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Chapter 2642 Business Cooperation

After receiving Suning's approval, Jack Ma felt reassured and called Masayoshi Son back the next day, saying, "Mr. Son, I am willing to accept SoftBank's investment, but there are three bottom lines I must make clear to you first."

At this moment, Jack Ma is extremely cautious, a stark contrast to his exuberant demeanor at SoftBank in Tokyo.

Back then, Jack Ma was like a burning fire; now he's like a stone submerged in water. This is the Jack Ma at the negotiating table.

When it's time to be crazy, be crazy; when it's time to be steady, be as steady as a mountain.

"Okay, go ahead." Masayoshi Son on the other end of the phone had probably already guessed what was going on.

"First, Alibaba's largest shareholder is currently Tianchao Group, holding 40% of the shares. How Tianchao Group's shareholding will be adjusted after this investment is not up to me; it requires simultaneous consultation with Tianchao Capital. I can't make the decision alone; all three parties need to sit down and discuss it. Second, the data on Alibaba that you saw when we met in Tokyo has increased significantly—the number of registered suppliers, the activity level of overseas buyers, and the platform's success rate—everything is different from when we last met. The valuation cannot be based on the previous standards; it must be recalculated based on the latest data. Third, SoftBank's shareholding will not be too high; you should be prepared. Suning was my first investor; he was the only one who believed in me during my most difficult time. I cannot allow his share to be diluted too much. This is my bottom line, and there's no room for negotiation."

"..." Masayoshi Son was silent for a few seconds on the other end of the phone.

He did conduct due diligence on Alibaba beforehand, so he was aware that Tianchao Group was a major shareholder of Alibaba.

In fact, SoftBank's investment team had thoroughly investigated Alibaba's equity structure before even contacting Jack Ma.

The legal department also issued a special equity penetration analysis report, which included a tree diagram of Alibaba's shareholder relationships.

China Capital naturally ranks first, holding 40% of the shares.

Masayoshi Son originally thought that Jack Ma, as the founder, would have sufficient control over the equity structure.

After all, in the internet industry, the founder is the soul of the company, and investors are just passengers hitching a ride.

He just hadn't expected that China's influence over Alibaba was far more substantial than he had imagined...

Tianchao Capital is not only a major shareholder of Alibaba, but there is also a key clause in the shareholder agreement that any decision involving foreign investment must be approved in writing by Tianchao Capital.

This means that if Suning doesn't agree, Masayoshi Son won't even have the right to negotiate.

Of course, this isn't the first time Masayoshi Son has encountered a situation where $30 million doesn't amount to a significant shareholding.

When he invested in Yahoo in the US, Yahoo's valuation was already very high, and other investors felt it wasn't worthwhile.

But Masayoshi Son still poured money into it, because in the early stages of an internet company, the core is not valuation but explosive growth potential.

If this company grows into a behemoth in the future, even if you only own a small portion of the shares now, its future value will be a staggering figure.

Masayoshi Son has reviewed Alibaba's growth data internally. The number of registered suppliers is doubling every quarter, and the month-on-month growth rate of inquiries from overseas buyers once exceeded 50%. The platform's success rate in facilitating transactions is far ahead of other B2B platforms of the same type.

Moreover, Alibaba is backed by the behemoth that is Tianchao Group. The tens of millions of active users of QQ are there, the offline traffic of Tianchao Internet Cafes in hundreds of stores across the country is there, and the supply chain and channel resources of dozens of invested companies under Tianchao Capital are there. These are the foundation for Alibaba's future growth.

Masayoshi Son has done the math very well. Although the $30 million he's buying now isn't a lot of shares, it's hard to say how much those shares will be worth in three to five years if Alibaba continues to grow at its current rate.

“Sure,” Masayoshi Son said into the microphone, still confident and decisive. “The valuation will be based on the latest figures, and the percentage will be based on what you can accept. I’ll have SoftBank’s investment team discuss the specific terms with you. Mr. Ma, I only have one request… SoftBank must have a seat on Alibaba’s board of directors. Money is not a problem, nor is the shareholding percentage, but I need to be able to keep track of the company’s development. It’s my habit; I always want a board seat for every company I invest in.”

Jack Ma said, "We'll decide on the board seats when we meet in person. I personally think it should be fine, but all three parties still need to sit down and confirm it together."

After hanging up the phone, Jack Ma immediately called Han, the CEO of Tianchao Capital, and relayed Masayoshi Son's attitude verbatim.

After listening to the conversation on the other end of the phone, President Han said, "President Su has already given instructions."

"So, shall we continue proceeding?"

"Okay! I'll arrange for my team to follow up right away."

Then, President Han took two key personnel from the investment department and flew to Hangzhou overnight.

When they arrived in Hangzhou, it was past 10 p.m., and Mr. Han and his two companions checked in directly at the hotel reception.

I went to Alibaba's office early the next morning.

Jack Ma sat face-to-face with Mr. Han in Alibaba's conference room.

The walls of the meeting room were covered with the latest data charts and overseas market expansion plans from Alibaba's platform.

Jack Ma explained in detail Masayoshi Son's investment intentions, the initial terms proposed by SoftBank, and the three bottom lines he had discussed with Son over the phone.

After listening, President Han did not immediately express his opinion. Instead, he took out a shareholding structure calculation sheet from his briefcase, spread it on the table, and drew a few numbers on it.

“SoftBank’s investment of $30 million, based on Alibaba’s current market capitalization, does represent a relatively small stake, around ten percent.” Mr. Han tapped a number on the paper with his pen, then looked up at Jack Ma. “But Mr. Su’s meaning is very clear—foreign investment is welcome, but Tianchao Capital’s shareholding cannot be diluted too much. Mr. Su’s exact words were, ‘Tianchao Capital is Alibaba’s first investor, and this identity cannot be diluted by foreign investment.’ We will simultaneously increase our capital at the same time as SoftBank’s investment, matching the amount of the capital increase with a certain percentage of SoftBank’s investment. After the capital increase is completed, Tianchao Capital’s shareholding will remain at around thirty-five percent.”

Jack Ma looked down at the numbers drawn by Lao Han on the equity structure calculation table.

Thirty-five percent, a decrease of five percentage points from the initial forty percent.

However, considering the increase in total share capital after SoftBank's investment and the simultaneous capital increase by Tianchao Capital, this dilution is indeed not significant.

Moreover, the fact that Tianchao Capital is willing to continue investing indicates that Suning remains optimistic about Alibaba's growth prospects.

Jack Ma naturally realized that Suning was not the kind of financial investor who would just cash out and leave after one round of investment, but a strategic shareholder who truly wanted to hold Alibaba as a core asset for the long term.

Jack Ma mentally reviewed the numbers several times, then nodded, "Okay, let's talk to SoftBank according to this plan."

Jack Ma looked up and put the calculation sheet into a folder.

Then he stood up and shook hands with President Han. "President Han, you should prepare the capital increase plan for Tianchao Capital simultaneously. I will handle the SoftBank side. We'll sit down and discuss the specific equity distribution ratio and contract terms together. With all three parties present, we'll go over the terms one by one, and no one can do anything behind the scenes."

"It's good that Mr. Ma knows what's going on." ...

The tripartite meeting was held in a conference room at Alibaba in Hangzhou.

SoftBank sent an investment team from Tokyo, led by Masayoshi Son's most trusted vice president of investment.

This Japanese-American, who has been shuttling between Silicon Valley and Tokyo for over a decade, is quite capable, can switch fluently between English and Japanese, and has a meticulous yet assertive negotiation style.

On the Tianchao Capital side, General Manager Han personally led the team, bringing two investment managers and a legal counsel.

Jack Ma sat in the middle with Alibaba's core team, including Joseph Tsai and several key executives.

The long table in the conference room was covered with documents, with a thick stack of printed draft terms and equity structure diagrams in front of each table, and the air was filled with the aroma of coffee and Longjing tea.

The negotiations lasted from 9 a.m. to 7 p.m., with only two breaks in between.

Even their boxed lunches were delivered directly to the meeting room, where the group ate while exchanging opinions in hushed tones.

There are two key issues: valuation and shareholding ratio.

SoftBank maintains that Alibaba's valuation should be increased by a certain margin based on the previous round of financing, and should not be raised too drastically.

The vice president of SoftBank said in fluent English: "Mr. Ma, Mr. Han, we understand that Alibaba's growth is indeed very fast, but the last round of financing was not long ago. It is not in line with market norms to double the valuation so much. What was the valuation when Tianchao Capital invested in the last round? How long has it been? You want to double the valuation on that basis. No one in Silicon Valley would accept such a magnitude."

Jack Ma and Mr. Han exchanged a glance, then presented the latest platform data.

Mr. Han pushed a stack of printed data reports in front of the SoftBank team. Each page had clear charts and year-on-year and month-on-month data.

Jack Ma stood up, walked to the whiteboard, picked up a marker, and began writing down numbers one by one: "The number of registered suppliers has nearly tripled since the last round of financing, overseas buyer inquiries have more than quadrupled, and the platform's transaction volume has never fallen below 20% quarter-on-quarter. This isn't boasting; these are real data exported from the platform's backend, and every single number can be found in the system. Market conventions are set for companies without growth, but Alibaba's growth rate cannot be confined by conventions. Although it hasn't been long since the last round of financing, the company's fundamentals have undergone a fundamental change, and the valuation must reflect this change."

When the data was laid out on the table, SoftBank's vice president of investment picked up the data report and flipped through it page by page.

He looked very carefully, not missing a single number.

When he got to a certain page, he pushed up his glasses and stared at the steep angle of the curve for several seconds.

Then the SoftBank vice president said, "We need to confirm with Tokyo."

"Please go ahead."

Then the SoftBank vice president stood up, walked out of the conference room, and made a phone call.

People in the conference room could see him standing in the corridor through the glass window, holding a phone in one hand and pointing to a number on a document with the other, speaking rapidly in Japanese.

The vice president went out for about fifteen minutes and returned with a calm expression. "Mr. Sun agreed to use the latest valuation. He said that Alibaba's growth data did indeed far exceed expectations, and using the latest valuation is reasonable."

"Shall we continue discussing the shareholding ratio?"

"it is good."

The issue of shareholding ratios then came to the forefront.

SoftBank wants to acquire as many shares as possible.

The vice president repeatedly emphasized that SoftBank's investment style is to concentrate its investments, rather than spreading them out like pepper. Holding too few shares would not allow them to play a strategic role on the board of directors.

But Jack Ma's attitude was firm—the founding team's control could not be weakened, and Tianchao Capital's shareholding ratio should be maintained at around 35%.

The three parties engaged in a protracted tug-of-war on this issue, resulting in heated discussions at the negotiating table.

SoftBank has been trying to circumvent the issue by using various valuation models and equity incentive plans, but Jack Ma and Han Kuo-yu have refused to budge an inch.

Ultimately, the three parties reached a consensus: SoftBank acquired 11% of Alibaba's shares for US$30 million, Tianchao Capital simultaneously increased its investment to maintain its shareholding at 35%, Jack Ma and his founding team simultaneously reduced their shareholdings, and the remaining portion was reserved as an employee option pool for Alibaba's core team.

On the day the contract was signed, Jack Ma made an exception and wore a new dark gray suit with a crisp fabric and a red tie.

Jack Ma usually wears a T-shirt to work every day, but today's outfit made everyone in the company pause for a moment when they walked in, and then they all laughed and said, "Mr. Ma looks very handsome today."

Jack Ma smiled and waved his hand, saying, "Stop flattering me."

The contract was made in triplicate and presented to representatives of SoftBank, Tianchao Capital, and Alibaba respectively.

The representatives from all three parties signed in turn. As each person's pen moved across the paper, no one spoke in the meeting room except for the scratching sound of the pen tip rubbing against the paper.

After signing the contract, Jack Ma capped his pen and looked up at Mr. Han and the vice president of SoftBank sitting opposite him.

Then I confided in Mr. Han: "Mr. Han, three years ago I was promoting China Yellow Pages in Beijing and was kicked out of the office as a fraudster. I stood in the lobby of that office building for two hours without even a place to sit. Today, SoftBank flew over to give me thirty million US dollars. Sometimes life is just a blink of an eye."

Mr. Han put the signed contract into his briefcase, zipped it up, patted Jack Ma on the shoulder and said, "You're worth this price for these three years."

"It's mainly because President Su was willing to give me this opportunity."

"Mr. Su didn't actually want to bring in foreign investment so quickly, but since Mr. Ma is now so eager to do so, I hope you can focus your energy on the operation of Alibaba."

"Don't worry, Mr. Han! I won't let Mr. Su down."

...(End of this chapter)