[MIT CEO Law Series] Season1：The first step in starting a business is to understand corporate law
The story of a company can be told from the legal answer sheet it handed over.
The waters of equity are deep. Sina, Youku, Vanke, Uber -- the founders behind these familiar companies all quit the stage after losing control. Now that information is more and more developed, many people have heard advice from the first day of starting a business not to sign a gambling agreement with investors. It seems that the loss of equity is a mistake made by inexperienced predecessors, and it is also a minefield that we will never touch. But the process of starting a business is rarely right or wrong. Faced with different incentives, or whether the capital chain is tight, talents are robbed, competitors burn money to seize the market, or shareholders with the same goals have divergent interests, entrepreneurs are always in danger of stepping into the same river.
What Makes Entrepreneurs Go Wrong?
Let's take a look at Alibaba's story. In 2000, after successfully securing $25 million in financing from SoftBank and Goldman Sachs, Jack Ma studied eBay's business model under the advice of Masayoshi Son. What frightened him later was that in addition to serving self-employed individuals, eBay's backend could also be easily connected to enterprises, which is the scope of Alibaba's business. So in 2003, Jack Ma decided to take offense as defense and began to erode the Chinese C2C market coveted by eBay, leaving them no time to expand their B2B business. The money-burning war between the two sides is no less than the Meituan and Ele.me, Mobike and ofo we have seen today. The main backer of the cash burn is SoftBank, which already held a 30% stake in Alibaba in 2004.
The siege of the city needs to accumulate food, but the funds obtained by Ali began to bottom out in this war of attrition. In the same year, eBay issued an offer to buy shares of up to 1 billion US dollars to Masayoshi Sun, Alibaba's largest shareholder, and Ali's early venture capitalists were also there. Press around to find exit opportunities. For a time, Jack Ma faced the dilemma of his own funds drying up and competitors trying to force acquisitions. Once acquired by eBay, Jack Ma will lose his right to take the helm and become an accessory to his former rival. This is what entrepreneurship is all about. Entrepreneurs pay a price to get the resources they ask for, and all stakeholders force you to make decisions before you're ready.
In this situation, how to introduce funds to repel competitors, while maintaining their own right to speak in the company?
Ma Yun did it. At that time, Yang Jieyuan and Zhou Hongyi of Yahoo China had differences in strategic positioning, and Yang Jerry decided to entrust Yahoo China to a local company. He took a fancy to Alibaba. In 2005, Yahoo invested US$1 billion to acquire 39% of Alibaba shares from SoftBank and some early investors. At the same time, after SoftBank withdrew and got the cash, it turned back and took over the shares that the rest of the former investors were eager to give up together with Yahoo. In this way, SoftBank not only achieved an exit, but also cooperated with Yahoo to help Ali relieve its urgent needs, and it can continue to hold some Alibaba shares, which is a multi-purpose.
With the previous crisis, even if Yahoo China was Alibaba's life-saving straw at the time, Jack Ma did not easily let go of his vigilance. At that time, the shareholding structure of Alibaba Group was already divided into three powers: Yahoo China held 40%, Jack Ma and other founders 31%, and SoftBank 29%. At the insistence of Jack Ma, Alibaba Group's equity and voting rights began to remove the equal sign. Jack Ma maintained his two board seats (four in total) through the agreement, stabilizing his decision-making power. The water of equity also seems to be very shallow. As long as the founder has complete knowledge when there is a choice, the entrepreneur can still achieve the best results. It's man-made.
How would this story be rewritten if Alibaba did not collectively hold 31% of the shares, but had an additional partner with an equal share of Jack Ma's equity in the early days? Maybe we won't see Alibaba today. Therefore, legal awareness is an ability that entrepreneurs must master from day one.
According to actual experience, entrepreneurs not only need to use legal tools, but also learn to control their own minds. Imagine the following scenario happens to you: You choose to resign/leave school and devote yourself to the business, the partner is late, and the hardest days in the early days of starting a business are always one day less. I am so tired, why not take more shares?
The company has been in business for three to five years, and the entrepreneurial team of college students will also face different living environments with age. You may be 25 years old. In the past, your classmates went to FLAG, the Big Four, and Bulge Bracket. You know that before the project is stable, all the equity is an empty promise. You want to cash out a sum of money to improve your quality of life, but you don't know what other people will do when you take the lead. You worry about the near hydrolysis not near thirst, but weakening the team's desperate level. How to arrange the maturity and exit of equity, and how to reserve adjustment space for equity allocation?
You have started a consumer technology business, and your colleagues who are good at sales are so helpful. What can make the company shine is deep cultivation technology, but what can make the company grow rapidly from the food and clothing line is sales. How many shares should be given to the "resource partner"?
