company Act. Shortly after the company was founded, Alibaba.com was launched one after another. 1688.com and other Internet e-commerce platforms
00 founded in 2003 Taobao
2004 launched Alipay
2007 established monetization platform Alibaba Mama, Alibaba B2B company was listed on the main board of the Hong Kong Stock Exchange in November 2007
2008 launched Tmall
2009 established Alibaba Cloud
2010 launched AliExpress Ali Express and Taobao Appp
Divide Alipay
In 2011, Alibaba privatized, delisted from the Hong Kong Stock Exchange
0 In 2014, it launched Tmall International, acquired UCWeb controlling stake and Gaode controlling stake, and listed on the New York Stock Exchange, Fliggy became an independent business. On the day of listing, Alibaba's IPO price was US$68 per share, with a market valuation of US$500 billion.
In 2015, DingTalk was launched, acquired controlling stake in Alibaba Health, established reputation, launched retail
In 2016, established Hema, privatized Youku, obtained controlling stake in Lazada
In 2017, launched Tmall Genie, obtained controlling stake in Cainiao Network
In 2018, acquired controlling stake in Ele.me
In 2019, acquired controlling stake in Alibaba Pictures, acquired Koala, and obtained 33% of Ant Financial.
While developing core business, Alibaba has also made a series of strategic investments, acquisitions and alliances or established related agreements.
From 1999 to 2005, Alibaba Group conducted multiple rounds of VC and private equity financing, and was favored by many companies such as Goldman Sachs, Huiya Funds, SoftBank , Yahoo, and Alibaba B2B was listed on the main board of the Hong Kong Stock Exchange in November 2007. Five years later, Alibaba withdrew from the Hong Kong Stock Exchange. In September 2014, Alibaba signed an agreement with Yahoo to recover 523 million shares (about 21%) of common shares held by Yahoo, and agreed on a share repurchase plan after listing, and listed on , New York Stock Exchange in the same month.To this day, Alibaba Group's business and business affiliates have included Taobao , Tmall, Juhuasuan, Ali Express (AliExpress), Alibaba International Trading Market, 1688 (online wholesale market), Alibaba Mama (marketing technology platform), Alibaba Cloud, Ant Financial, Cainiao Network (logistics data platform operator), etc., becoming China's largest e-commerce platform company.
As of November 2019, in Alibaba's equity structure, Japan's SoftBank is Alibaba's largest shareholder, holding 25.9% of the shares, followed by Altaba, holding 9.4% of the shares, Jack Ma is Alibaba's third largest shareholder, holding 6.2% of the shares, and Cai Chongxin is the fourth largest shareholder, holding 2.2% of the shares.
4. Alibaba's financing activities
From 15 years from 1999 to 2014, Alibaba received 12 rounds of capital injections from at least 19 venture capital institutions, among which SoftBank and Yahoo are Alibaba's most important investment partners, and they have played a role as a chemical agent for Alibaba's takeoff.
Yahoo held hands with Alibaba in 2005 and completely broke up in 2020. After fifteen years of cooperation, Yahoo successfully withdrew from Alibaba with excess returns, completing a beautiful and complete venture capital cycle.
See the following Alibaba financing activity schedule and company value status table:
Note:
1. The investment amount of RMB 500,000 in 1999 was calculated at the exchange rate of RMB 1 to RMB 8.3 in 2007 The market value of HK$210 billion is calculated at the exchange rate of 1 USD to HK$7.75
3, and the equity repurchase amount of HK$18 billion in 2012 is calculated at the exchange rate of 1 USD to HK$7.75
During Alibaba's growth and development, venture capital has been actively participating. Venture capital institutions and entrepreneurial teams have cleverly designed the venture capital management mechanism through strict contract agreements and made full use of it.
The following is a strategic investment by Yahoo in Alibaba as an example. From the fundraising stage, entry stage, to the monitoring execution stage and exit stage, the characteristics of venture capital at different stages are listed.
1. Fundraising stage (2003~2005)
The two parties are in love and get what they need, and hit it off. Yahoo hopes to find new growth points; Alibaba hopes to have its own search engine. The early angel investment hopes to cash out and leave.
2. Entering the stage (2005)
Ali and Yahoo have made strict agreements and exquisite designs on the shareholding agreement from their respective interests:
1) Voting rights for shareholders' meeting : Although Yahoo owns 40% of Alibaba's equity, it only had 35% of the voting rights before October 2010, and the other 5% of the voting rights for the entrepreneurship team's management was exercised on their behalf; even if Yahoo and SoftBank team joined forces, it did not exceed two-thirds of the joint-stock company's major decisions, ensuring that the entrepreneurial team does not lose its voting rights and decision-making power.
2) Board seat : It is agreed that the board seats of Yahoo, SoftBank and Alibaba will be set to 1:1:2, which does not correspond to the capital equity ratio 40%: 29%: 31%, ensuring that Alibaba's entrepreneurial team has more voice and voting rights and has veto power in major decisions of the board of directors; for major decisions, Yahoo and SoftBank will need at least two parties of Yahoo, SoftBank and Alibaba to pass it.
3) Betting Agreement: gives Alibaba a five-year inspection or development period. If Alibaba performs poorly in five years after the capital injection, Yahoo will regain the voting rights granted to the team management by 5% and exercise the rights of the largest shareholder at a 40% shareholding ratio; restrictions will be imposed on the board seats. If Alibaba performs poorly in five years, Yahoo can exercise the right to nominate the second director, that is, the board seat will be adjusted to 2:1:2; in addition, SoftBank's seats will also be subject to restrictions. If SoftBank reduces its holdings of Alibaba's equity by more than 50%, SoftBank will lose the right to appoint one director on the board, and Yahoo will nominate instead.
4) Strategic protection of Yahoo business .First, Yahoo has unilateral veto power in amending the company's articles of association, increasing or reducing the number of directors; second, Yahoo has unilateral approval rights in the two projects of specific debt and equity issuance and Alibaba's entry into overseas markets; third, without Yahoo's written consent, Alibaba and SoftBank cannot transfer their shares to Yahoo's competitors, and Yahoo updates its competitor list every six months. Fourth, in terms of technology and intellectual property rights, in addition to paying Yahoo a one-time licensing fee, Alibaba also pays Yahoo a different proportion of licensing fee every year before Alibaba’s IPO.
5) Incentive, restrict and lock on to Jack Ma and his entrepreneurial team. Within five years, in order to ensure the rights and interests of the entrepreneurial team, under specific conditions, the equity of any investor cannot exceed 50% of Alibaba, ensuring that the company is not controlled by non-entrepreneurship teams, and avoid being restrained by capital parties (absenters, laymen, barbarians); as long as Jack Ma owns one share, he has the right to nominate directors; within five years, ensuring that Jack Ma remains unchanged as Alibaba CEO, the equity of the Alibaba team must exceed 25% to have the seats of 2 directors.
3. Monitoring stage (2005~2012)
From 2005 to 2009, Yahoo and Alibaba cooperated happily, and Alibaba's performance increased significantly, while Yahoo's performance declined sharply. Yahoo CEO O Yang Zhiyuan was forced to resign.
Starting from 2010, due to the departure of Yahoo CEO Jerry Yang, the successor CEO began to fight for control with Alibaba. Yahoo accused Jack Ma of fondling Alipay into his private pockets with his major shareholders on his back, and then reached a settlement agreement in 2011.
In October 2010, after Yahoo's five-year inspection of Alibaba expired, due to Alibaba's good performance, the entrepreneurial team won more control, including the voting rights of the shareholders' meeting, Yahoo gave up the right to dispatch a second director, Yahoo gave up a series of veto power and unilateral approval rights for Alibaba's management and business decisions.
4. Exit stage (2012~2020)
Yahoo has adopted a strategy and method of gradual exit in stages.
Step 1, Alibaba’s repurchase of Yahoo’s equity
On May 20, 2012, Alibaba and Yahoo reached a phased equity repurchase agreement. Alibaba used US$7.082 billion to repurchase 523 million common shares from Yahoo and canceled the number of shares by lending to several banks and issuing convertible preferred shares; then used the loan to redeem all Yahoo's preferred shares. After Alibaba's partial repurchase of Yahoo's equity, SoftBank became the largest shareholder, accounting for 36.67%, Yahoo became the second largest shareholder, accounting for 24%. The rest are Alibaba team, China Investment Corporation, Boyu Capital, CITIC Capital and National Development Bank , etc., holding 39.33% of the shares. Some of Yahoo's equity was replaced by Alibaba and other investors in cash, achieving the first step of safe exit.
Step 2, IPO reduction of
When Alibaba went public, Yahoo reduced its equity by 4.9%, cashing out US$8.27 billion. Six months after its listing, it cashed out another US$1.13 billion, totaling US$9.4 billion. By 2015, Yahoo's shareholding had decreased to 15.27%.
In addition, in June 2016, SoftBank also signed a repurchase agreement with Alibaba. By 2017, SoftBank had cashed out US$2.4 billion from Alibaba, and its shareholding ratio dropped from the original 36.67% to 29.17%.
Step 3: Selling and clearing
In June 2017, Yahoo withdrew from the historical stage, and the Alibaba stocks they originally held were classified as a fund company called Altaba;
In August 2018, Altaba sold Alibaba stocks and cashed out US$17.3 billion;
In January 2020, Altaba sold its clearing stake in Alibaba and exited all from Alibaba.
In Yahoo's venture capital case in Alibaba, venture capital has achieved huge returns, and Alibaba has also achieved huge business success. When Yahoo planned to enter Alibaba, Yahoo, SoftBank and Alibaba passed a series of agreements to separate cash/capital ownership and control of Jack Ma and the entrepreneurial team. The three parties made agreements on the voting rights of the shareholders' meeting and the control of the board seats to better protect the value of the entrepreneurial team.As a strategic investor, Yahoo also makes protective and restrictive terms for its core business; at the same time, it also makes incentives and lock-in terms for Jack Ma and the entrepreneurial team. Regarding the exit of venture capital capital, the three parties have also signed a phased exit agreement, including equity repurchase before listing, IPO reduction, and selling and clearing after listing. Jack Ma and the entrepreneurial team also made full use of convertible redeemable preferred shares/convertible bonds for financing and equity exchange.
Ali's rapid development and great success, the first thing to verify is that Jack Ma's sense of business is sensitive, and the strategic direction and track he chose are extremely correct.
Secondly, success cannot be separated from the continuous efforts and business promotion of the entrepreneurial team, and also from the successful introduction of a series of venture capital. The two complement each other.
Thirdly, founder Jack Ma was very lucky to meet Tsai Chongxin, who was well versed in capital operations and venture capital. The latter played a key role in summarizing Alibaba's rapid development; without Tsai Chongxin's help and recommendation, there would be no subsequent commercial success of international capital injection, international governance, and standardized operations, and received long-term and continuous support from SoftBank and Yahoo. You should know that not everyone can meet good luck. God is too fond of Jack Ma. Of course, the prerequisite is:
1) Jack Ma is a person with a very charming personality. His three-inch tongue left a deep impression on those who have seen him; Jack Ma is clear in goals and clear, and is very clear in what he wants to do? What is it made? Jack Ma also has a group of eighteen Arhats and fans who follow him loyally. These are enough to prove that Jack Ma is a person with great talent, leadership ability and strong will. These are all necessary conditions for success for a person to succeed, and it is the right candidate for investors to find.
2) Jack Ma started the company's operations with very little capital (500,000 start-up capital). His later operations were almost entirely replaced by the company's human capital and business assets with external risk funds, and obtained the company's continuous growth and rapid appreciation. By the time of its IPO in 2014, the market value was nearly US$500 billion. In fifteen years, Alibaba Company achieved an increase of 8 million times through capital leverage. Venture capital invested billions of dollars before and after, creating an Alibaba empire, and the investment capital received hundreds of times the return on average. By the time Jack Ma and his entrepreneurial team went public, their wealth increased thousands of times. In this game, there is no loser, and it is a win-win outcome. Alibaba has received billions of dollars of venture capital to build a China's number one e-commerce platform. After careful consideration, is there a second company in China that has won the favor of such a huge amount of international capital?
3) In the process of the company's development, Jack Ma and his team continued to gain the favor of venture capital, convinced one smart and successful investment institutions and investors after another, which shows that Jack Ma and the entrepreneurial team have strong execution capabilities, and also shows that the market demand in his field is strong, the business model is constantly verified by the market, and the company continues to gain new customers, and the company continues to increase its value; Jack Ma and the entrepreneurial team have won greater success and opportunities with countless small successes.
4) Jack Ma’s loyal fan group is following the right person, and he makes a fortune together with Jack Ma.
Finally, the most important premise that cannot be forgotten is that Alibaba has caught up with the best Internet era. So we say that the times have created great enterprises, and enterprises have also promoted the great development of the times and industries; Alibaba's success is unreplicable. The right time, place and people are harmonious. Destiny is also luck!
Ali and Yahoo have achieved win-win results for fifteen years, and the most fundamental guarantee for win-win is the ultimate use of a series of venture capital contract governance mechanisms, which provides a successful financing benchmark and empirical example for the development of other high-tech startups.
Reference materials:
1, Professor Li Qiang from School of Economics and Management, University of Electronic Science and Technology of China, "Financial Market: Reform and Innovation" Course Lecture Notes
2, China Europe International Business School China Business Administration International Case Library "The Origin and Destiny of Alibaba and Yahoo: Venture Capital Contract Governance" Case
3, Alibaba Public Annual Report
4, Internet Public Information
1111112, Internet Public Information 11111112,
