Restart life

Chapter 325 0322 [Even a Hellish Listing Environment Can Produce a Dark Horse]

Throughout September, Chen Guiliang felt as if he were experiencing both extremes of heat and cold.

On one hand, the number of players of "Future Era" is constantly increasing, while on the other hand, bad news keeps coming from the United States.

The signs of a US subprime mortgage crisis are already emerging!
As early as August, the financial crisis began to emerge. BNP Paribas announced the freezing of three of its funds, citing turmoil in the US subprime mortgage market. Global stock markets began to experience severe volatility.

Although the stock market rebounded in September, many investment institutions were already in a state of panic.

In early October, ByteDance's registration statement took effect, allowing it to officially launch its roadshow for fundraising. However, both the SEC and underwriters like Goldman Sachs recommended extremely low price ranges for the offering.

Some of the venture capital firms that participated in ByteDance's Series A and B funding rounds even suggested halting the IPO plan.

The problem isn't with ByteDance, but with the US stock market!

Chen Guiliang held several shareholder meetings and also met with underwriters such as Goldman Sachs to discuss the matter. Ultimately, they decided to proceed with the IPO as planned, but the IPO price had to be lowered.

A Goldman Sachs representative analyzed in a video conference: "The US stock market now seems to have emerged from last month's turmoil and is becoming more prosperous overall. However, investors are very cautious. Nevertheless, Chinese stocks listed this year have all performed very well, with Baidu's stock price being particularly outstanding. ByteDance is an excellent company, and there are definitely investors willing to hear its story."

Goldman Sachs and Morgan Stanley began printing their IPO prospectuses.

Immediately afterwards, Chen Guiliang led his team to the United States.

They arrived in the United States on October 7th, a time when the US stock market was soaring and breaking historical records. On October 9th, the Dow Jones Industrial Average even reached its highest closing point in history.

Chen Guiliang's first few roadshows were very successful, and American investors were quite interested in ByteDance.

However, a few days later, the situation took a sharp turn for the worse.

Citigroup's CEO resigned after writing down $65 billion in subprime-related assets, shocking the market.

Following this, Merrill Lynch reported a record quarterly loss of $79 billion, and its CEO resigned.

US stocks are plunging from their highest levels!
"What the hell is my luck?" Chen Guiliang had been on a roadshow for a week straight, and he even had dark circles under his eyes from flying around so much.

In his memory, the subprime crisis happened in August 2008, at most with signs appearing six months in advance. How come it was already like this in October 2007?
Chang Zhongxiang lamented, "If only we had gone public six months ago, everything would have been so much easier back then. So many investors would have been lining up to give us their money."

Ao Yanzhen said, "We started preparing for the IPO a year in advance. If we go back any further, ByteDance hadn't grown to that scale yet."

The person in charge of the listing, Lü Zhihui, was constantly on the phone.

After making more than ten consecutive calls, he finally put down the phone and said, "Let's grit our teeth and hang in there. We are a Chinese concept stock, so there is still hope, but the issue price will definitely have to be lowered again. The roadshow will also have to be extended, so everyone may have to work an extra week or two."

So far, only two banks have defaulted.

Lowering the offering price again requires negotiation with the venture capital firms in rounds A and B. Their interests must be protected.

The next event was a small roundtable discussion arranged by Goldman Sachs.

Chen Guiliang only had to deal with fewer than 10 people, but it was more challenging than a large-scale presentation. These were all core decision-makers from top-tier organizations, and the entire event consisted primarily of in-depth Q&A!
Chen Guiliang led his men into the conference room, where a group of foreigners stared at him with sharp eyes.

Just as I was about to present the PowerPoint, an American said, "Let's skip this, or just give a brief introduction."

Yesterday, Chen Guiliang attended a large promotional event and had to face more than 80 people at the same time. His PPT presentation alone took an hour. Today, however, he was asked to skip the presentation before he even started speaking.

He could only give a simple 10-minute demonstration.

A Capital Group investment officer fired the first shot: "The user growth curves for both of your websites are very impressive, especially the data from the past year. But please disclose the trend of cost per user acquisition (CAC) over the last 12 months. Has the CAC for both websites increased significantly? How have you maintained such a high growth rate?"

Chen Guiliang said, "CAC has not only not increased, but has been declining. In fact, we rarely do on-the-ground promotion."

The other party asked, "How did you do that?"

Chen Guiliang said, "Xiaonei.com is a relatively closed online community. As long as you gain a first-mover advantage and do a good job in user experience, it will spread rapidly like a virus. Several of our competitors have already gone bankrupt. Zhanzuo.com, which went bankrupt last year, had three to four million registered users, but it was shut down and liquidated because it could not compete with Xiaonei.com. This is because campus online communities are exclusive."

"When all your classmates are using Renren (校内网), you must also use Renren to effectively socialize... Renren users account for over 50% of Chinese university students. More and more Chinese high school students are also registering on Renren... Please see the PPT..."

After talking about Renren.com, Chen Guiliang then talked about HaiNei.com.

"Hainei.com's model is different. We were the first to adopt the stranger follow function, dividing users into celebrities, famous people, internet celebrities, and ordinary people. Ordinary users can interact with celebrities, and celebrities are also willing to promote themselves on Hainei.com. The larger the user base, the lower the user acquisition cost. In the past 12 months, more and more celebrities, famous people, and internet celebrities have actively joined..."

"Please look at this PPT. These are all Chinese entertainment companies. They often have their artists voluntarily join HaiNei.com. Celebrities can expand their influence and promote their film or music works on HaiNei.com... We also have the ability to create internet celebrities. In the past year, HaiNei.com has produced dozens of internet celebrities..."

A Fidelity investment manager asked, "Facebook and Haiwainet are similar products; they are going global and may enter China in the future. Are you confident in competing with Facebook in China?"

Chen Guiliang laughed and said, "Facebook must be worried that I'm going to expand into the US! Look at the PPT, these are the features of our website, and a third of them are not available on Facebook. In my opinion, Facebook is a very outdated product. If it comes to China, it will be looked down upon by Chinese users as a website from the last century."

A Tiger Global representative asked, "Given your rate of cash burn, how many months do you expect the IPO proceeds to last? If the market continues to deteriorate and the funding window closes, what are your first, second, and third tier cost-cutting plans? Which departments will you prioritize cutting?"

Chen Guiliang said, "Although ByteDance has not yet achieved profitability, our financial situation has been improving. Please see the PPT... This is because we have expanded into the SP (Service Provider) business and recently launched a targeted advertising model... Our last round of financing was last spring, but those funds have not only been operating until now, but have also been used to invest in other companies along the way..."

"We are the world's first social networking site to offer targeted advertising. As far as I know, Yahoo also started targeted advertising last month, and we even used this model before Yahoo... As for Facebook, they may follow suit in the future."

"In the first month of adopting the targeted advertising model, advertisers still had doubts about it, so we had to significantly lower prices to get them to try it out. We started raising prices in the second month because the first month's results were good, and many advertisers were willing to continue. Look at these figures: advertising revenue that month saw a surge of 28% for Xiaonei.com and 41% for HaiNei.com..."

Suddenly someone asked, "Why did HaiNei.com's advertising revenue increase so much in the third month?"

Chen Guiliang smiled and said, "During the back-to-school season, students need to buy things, especially freshmen. As a result, advertising revenue on HaiNei.com surged by 210% in September. Currently, our precise advertising system is not yet perfect. I believe that with continued improvements, advertising revenue can increase significantly."

Another investor asked, "Could you explain this advertising model in more detail?"

Chen Guiliang explained, “For example, if a user joins a postgraduate entrance exam interest group or searches for postgraduate entrance exam keywords, we will push advertisements for postgraduate entrance exam study classes and websites. Or, if a user follows celebrities or discusses makeup and clothing matching, we will push advertisements for cosmetics and clothing. If someone is looking for a job, we will recommend advertisements for recruitment websites.” Most of the investors present had never heard of this model before, and Chen Guiliang’s explanation immediately piqued their interest.

Does this require very complex technology?

"Google has already made the most basic technology available. We are currently just using Google's technology. Once we have fully mastered it, we will improve upon Google's technology based on SNS websites and our self-developed vertical search engine. If you would like to hear more details, I can ask Mr. Guo Feng, the company's CTO, to explain."

Upon hearing this, Guo Feng walked over to Chen Guiliang's side.

Chen Guiliang said with a smile, "Mr. Guo Feng is my business partner. He is truly a legend. He took nearly a hundred courses in college, spanning eight different majors, including archaeology and architecture. He majored in biology in his sophomore year and switched to computer science in his junior year. He is a genius!"

Just brag and tell stories; investors are willing to listen to that.

Sure enough, Chen Guiliang's words piqued the interest of all the investors present in Guo Feng.

Guo Feng, following plan, maintained his persona, remaining expressionless as he eloquently explained the technology. He tried his best to make the technical details easy to understand, so that even these investors who didn't understand computers could comprehend them.

"Clap clap clap!"

After the explanation, the entire audience applauded.

Chen Guiliang began to boast, "Even in the United States, only portal websites and business websites have adopted the targeted advertising model. Moreover, among American portal websites, only Yahoo! has adopted this model, and it was launched even later than us. As for American social networking websites, there isn't a single one currently using this model."

"This is a groundbreaking product. ByteDance is leading the world trend and providing a direction for Web 2.0 websites to achieve profitability. I predict that as long as it continues to improve and optimize, ByteDance will be able to break even by next summer at the latest!"

This is quite a big story.

Investment institutions have lost much of their interest in Web 2.0 because they can't find a way to make money from it, but Chen Guiliang says he has solved this problem.

Someone else asked about Zhubajie.com.

Chen Guiliang said, "Zhubajie.com is called the crowdsourcing model in China, which is actually the same as crowdsourcing in the United States. Regardless of China or the United States, this type of website has never been very successful. But Zhubajie.com is an exception. I only invested a very small amount of money last year. After receiving angel investment, the founder of Zhubajie.com achieved profitability in the first month and has been profitable every month since. It doesn't even need Series A funding to continue operating and developing."

Some investors are surprisingly interested in ZBJ.com, even more so than ByteDance: "Will ZBJ.com go public in the future?"

Chen Guiliang said, "That's for sure. ZBJ.com's current shareholding structure is very simple: the founder holds absolute control, and ByteDance is the second largest shareholder. Given the website's profitability, it will definitely be sought after once it goes public in the US."

Chen Guiliang started praising ZBJ.com again, saying it was different from ordinary crowdsourcing/freelancing websites. He claimed its founder had exceptional business acumen and a vast network in the Chinese media industry, and that CCTV's "News Broadcast" had even featured his story.

Then, they touted Bailian Technology and Tudou.com.

He's said to be the Chinese version of Activision, and Tudou.com is the Chinese version of YouTube. ByteDance is the angel investor in both companies, highlighting Chen Guiliang's investment acumen.

The speech... well, the storytelling was quite effective.

"Have the founders and core management committed to holding a majority of the shares long-term after the lock-up period ends? Do you have a clear incentive plan linked to the long-term stock price? How do you avoid a lack of motivation among the core team after the IPO?" A bald American suddenly asked a series of questions.

The question was pointed, but Chen Guiliang was very pleased.

The investors are interested, which is why they ask so many questions.

Chen Guiliang stated, "I have already discussed with the core management team that we will continue to hold the shares for the long term after the lock-up period ends. We are a very young team, striving for our careers and dreams, not just starting to enjoy ourselves after making money. We can sign the relevant commitment letter. As for the stock price stimulus plan, if ByteDance's stock price falls significantly, I will buy back shares to boost it."

The bald man asked, "Where will you raise the funds to buy back the shares?"

Chen Guiliang said, "I also have another game company. ByteDance's listing prospectus and IPO prospectus also mentioned that this game company has very few related-party transactions with ByteDance, but everything is compliant. For example, ByteDance's payment channels use the game company's payment system. The mini-games that Xiaonei.com expanded rapidly in its early days were also developed by the game company."

The bald man pressed further, "How profitable is this game company?"

Chen Guiliang laughed and said, "We've already made many best-selling games. Games like Happy Farm and Plants vs. Zombies are wildly popular in China. Plants vs. Zombies is also set to be released in North America soon. Three Kingdoms Kill has sold throughout East and Southeast Asia. Seven Nights won Best 3D Mobile Game at Cannes this year. Our recently launched game, Future Era, currently has 55 concurrent users and monthly revenue exceeding 6000 million RMB."

The scene suddenly became quiet.

After a few seconds of silence, an investor finally said, "You should take your game company public in the US, not this damn Web 2.0 company."

Chen Guiliang sighed, "Game companies are not short of money; in fact, they have so much money they don't know what to do with it. If ByteDance's stock price remains low for an extended period, I will use the game company's funds to repurchase shares, thereby protecting the interests of all investors. This promise can be signed into an agreement!"

They asked him a dozen more questions, which Chen Guiliang answered carefully.

Project managers from Goldman Sachs and Morgan Stanley began communicating with investors and recording information based on their commitments.

This roadshow has now come to an end. Chen Guiliang needs to hurry up and have dinner before flying off to the next event.

Lu Zhihui said, "The roadshows were all very successful. Six months ago, investors would have been pouring money in like crazy. Now the overall market is not good, so they will definitely have to lower the issue price, but judging from the book-building, the financing should not be a problem."

The listing environment is incredibly difficult, but if a company is truly outstanding, there will always be people willing to listen to its story.

ByteDance's data is indeed impressive: China's largest campus social networking site, China's largest general social networking site (exaggeration), and it even angel-invested in China's largest video website, a highly profitable game company, and a consistently profitable crowdsourcing website. The founder also owns a game company and has promised to buy back shares to boost the stock price in critical moments.

And they're still spouting nonsense about solving the current profitability problem of Web 2.0 through targeted advertising.

How could investors not be tempted?

Lu Zhihui added, "When the company goes public, we'll spend money to get a few American newspapers to hype it up. The worse the economic climate, the more exciting the story we tell, the more likely it is to become a dark horse. Because when the economic climate is bad, investors and shareholders become cautious, and they have fewer stocks to choose from."

Take Giant Interactive as an example; it went public when the US stock market was at its worst.

At the time, the US stock market had already crashed badly, but people saw Giant's incredible profitability, and its stock price rose 32% on the opening day. It continued to surge for the next week.

(End of this chapter)