Alibaba: The House That Jack Ma Built pdfdrive com

SoftBank Invests
One of the reasons that Jack was on such a high at Harvard was that he was on
the verge of announcing another important milestone for Alibaba: $20 million in
fresh funding from the Japanese investment firm SoftBank.
With this, and a subsequent investment, SoftBank became Alibaba’s largest
shareholder. The deal was teed up by Alibaba’s investor, Goldman Sachs.
SoftBank was on the lookout for tech investment opportunities in China when
Mark Schwartz, then president of Goldman Sachs Japan, told Masayoshi Son,
SoftBank’s founder, about the bank’s growing portfolio of tech investments in
China.
In October 1999, Jack was one of several entrepreneurs invited to meet
Masayoshi Son in one of a series of “speed dating” sessions between the Chinese
start-ups and the Japanese billionaire arranged by Chauncey Shey, president of
SoftBank China Venture Capital. The two men met at the wedding cake–styled
Fuhua Mansion in Beijing. The venue turned out to be a fitting one, their
meeting the start of an enduring partnership that would eventually make Son the
richest man in Japan. Son’s backing of Jack, coming just months before the dot-
com crash, transformed Alibaba’s fortunes.

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Masayoshi Son
Masayoshi Son, known to his friends as “Masa,” shares some similarities with
Jack. Both are short in stature and known for their outsize ambitions.
Son grew up in circumstances even more difficult than Jack’s. Born on
Japan’s southernmost main island of Kyushu, the Sons lived in a shack that
didn’t even have an official address. His father was a pig farmer who brewed
moonshine on the side. Son was bullied for being ethnically Korean and was
forced to adopt the Japanese surname Yasumoto. At the age of sixteen, Son
moved to Northern California in search of a brighter future. Staying with friends
and family, he attended Serramonte High School in Daly City, just south of San
Francisco, before gaining acceptance to the University of California, Berkeley,
where he started his entrepreneurial career. His most successful venture was
building a voice-operated translation device to be sold at airport kiosks. Son
designed, built, and then licensed the technology to Sharp Electronics for half a
million dollars. In the United States, Son started to import early models of the
Pac-Man and Space Invaders game consoles that were becoming popular at the
time, leasing them to local bars and restaurants, including Yoshi’s, a North
Berkeley sushi bar (now a famous Bay Area jazz venue). At Berkeley, he also
met and hired Lu Hongliang, whose venture, Unitech Industries (renamed
Unitech Telecom in 1994), later became part of the technology venture
UTStarcom, the Hangzhou-based company in which SoftBank invested in 1995.
After moving back to Japan in the early 1980s, Son started a software
distribution company. At the launch of the venture, in a scene echoing Jack’s
own irrepressible optimism, he famously climbed on top of a shipping box in
front of his employees—just two at the time, both working part-time—and
vowed that their new venture would make 50 billion yen ($3 billion) in revenues
within ten years.
By the time he first met Jack, Son had become a billionaire many times
over. He was known for making quick decisions. One of his best was the
prescient investment he made in Yahoo in 1995. When Yahoo went public in
1996, Son topped up SoftBank’s stake in the portal to 37 percent, becoming its
largest investor. Son also negotiated the right for SoftBank to become Yahoo’s
exclusive partner in Japan, a deal that would yield him tens of billions more.
Meeting Son, Jack knew he had found a kindred spirit. “We didn’t talk
about revenues; we didn’t even talk about a business model. . . . We just talked
about a shared vision. Both of us make quick decisions,” Jack recalled.

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“When I went to see Masayoshi Son, I didn’t even wear a suit that day. . . .
After five or six minutes, he began to like me and I began to like him. . . . People
around him have said that we are soul mates.”
At their first meeting, after Jack had finished describing Alibaba, by now
some 100,000 members strong, Son immediately turned the conversation to how
much SoftBank could invest. “I listened to Mr. Ma’s speech for five minutes and
decided on the spot that I was ready to invest in Alibaba,” Son recalled. Son
interrupted Jack’s presentation to tell him he should take SoftBank’s money
because he “should spend money more quickly.” Around the time of Alibaba’s
2014 IPO, Son was asked what it was that prompted him to bet on Jack back in
2000: “It was the look in his eye, it was an ‘animal smell.’ . . . It was the same
when we invested in Yahoo . . . when they were still only five to six people. I
invested based on my sense of smell.”
This impulsiveness was typical for Son. “Masa is Masa. He has ADD
[attention deficit disorder] and can’t sit still. He just wants to give you money
now, now!” commented a former business associate.
A few weeks after their first meeting in Beijing, Son invited Jack to Tokyo
to finalize terms. Joe Tsai joined him on the trip.
As soon as they entered Son’s office, the negotiations began. Jack would
later infuse his description of their meeting with martial art imagery: “Masters of
negotiation always listen, don’t talk. Those who talk a lot only have second-rate
negotiation skills. A true master listens, and as soon as he moves his sword, you
pretty much collapse.”
Joe, who had met up with SoftBank China’s Chauncey Shey before the trip,
told me the details of their meeting. “Goldman and the other funds had just
invested $5 million for half of the company, valuing Alibaba at $10 million.
Masa opened the negotiations by offering $20 million for 40 percent of the
company. This valued Alibaba at $50 million ‘post-money,’ and $30 million
‘pre-money.’ In just weeks, Goldman’s investment had increased in value by
three times.”
Joe and Jack looked at each other, Joe recalled, thinking, “Woohoo, that’s
three-times! But then we thought, we didn’t want to give up too much equity. So
Jack said, ‘Masa, that doesn’t work for us.’ Masa had a calculator; he was
literally doing the math right there. But Masa wanted 40 percent, so he said,
‘How about double the amount. I put $40 million for 40 percent.’ That means
$60 million pre-money.”
Jack and Joe offered to think it over. Upon their return to China, Jack wrote
Son an email turning down the $40 million investment. Instead he offered to take
in $20 million for 30 percent, adding, “If you agree, we will go ahead; if not,

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that’s it.” Jack later explained why he turned down the larger amount: “Why
would I need to take so much money? I didn’t know how to use it, and there
would definitely be problems.” Jack didn’t have to wait long for his reply from
Son, which came in the form of two words: “Go ahead.”
Jack credits fortune with playing a hand in connecting him with Son,
conceding that “[i]t is quite difficult to find such an investor.” Commenting on
the dynamics of their relationship, Jack said, “I think Masa is definitely one of
the world’s best [businessmen], very sharp on investment.” But he adds Son is
also a good operator of business, too: “It’s not easy to shift from investor to
operator and meanwhile still be a good investor. For me, I’m just an operator. I
love to be an entrepreneur. I’m not a good investor.”
Jack also liked to joke about their appearances: “The difference between me
and him is that I may look very smart, [but] in fact I am not; that guy seriously
doesn’t look very smart, but he is a very wise person.”
An early Alibaba employee, Shou Yuan, has an interesting take on the
relationship between the two founder-CEOs: “Son has a lot of self-confidence,
he’s even conceited, but his appearance is always one of modesty. He’s crazy,
but Ma’s also crazy. It’s very common for crazy people to like each other.”
Announcing the deal, Son himself drew a comparison with his wildly
successful investment in Yahoo.
“We would like to make Alibaba the next Yahoo. . . . I think this will
probably be the first Chinese Internet company which will become a global
brand, a global success in a big way. I am very excited to make that happen.”
The two firms also announced a joint venture for Alibaba Korea, which
would launch in June 2000, to fend off the growth of a local player there, and
drew up plans for a site in Japan as well.
The deal was clearly a transformative one for Alibaba, and cause for
celebration. In less than a year after the company’s founding, Jack and Joe had
reeled in $25 million from two of the largest and most prestigious investors in
the world.
The deal was not without a price: The sale of 30 percent of Alibaba to
SoftBank came on the heels of the sale of 50 percent of the company to
Goldman Sachs, meaning a hefty dilution of Jack’s stake.
Yet the SoftBank investment provided Alibaba with serious street cred in
China, just as the three Chinese Internet portals geared up for their U.S. IPOs.
The deal also gave Alibaba insurance. No one could predict with any certainty
how long the tech investment boom would last. SoftBank’s $20 million allowed
it to build out a much longer “runway” on which to achieve takeoff and future
profitability.

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Jack wanted to be noticed in Silicon Valley, too. Soon after he secured the
$20 million investment from SoftBank, Jack headed to Santa Clara, California,
the home of Yahoo. He traveled there to offer John Wu
15
—a Yahoo executive
whom Jack had first met when working at China Pages—the post of chief
technology officer of Alibaba. It was an ambitious pitch. Jack was proposing that
John take a 50 percent pay cut and leave the hottest company in Silicon Valley
for a risky start-up in Hangzhou.
John expressed his misgivings to Jack, as he later recalled, “Yahoo was
doing well, my parents were immigrating to the U.S., I wasn’t seriously
considering this possibility.” He was particularly keen to avoid moving his
family back to China. Instead Jack proposed he run Alibaba’s R&D team from
Fremont, California. John accepted.
Jack, with a background as an English teacher, was keen to ensure that his
own ignorance of technology was not replicated in Alibaba. “For a first-class
company, we need first-class technology. When John comes, I can sleep
soundly.” Hiring John Wu also gave Jack the opportunity to sprinkle some more
Yahoo stardust on his venture. Sitting next to Jack in a press conference, John
described Alibaba as a new form of Yahoo: “Yahoo’s search engine has shaped
the way millions of people surf the Internet. Now Alibaba’s e-commerce
platform will fundamentally change the way people conduct business online.”
The