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Chapter 157 0154 [A Huge Valuation of $2500 Million]

After waiting for several days, Chen Guiliang finally saw Lin Dongliang and Fu Jixun arrive in the capital again.

"This is the latest data from the school's intranet..."

"In addition, two weeks ago, I advanced 30 yuan to Renren.com, which is considered a debt of Renren.com..."

Chen Guiliang produced the latest information.

Once the basic terms of the negotiations are finalized, the investors will conduct a comprehensive due diligence process.

Lin Dongliang ignored all of that and instead asked, "Do you think Facebook will be able to secure investment soon?"

“Xiaonei.com is comparable to Facebook, so I definitely need to keep an eye on it at all times,” Chen Guiliang said.

Fu Jixun asked, "So, you've been dragging your feet on negotiations just to wait for Facebook?"

Chen Guiliang made no attempt to hide his answer: "Yes."

Lin Dongliang cut to the chase and said directly, "Based on the professional assessments of the IDG and DFJ teams, they both believe that a valuation of $1500 million for ByteDance is most appropriate."

Chen Guiliang said, "IDG invested $200 million in Fenbei.com last year, valuing it at $800-1000 million, right? At that time, Fenbei.com hadn't yet acquired that many song copyrights. Given Xiaonei.com's current scale and prospects, shouldn't it be valued a little more than Fenbei.com?"

Lin Dongliang fell silent.

What else could he say?
Is the excuse that it was invested by other partners at IDG?

It's baffling that IDG only offered $20% of the shares for TouFenBei.com.

Back then, Fenbei.com was on the verge of collapse, and the founder was even considering shutting down the site and finding a job. Who knows what IDG's investors were thinking?

Lin Dongliang carefully considered his words and said, "Fenbei.com is related to IDG's layout in the Chinese music market, including but not limited to 9Tian Music Network and Fenbei.com. We have invested in many Chinese online music platforms."

“No matter how we plan, we must invest at market price,” Chen Guiliang said. “If Xiaonei.com’s valuation is only slightly higher than that of Fenbei.com last year, then I’m sorry, but I will consider it an insult to myself and my team!”

"What do you think we should estimate?" Fu Jixun asked.

Chen Guiliang made an outrageous demand: "5000 million US dollars!"

"Haha." Fu Jixun laughed in anger.

Lin Dongliang said, "Mr. Chen, we have come with sincerity, and we ask that you also show some sincerity."

Chen Guiliang said, "Facebook previously only received a few hundred thousand dollars in angel investment. Now it has received more than 1200 million dollars in Series A funding, and its post-investment valuation is as high as 1 million dollars. Is it unreasonable for me to value my company at 5000 million dollars? Your valuation of 1500 million dollars is insincere!"

Chen Guiliang is much more confident now than he was two months ago.

First, the number of users on the campus network has increased rapidly, now reaching nearly 190 million. Moreover, through a series of activities, user activity has become increasingly high.

Secondly, the advertising business is growing, so Ao Yanzhen specifically recruited advertising salespersons. The number of advertising slots has also increased from the initial three to the current twelve.

Third, Facebook's fundraising was a great success, and even if IDG and DFJ don't invest, other venture capital firms will come knocking on their door in the future.

After some rambling, Lin Dongliang and Fu Jixun raised the valuation to $1800 million.

Chen Guiliang resolutely refused to accept it.

On the first day, the negotiations failed, and the two sides could not reach a consensus.

Back at the hotel, Lin Dongliang and Fu Jixun began their discussion.

Lin Dongliang muttered, "If I hadn't dragged it out for so long, and had started valuation negotiations two months ago, wouldn't we have already signed an agreement?"

“What do you think? This guy surnamed Chen is deliberately stalling for time, waiting for this moment,” Fu Jixun said.

Lin Dongliang said, "Chen Guiliang's valuation is too high. I need to discuss it with the founding partners."

Fu Jixun was also very curious: "What were you thinking when you invested in Fenbei.com? At that time, Fenbei.com didn't have any popular song copyrights, so why did you invest $200 million and only get 20% of the shares? Normally, $50 would have achieved the same effect."

“That wasn’t my vote!” Lin Dongliang emphasized.

"Hahaha."

Fu Jixun was overjoyed, seeing IDG as a sucker.

The two avoided each other, each calling their founding partners in China, and then met again to discuss tomorrow's negotiations.

After five days of haggling, a general plan was finally finalized.

ByteDance's pre-investment valuation was $2500 million.

IDG invested $300 million for a 10% stake.

DFJ invested $200 million, acquiring a 6.6666% stake.

A reserved option pool of 13.333% has been established. (These shares will be held on behalf of employees by Chen Guiliang and Guo Feng until the vesting conditions are met. This holding will continue for a period after the company's IPO.)
Chen Guiliang owns 64.4% of the shares.

Guo Feng owns 5.6% of the shares.

This is a fairly standard shareholding structure for Series A financing.

Some people say that Ding Lei still held 58.5% of NetEase's shares before the company went public, but that's because NetEase only went through two rounds of financing.

Chen Guiliang is confident that he can go public directly after two rounds of financing, just like Ding Lei, and that his shareholding before the listing is not much different from Ding Lei's.

Even after the IPO, Chen Guiliang could initially control over 55% of the company's voting rights through nominee employee stock options. He could then find opportunities to repurchase shares, ensuring that even after the employee stock options vested, Chen Guiliang would still effectively control over 50% of the company's voting rights—Ding Lei did exactly that, except he capitalized on the 2000 dot-com bubble, while Chen Guiliang planned to take advantage of the 2008 financial crisis. Furthermore, Lin Dongliang and Fu Jixun instructed Chen Guiliang to add anti-dilution clauses.

In other words, if ByteDance's valuation drops in the next round of financing, it must be ensured that IDG and DFJ do not lose money, and the lost value will be made up by the founders' equity.

This clause will not be triggered as long as the company's valuation does not decline.

After the financing, a three-person board of directors was formed.

Chen Guiliang and Guo Feng will each hold one board seat, and IDG will hold one board seat. There will be no independent directors for the time being, but DFJ may recommend one finance personnel.

It should be noted that directors of venture capital firms do not have veto power.

If Chen Guiliang intends to invest in or acquire other companies to complete his business layout, IDG and DJF have the right of first refusal if the transaction involves equity transfer. This clause will not be triggered as long as Chen Guiliang and Guo Feng do not transfer their equity.

There are also restrictions on subsequent financing terms. For example, if Chen Guiliang needs to acquire a company with a huge investment, it must be done through Series B financing. In that case, he must sign new restrictive terms with IDG and DJF in the Series B financing.

If Chen Guiliang's acquisition of a company significantly increases ByteDance's risks or delays IDG and DJF's exit time, these two venture capital firms have the right to step in and block the acquisition.

A whole host of agreements.

This is currently a draft contract. Once IDG and DJF complete their second due diligence, a more formal and complete contract will be revised. At that time, Chen Guiliang will hire a professional lawyer to check for any omissions or deficiencies.

……

During the due diligence process, the finance personnel recommended by DJF also came.

This person is named Chang Zhongxiang, around 40 years old, and is about to become the CFO of ByteDance.

Chen Guiliang can use this temporarily to build the company's financial system. If he feels it's good, he can continue to use it; if he doesn't feel it's right, he can be fired later when the opportunity arises.

Ao Yanzhen and Xie Yang both signed option contracts during this period. The term is 4 years, with 25% vesting each year.

They must work at ByteDance for more than four years and achieve corresponding performance targets before they can vest their stock options after the company has been listed for a certain period. If they leave the company midway, Chen Guiliang can repurchase the options at a discount.

The option pool is certainly not something that the two of them can fill; employees who make significant contributions in the future will also sign option contracts.

Chen Guiliang also needs to balance things out with Game Science, otherwise they will definitely be dissatisfied.

Previously, employees from both companies were interchangeable, frequently borrowing each other's work. Now that ByteDance has received investment, employee compensation will undoubtedly increase, which naturally makes the employees at Game Science unhappy.

Chen Guiliang's decision to directly grant Dong Qianqiu 4% of Game Science's equity was both an attempt to win Dong Qianqiu over and a way to circumvent the restrictions and risks associated with sole proprietorships.

In addition, the salaries of Game Science employees will also increase overall.

They worked tirelessly until late May, when the financing agreement was finally officially signed, and they even held a press conference to promote it.

Several leaders from Peking University Science Park Company and its affiliated incubator company were all invited to attend.

Chen Guiliang also tried to invite leaders from the district and Zhongguancun, and those leaders were very accommodating and readily agreed.

"It's like a dream."

Ao Yanzhen arrived at the scene early. She joined the company in a daze and didn't expect to attract venture capital so quickly.

Chen Guiliang gave her a very generous stock option package, a full 4% (1% to 4% is considered normal after Series A funding). He also appointed her as the company's COO, responsible for internal operational processes, driving cross-departmental execution, managing offline heavy assets, and so on.

While Ao Yanchen was happy, she also felt immense pressure. There were many things she didn't understand, and she would have to consult professors at Guanghua College.

Xie Yang served as the company's CMO, responsible for brand positioning, marketing, customer lifecycle management, public relations and crisis response, among other things. He was even more bewildered, completely clueless!

I'm just a troll commander, and you expect me to lead a regular army to conquer cities and territories?
"Old Chen, I'm feeling really guilty right now. Why don't you hire someone else from outside?" Xie Yang thought to himself, feeling uneasy.

Chen Guiliang said, "I will definitely recruit professional talent and build a CMO team for you. If you cannot improve over a long period of time and cannot effectively manage your team, then I will consider replacing you. I am just giving you an opportunity; whether you can seize it depends on your own performance."

Xie Yang was like a penniless man who found gold on the roadside, feeling both excited and scared.

Damn it, I still need to study!

Xie Yang asked, "Could you recommend one or two professors for me? I'd like to schedule some time to attend their classes and ask them to recommend some professional books."

“I’ll take you to meet my course selection advisor another day. She’ll recommend some courses for you. Be respectful,” Chen Guiliang said.

Xie Yang smiled wryly: "How could I dare to be disrespectful?"

Once the press conference ends and Chen Guiliang's reputation is established, it will be time to recruit professional talent. IDG and DFJ are also willing to recommend candidates, but whether or not to use them is up to Chen Guiliang himself.

Game Science also needs to recruit management talent.

One leader after another, one media outlet after another, arrived at the signing ceremony.

The media reporters were quite excited, mainly because today's event was very eye-catching.

Last year, a student who was admitted through a special essay competition was the subject of debate about the fairness of the admission process. This year, he has started a company and received venture capital funding. During this time, he made outrageous remarks on TV shows and gained notoriety for criticizing the novel "Wolf Totem".

A small goal of earning 100 million during college?

It seems like it can be completed in the first year of college!

-

(I made a mistake with the sales figures for "Those Things About the Ming Dynasty." My brain isn't working properly even at midnight every day. The royalties for the first quarter have been revised to 156 million after tax.)
(End of this chapter)