"Mr. Zhang, after many rounds of discussions and voting, our investment decision-making committee feels that Ruixiang's current valuation of US$3 billion is too outrageous and has deviated from the existing value of the target. We cannot accept this price.
Therefore, it is a pity that if Ruixiang still insists on a valuation of US$3 billion, Temasek will have no choice but to give up this cooperation. I hope we can cooperate again if there is an opportunity in the future!"
The caller was Temasek's Li Hengbo, who began to put pressure on Zhang Yida.
"What is Temasek's internal valuation of Ruixiang?" Zhang Yida rubbed his eyes and asked on the phone.
"For 2.5 billion US dollars, we have to sign binding clauses!" Li Hengbo also said it bluntly and directly stated the conditions.
"That's too harsh, let me think about it!" Zhang Yida said with a frown.
After exchanging pleasantries with Li Hengbo for a few words, he hung up the phone, then called Shen Beipeng and explained Temasek's quotation and a series of circumstances.
"2.5 billion U.S. dollars, are there any binding clauses?" Shen Beipeng muttered to himself on the phone. He actually felt that the valuation of 2.5 billion U.S. dollars was not low. As for the binding clauses, they are basically a necessary condition for large-scale financing. .
After thinking about it, Shen Beipeng directly suggested:
"This valuation is not too low. What Ruixiang needs most now is growth time.
We must take the US$500 million before giants like Leech Financial Services react.
Once you get financing, you can use your talent to quickly capture the market. Even if the giants try to compete with you, you can still afford it.
If these giants start to become wary of Ruixiang, it will be difficult to obtain financing.
Without funds, giants can easily strangle you in the cradle, let alone subsequent development.
So don’t worry about the valuation issue first, the only way to get the money is in your hands!”
Zhang Yida was also thinking deeply. Shen Beipeng was not only a venture capital investor, he also ran a business before, and his experience in all aspects was beyond his comparison.
His suggestion is also very pertinent. This round of financing must be done quickly. This step will also lay the foundation for rapid take-off. If it is missed, it will be difficult to become a first-class financial technology company, let alone compete with the giants.
"Okay, let's finalize it as soon as possible! There's no time to lose." Zhang Yida agreed heartily.
Then, Shen Beipeng began to contact Temasek, and the two parties reached an agreement on a valuation of US$2.5 billion before Ruixiang Investment.
It will be easier to negotiate with Temasek as the lead investor first, and the other three institutions, SBI, GGV, and Qiming as follow-up investors.
In the end, Blackshirt Capital, Zhenke Fund, and the four institutions from Series B Venture Capital, a total of six institutions gathered at Ruixiang Jinke Company, plus Ruixiang's management, for a seven-party meeting.
The pre-money valuation of US$2.5 billion has long been agreed upon by many parties, and the biggest problem is the binding terms.
“First, we have veto power over major matters such as the use and distribution of large amounts of funds, changes in company equity or organizational structure, etc.
Second, Ruixiang is conducting a new round of financing, and investors in this round have preemptive rights to prevent the shareholding ratio from declining.
Third, when Ruixiang conducts a new round of financing, it should ensure that the investment price (valuation of Ruixiang) of new investors cannot be lower than the investment price (valuation) of the current round.
If the price is low (valuation drops), Ruixiang's management will compensate investors in this round in cash or equity.
This is a ratchet clause, an anti-dilution tool that is beneficial to investors, and is also the most commonly used form of anti-dilution protection by investors.
Fourth, if Ruixiang’s management intends to transfer all or part of its equity to any third party, directly or indirectly.
The investors in this round have the right but not the obligation, under the same conditions, to sell the corresponding amount of equity held by them to a third party who intends to purchase the equity, prior to Ruixiang's management.
This is a tag-along right, which means that if Ruixiang’s management wants to cash out, it must bring us with it, and we have to cash out first.”
In addition to these four clauses, there are also some conventional binding clauses such as liquidation priority clauses, dividend priority clauses, information disclosure clauses, etc.
Among these clauses, the one that makes Zhang Yida most disgusted and wary is the first one, "one-vote veto power". As long as the other clauses develop normally and go uphill, there will be no big problems.
"I can accept the other terms, but the first one, the one-vote veto, is too harsh and I cannot accept it.
What if Ruixiang wants to acquire an upstream and downstream company with great potential, but is constrained and rejected, and is acquired by a competitor first?
Since you believe in me and invest in me, you must give me the maximum authority to operate the business."
Zhang Yida glanced at the investors in the conference room, and then said very seriously,
"Mr. Zhang, after all, this is US$500 million in financing, not 5 yuan. We are just adding insurance to our investment.
We highly recognize your talent and management capabilities, but these US$500 million are investors' money, and the stakes are high, so we have to be cautious."
Li Hengbo also looked serious and said in a very tough manner.
"Ruixiang itself has an AB share structure, and the voting rights of our venture capital institutions have been weakened. If we no longer have a veto power, how can we ensure the rights and interests of our investors?"
The speaker was SBI China President Li Shilun. Although he acted relatively restrained, it could be seen that he was very excited.
Regarding their own interests, Tong Shijie from GGV and Gan Renping from Qiming also spoke out to put pressure on Zhang Yida.
Although Shen Beipeng and Xu Xiaoming helped Zhang Yida speak up, after all, they were not the lead investors in Series B, so their support was of little use.
Zhang Yida felt very angry, but he couldn't get angry on such an important occasion.
My age is already very criticized, but if I continue to act immature, it will make investors even less reassured.
“Add more seats to the board of directors! Let everyone vote on major company matters by a show of hands!
Otherwise, add a performance bet, and I won’t be able to agree to it with a veto anyway.”
Zhang Yida said this after thinking about it. In fact, to put it bluntly, these investors are still worried about Zhang Yida and are afraid that there will be problems in the company's operation.
Gambling is a magic elixir that will stop you from making trouble after taking it.
"Yes, we still need to discuss how to set the gambling conditions."
Li Hengbo finally showed a smile. All he wanted was a guarantee. He could not get a single veto power, but a performance-betting promise would also be enough.
Zhang Yida and Lin Zhenyang went out of the conference room to smoke a cigarette and gave the conference room to a group of investors for discussion and betting.
"What if they give us a chance to make a bet?" Lin Zhenyang took a long puff of cigarette and exhaled a large cloud of smoke.
"They are all smart people, and they will definitely not make random decisions. They just make revenue and net profit commitments for the next three years based on the price-to-earnings ratio." Zhang Yida said nonchalantly. He was very confident about completing the bet.
"Okay, as long as you are confident. You have the greatest credit for Ruixiang being able to get to where he is today.
Just do whatever you want to do! I support you unconditionally."
Lin Zhenyang smiled at Zhang Yida and looked at Zhang Yida sincerely.
Zhang Yida also feels very gratified. He and Lin Zhenyang have been getting along very happily since they started their business.
There is no intrigue and all kinds of nonsense from other entrepreneurial teams.
There is only mutual encouragement and trust between two young people pursuing their dreams.
Patting Lin Zhenyang's shoulder, Zhang Yida didn't say anything more, saying everything without saying anything.
When the two returned to the conference room, several major venture capital institutions also discussed the betting plan.
“Based on a price-to-earnings ratio of 30 times, if Ruixiang wants to support a post-money valuation of US$3 billion, its annual net profit must reach US$100 million.
However, considering the next few years, the profits of the entire Ruixiang Jinke Group will be used to support the mobile payment battlefield. The group may not be able to make overall profits in the short term.
If calculated using a price-to-sales ratio of 5 times, Ruixiang’s annual revenue would have to reach US$600 million.”
In the end, two sets of gambling plans were formed:
Option 1: Ruixiang’s net profit in 2014 will be no less than US$100 million and maintain a 20% month-on-month growth, net profit in 2015 will be no less than US$120 million, and net profit in 2016 will be no less than US$144 million.
Option 2: Ruixiang’s revenue in 2014 will be no less than US$600 million and maintain a 20% month-on-month growth, revenue in 2015 will be no less than US$720 million, and revenue in 2016 will be no less than US$864 million.
If either of the two plans is achieved, the bet is deemed completed.
If the bet is not completed, the difference in net profit over the three years will be made up by Rui Xiang’s management, and cash or equity compensation will be given to the Series B investors.
On behalf of Ruixiang Jinke Group, Zhang Yida signed this Series B investment agreement covering gambling:
“The B round of US$500 million financing was led by Temasek with US$250 million, Blackshirt Capital followed with US$100 million, and SBI, GGV, and Qiming each invested US$50 million.
Since Zhenke Fund's managed fund scale is too small, with only tens of millions and hundreds of millions, it has no choice to continue to increase its investment and allow its shares to be diluted."
The share structure after financing is:
Zhang Yida’s Cayman company Yizhou Overseas holds 52.5% of shares in Ruixiang Jinke Group;
Lin Zhenyang holds 6.67% of the shares through his Cayman company;
Ruixiang Enterprise Management (employee stock ownership platform) holds 6.67% of the shares;
Blackshirt Capital holds 17.5% of the shares;
Zhenke Fund holds 3.33% of the shares;
Temasek holds 8.33%;
SBI, GGV, and Qiming each hold 1.66% of the shares.
Zhang Yida's voting rights also dropped, to 83%.
Lin Zhenyang's voting rights have also been slightly reduced, still 10.54%.
The two people together hold more than 93% of the voting rights, and the company's management rights are still stable.
In addition, Blackshirt Capital increased its holdings by US$100 million in this round of investment, and its shareholding increased by 0.5% compared to the previous 17%.
The US$500 million in funds will be allocated in three phases. The first phase of US$200 million will be allocated immediately, and the other two funds of US$150 million will be allocated three months later and six months later depending on Rui's business progress.
After the agreement was reached, Shen Beipeng and Xu Xiaoming were extremely happy. In just half a year, Ruixiang's valuation increased tenfold, which would add luster to their investment career.
Zhang Yida, on the other hand, was neither happy nor sad, and was not surprised. He thought to himself, which of the small TMD giants has not seen its valuation increase tenfold or eightfold in a year and a half? It’s a small scene, so don’t panic!
The seven-party round B financing talks have come to an end, and the next step is for the public relations department to arrange a financing press conference to hype up the company's reputation!
Zhang Yida doesn't care, just let the public relations department arrange it.