Restart life

Chapter 168-0165 [The Potato Clause]

The negotiations began with a discussion of business.

Chen Guiliang asked, "What do you think is Tudou.com's core selling point?"

“UGC (User Generated Content),” Wang Wei said with great certainty.

Chen Guiliang said, "This alone is not enough. UGC can only retain creators and a small number of users, but it cannot retain the vast majority of ordinary users."

Wang Wei frowned and asked, "Why do you say that?"

"The biggest demand of Chinese users for video websites is to watch movies and variety shows," Chen Guiliang said. "The movies and variety shows referred to here are domestic movies and variety shows, and foreign movies and variety shows with Chinese subtitles."

Wang Wei remained silent and thought about it, still disagreeing with the statement.

Chen Guiliang continued, "User-made videos can only serve as gimmicks and add-ons to quickly make Tudou.com famous and attract users. To increase Tudou.com's traffic and retain users in the long term, we need genuine film and television variety shows."

“Those things require purchasing copyrights,” Wang Wei said.

Chen Guiliang said, "It would be best if you had the money to buy the copyright, but you don't have the money right now. Even if I invest, it won't be enough. We'll have to wait for the next round of financing."

Wang Wei understood: "You mean, start by making pirated copies?"

Chen Guiliang corrected, "Piracy sounds too offensive. Let's call it user-created content! Or, let's call it user-generated content. If there are any problems, it's not the website's fault. Just take the video down."

At this time, although Tudou and YouTube had initially decided to focus on UGC, they hadn't fully implemented it yet. A few months later, they both underwent major redesigns, completely mimicking Flickr's sharing model.

When Flickr launched its sharing model, both Tudou and YouTube experienced a surge in traffic.

However, the situations in China and the United States are different, which led to Tudou and YouTube developing in different directions after 2007.

The core reason, as Chen Guiliang just mentioned, is that Chinese users' demand for video websites is currently mainly for film and television entertainment works—watching movies, TV series, cartoons, and variety shows!
According to the user survey at the time (multiple choice), 77% watched movies, 70.5% watched TV series, 38.7% watched variety shows, and 35% watched anime.

Only 14.6% of respondents preferred watching original videos, which is even lower than the 29.2% who preferred watching news and information.

Wang Wei was very dissatisfied with Chen Guiliang's words.

“How about this,” Chen Guiliang said, “If you want to do UGC, go all the way and completely revamp the Flickr model. At the same time, you create an account as a user and upload some movies and TV shows. Spend two or three months comparing which videos get the most views. I’m not referring to the views of a single video, but the overall views of different types of videos.”

Wang Wei is still considering it.

Chen Guiliang said, "Arguing is useless; let's let the facts speak for themselves."

“Okay,” Wang Wei agreed.

Chen Guiliang said, "My suggestion is to attract attention with UGC in the early stages and retain users by sharing film and entertainment works. After the next round of financing, we can then systematically purchase film and television copyrights. Of course, this is just a suggestion and for reference only."

"If you accept the investment, I will help you drive traffic to Renren.com. I will also launch an activity to encourage Renren.com students to shoot their own videos and upload them to Tudou.com, and then embed their personal creation videos from Tudou.com into their Renren.com homepage. Renren.com and Tudou.com can complement and synergize with each other."

These last words instantly captivated Wang Wei.

He knew that Xiaonei.com already had millions of users. If Tudou.com could link up with Xiaonei.com, even if it only attracted one percent of them, it would greatly increase Tudou.com's traffic.

Moreover, he really needed funds, and it would be great if Chen Guiliang were willing to invest.

But Chen Guiliang didn't talk about investment; instead, he talked about the Flickr model.

"I did reference Flickr when I created Tudou.com," Wang Wei readily admitted.

YouTube was the same; in its early days, it was mostly made up of students of Flickr.

“But the imitation isn’t thorough enough,” Chen Guiliang said.

Since last year, he has been frequently following American websites, and Flickr is one of Chen Guiliang's research subjects.

Wang Wei's four friends all sat down to listen to Chen Guiliang's specific views.

Chen Guiliang talked for over an hour about how to encourage UGC, video reposting, and grassroots parody culture.

They were stunned by what they heard.

The finance and legal staff that Chen Guiliang brought were also sitting on the side listening, feeling that their boss was really awesome.

"It's evening, I'd like to invite everyone to dinner," Chen Guiliang said, standing up.

"it is good."

Wang Wei led them to a restaurant outside the residential area.

After ordering, Chen Guiliang continued, "Super Girl is very popular right now, so we can take this opportunity to hold an event. Renren.com encourages users to upload singing videos to Tudou.com, and the top ten, top seven, top three, and champion will be selected based on the number of views on Tudou.com. Whether you imitate Super Girl or sing your own songs, it's up to you."

"To win a good ranking, they only have two choices. Either they have to be really good at singing and take the professional route, or they can only resort to pranks and attract attention by being funny."

“Similar activities can be held from time to time. Netizens have unlimited potential. As long as we guide them to get off to a good start, they will spontaneously create more interesting content.”

"At the same time, we'll also be uploading some domestic and international programs, especially entertainment programs from Hong Kong, Taiwan, Japan, and South Korea, which can attract a large number of young people. We'll also be uploading movies and TV dramas to try and retain users." "The internet speed is very slow now, so you need to figure out how to improve the user viewing experience."

"As long as you increase your user base and website traffic, I can help you connect with venture capitalists next year. With the funds from the next round of financing, Tudou.com can gradually acquire film and television copyrights."

Wang Wei and his partners were still somewhat confused about how to run Tudou.com in the future. They knew they should create UGC content, but that was about it; they didn't know the specifics of how to do it.

Chen Guiliang explained everything clearly, and everyone suddenly understood.

"It's getting late, let's discuss the investment tomorrow." Chen Guiliang went straight back to the hotel.

Wang Wei and his four friends returned to the three-room house, and couldn't help but start chatting on the way.

Su Bo, who is in charge of technology, exclaimed: "No wonder he can become a billionaire at the age of 19. He has a broad vision, clear thinking, and a whole set of ideas."

Tao Pei, who is in charge of the webpage, customer service, and advertising, said, "The more I think about it, the more feasible it seems. If we do it the way he suggested, we can definitely make Tudou.com bigger."

“I also think Mr. Chen is right. If it were me, I would definitely like to watch TV dramas and entertainment programs from Hong Kong, Taiwan and Japan. The overall viewership of these programs is probably much higher than that of user-generated content.”

"..."

Wang Wei didn't join the discussion, but listened quietly to his friends chatting.

The next day.

Chen Guiliang outlined his investment plan: "ByteDance will invest 160 million yuan to acquire a 20% stake in Tudou.com. Simultaneously, ByteDance will provide free traffic to Tudou.com and collaborate on a Super Girl impersonation contest. What do you think?"

“Sure,” Wang Wei agreed immediately, without even haggling.

Tudou.com's financial situation is very simple and doesn't require much verification. They're currently too lazy to maintain any option pool.

After the investment, the equity structure is as follows: Wang Wei 76%, ByteDance 20%, and other partners a total of 4%.

However, when Chen Guiliang presented the financing agreement, Wang Wei looked at the additional terms with some doubt.

Shi Qian, who was helping Chen Guiliang draft the financing agreement, was gazing out the window with great interest, as if the world outside was fascinating.

Before joining ByteDance, Shi Qian worked at King & Wood Mallesons for four years, where he participated in or witnessed numerous investment activities. But he had never encountered such an additional clause before.

What terms?
Potato Clause!

In another timeline, Tudou.com is about to go public, but his ex-wife comes forward to claim his assets. The court freezes Wang Wei's shares, causing Tudou.com's first IPO plan to fail.

From then on, the "Potato Clause" was born in the Chinese investment community.

Wang Wei personally gave this name to him.

At the time, William Zhu posted on Weibo: "I heard that recently many VC/PE firms are trying to add clauses to the SA (Shareholder Agreement) requiring that the CEOs of the companies they invest in must obtain the consent of the board of directors, especially the preferred shareholders, before they can get married or divorced. If this is true, it will be a tragedy."

Wang Wei commented under this Weibo post: "First there was Sina's structure, now there's the Tudou clause. Let's all work together to make a name for ourselves in the history of corporate governance."

The additional terms Chen Guiliang provided, of course, didn't mention that the CEO's marriage required board approval. That violates the Marriage Law!
"Why do I have to sign a prenuptial agreement when I get married, specifying how the property will be divided in the event of a divorce?" Wang Wei was speechless when he looked at the agreement.

Chen Guiliang asked, "Do you have a girlfriend?"

Wang Wei shook his head: "No."

Chen Guiliang said, "What if you have a girlfriend in the future, and you have a whirlwind marriage and divorce before Tudou.com goes public, and she makes a scene and applies to freeze your assets?"

Wang Wei was both amused and exasperated: "I don't even have a girlfriend, so how could there be a whirlwind marriage and divorce?"

“In that case, you can simply ignore this clause,” Chen Guiliang said. “I’m just doing this as a precaution.”

"Fine, I'll sign." Wang Wei felt that Chen Guiliang was a lunatic.

The lunatic felt a surge of joy as he watched Wang Wei sign the document.

The bombshell of the founder's divorce has finally been cleared up.

In addition to this clause, Chen Guiliang also added another clause.

In other words, if Tudou.com's post-investment equity structure becomes too complex during a certain round of financing (with the founders holding too little shares), ByteDance's investment can be withdrawn first, and ByteDance's shares can be acquired by new investors.

In other words, if Tudou.com goes through too many rounds of financing, Chen Guiliang will simply withdraw his investment and quit, making a profit along the way.

Instead of wasting his time dealing with Tudou.com, he might as well acquire AcFun and Bilibili.

But AcFun has its problems; it's been around for over a decade and is still barely surviving. On the other hand, its illegitimate subsidiary, Douyu Live, is still somewhat watchable.

Wang Wei held the newly signed agreement, looking at the supplementary clause, and the more he looked at it, the more awkward he felt.

Damn it, I'm not looking for a girlfriend.

Why get a divorce?
(End of this chapter)