創業公司的藝術 霍格沃茲商學院

Yin & Yang: the balance between founders and investors

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【这是我某节课的一个课前case brief,写完之后觉得颇为得意,发上来供大家批判赏析。case是关于95年Yahoo!融资选择的,不过基本不影响对内容的理解。另外臭屁一下,美国教授给我这篇文章的评语是:“Wow, Jacky, you’re a talented writer – I can only imagine how you would write in Chinese – you must be a poet…” 哈哈】
 
In the realm of Internet, Yahoo! is absolutely a living fossil. When I read the case Yahoo! 1995, I felt like I was watching the three-Emmy-Awards-winner documentary Walking with Dinosaurs: awe for this giant’s legend past, and sentimental for its hard times right now:
 
Wall Street Journal recently reported Alibaba Group had hired Washington lobbying firm Duberstein Group Inc as an attempt to make a bid for all of Yahoo Inc if talks for buying back Yahoo’s Asian assets do not succeed; and last Saturday’s Tonight Show, Jay Leno made a cheesy joke about Jerry Yang’s resignation from Yahoo’s Board of Directors as “Yang stepped down means Yin got promoted…”
 
Seventeen years may not be a long time, but long enough to tarnish Yahoo’s once splendid luster. Though the story in the case occurred in a year people even didn’t know who Buzz Lightyear was, the underlying theme in this case presented a perpetual problem faced by all entrepreneurs: how to find the balance with investors?
 
The author of the case classified three financing options for Jerry Yang and David Filo. However, besides the different legal terms or financing techniques in each scenario, there is actually only one true question for the real entrepreneurs to answer: given the unshakable premise that founders must have the final say, how many funding could we get? (BTW, my definition for real entrepreneurs is based on either people are motivated by their dream and passion or motivated by fame and financial independence)
 
Assuming Jerry Yang and David Filo were real entrepreneurs, then Corporate Partnerships and merger with Netscape or Architext would be off the table instantaneously since both means indicated the two founders would gave up the power to control their venture.
 
Venture Capital was the only option left, and now David Filo’s fourth option became important: how to raise the pre-money valuation, how to take the initiative in negotiation, and how to maximize the funding while still keeping control.
 
Before I delve into more detailed discussion, I want to make a clarification about what I meant in keeping control. Keeping control does not equal to be a bigot who turns down any help or suggestions from VC. Actually, in the early fast-growing and fast-expanding stage of a start-up, all the intangible resources brought in by VCs — let it be vision and strategy, management team, operational experience, and business connections, would be as important, if not more, as the dollars depositing in company’s bank account, especially when the founders didn’t have much experiences in the business world (which is typically the situation).
 
Therefore I could easily understand why Don Valentine, founder of Sequoia Capital, though didn’t judge young Steve Jobs on his odd smell and Ho Chi Minh-resembled appearance during their first meeting, did say the following words to young Steve: “If you want me to finance you, you need to have one person as a partner who understands marketing and distribution and can write a business plan.” (According to Walter Isaacson’s recently published biography for late Steve Jobs) Same story also occurred in Google when John Doerr and Michael Moritz forced Google’s two genius founders to accept Eric Schimidt as the captain of this fast-sailing ship.
 
Though some of VC’s interferences can be justified, from founder’s perspective, dealing with VC is still a very tricky business since “greedy” investors would do literally anything to achieve a higher ROI (that’s also the reason why VC investors were referred as Vulture Capitalists by many people). If people as smart as Steve Jobs and Sean Parker could be booted out, you can’t blame founders treat financing negotiations as a war with investors.
 
However, a paradox emerged: in most high-tech start-ups, the founders are typically technical geniuses who know little about the rules of the business game. They eagerly need a person who knows how to talk the VC talk to be the last piece to finish their team lineup’s jigsaw. This last piece is so important and to some extent will decide the path of the start-up, and Sean Parker’s redemption story in Facebook exactly explained it.
 
Sean Parker, though criticized by many venture capitalists for his iconoclasm, immaturity, insecurity, rock-and-roll lifestyle or superior attitude, was also regarded by many as “a unique sort of entrepreneur, even for Silicon Valley; or a business artist, if those two words can be juxtaposed”.
 
In the best-selling book the Facebook effect, David Kirkpatrick gave a lot of credits to Parker when he as the fledging company’s president played the indispensible role during its early financing stages: “Parker, in contrast, was an experienced company-maker, familiar with the ways of the VC world. He knew a lot of people in the Valley and understood how to talk their lingo how to get their ear. He was the perfect front man who could talk up Thefacebook, which was exactly what it needed. In Silicon Valley those who had heard of it still mostly thought of Thefacebook as a silly thing for sex-starved college kids, however, Parker’s big-picture vision helped give the service gravitas.”
 
Parker successfully convinced Reid Hoffman and Peter Thiel, co-founder of LinkedIn and Paypal respectively, to invest in Facebook and later joined Facebook’s Board of Directors; he also used his personal relationship with the CEOs of LinkedIn and Tribe, who had jointly purchased a key patent that might be important for social networks, to make sure the patent wouldn’t be used against Facebook; he delicately pulled the strings among intricate financing talks with VIACOM, Washington Post, and Accel Partners.
 
One example from the book could fully illustrate why Parker was so important for Facebook: before the meeting with Western Technology Investment, Werdegar’s partners told him that while they were happy to be dealing with Sean Parker again, this company didn’t seem to merit a stock investment on top of the loan. That attitude quickly changed. “After an hour and a half listening to Sean, we all walked out and — I will forever remember this — they asked ‘How much of that equity can we get?’ “, recalls Werdegar.
 
To summarize, the Yahoo! 1995 case is so classic that all followers could learn from it. Financing is a very important issue for start-ups, therefore, being able to find the right person in the right time to win a right turf-war by adopting the right strategy with the right VCs is as vital as any proprietary cutting-edge technologies the start-up might possesses.
 
History told us Jerry Yang and David Filo chose the right financing option (first round with Sequoia Capital and second round with Reuters and Softbank) and successfully found the right balance. One year later, it launched a highly-successful IPO in April 1996.
 
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