Season 3, Episode 5: Alibaba

0:00 Yeah, that Yeah, like does for Google suggested search. What happened to Yahoo Steak in Alivada? Oh wait, I forgot about Altaba. Oh God. The remaining company is Altaba, which is a holding company of everything that wasn't Yahoo. Altaba is worth ten times more than what Verizon paid for Yahoo itself. Oh, they have a website. Look at this. Company profile, independent. This is on their website. Altava Inc. is an independent, publicly traded, non diversified, closed and management investment company registered under the nineteen forty Act.

0:34 Wow, what a mess. Oh Welcome to season three, episode five of Acquired, the show about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today we are continuing our quest to more deeply understand China Tech.

1:02 with Alibaba. So before we dive in, a few fun facts about Alibaba. They have the largest US based IPO of all time. Alibaba is China's biggest tech company.

1:15 Alibaba's market cap, even at their current scale, doubled in the last year, and they were valued at over half a trillion dollars earlier this year. So you think about only a few companies are racing up to a trillion, um, and that's gotten all the news cycle. Alibaba halfway there, growing very quickly, and we we may see a new trillion dollar company here in the next uh next year or two. They're the number one retailer worldwide in front of Amazon. Or Walmart. Holy crap. I don't think I knew that before uh uh researching this episode. And Yet through all this, they're a bit of an enigma. Uh founder Jack Ma says that we are not an e commerce company. We enable others to become e commerce, but they themselves don't feel that they're i it's it's fair to have a direct comparison between them and Amazon.

2:00 And if only if only there were like uh somewhere you could go to get a really good story and understand the history and facts of how all of this came to be. Yes. It's interesting for me, Alibaba, I think before we started doing the research was the of the big Chinese tech companies the one that I felt like I understood the least. I'm pumped to have sort of a little bit more of my hands around w who the company is and and how they came to be. So super excited to dive into that today. One of the hardest As you say.

2:28 Big Chinese tech companies to understand and yet Arguably the most important one. So Here we go. Here we go. Well if you're new to the show, you can check out

2:38 our Slack at acquire dot FM. It's the place where David myself and over sixteen hundred of our favorite listeners discuss episodes right right after we release them, along with real time hot takes and the biggest tech news of the day. By the way, if you guys haven't clicked the link in the show notes from The Recode episode. And watched Kara's interview with Stor Butterfield.

3:00 When Slack was Tiny spec makers of glitch. And watched her her video interview. It's amazing. Uh let's just say the world is better off that they pivoted into Slack. Probably

3:18 All right. Listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

3:48 So the founders did exactly what great founders do. operate with obsessive customer focus. They embedded inside a massive law firm. For months. They sat with the lawyers just watching how the work really gets done.

4:03 And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagora's Bet Here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work. and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time.

5:00 Lagora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million to a hundred million in ARR. In about Eighteen months.

5:15 Mm. truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired. And just tell him that Ben and David sent you.

5:41 All right, David, you wanna take us in? Yes, let's do it. Uh Two quick notes before we do. One, we're gonna do our best and listeners, you will be the judge uh in this episode, but We don't have Hans and Zara with us or anybody who really knows uh the history of Alibaba besides ourselves. And that's Hans and Zara from the nine nine six podcast by by GG V Capital, which joined us for the Shoei episode.

6:03 Exactly, exactly. And NGGV, as we will see along uh was actually investors in Alibaba at one point in time. So we'll do our best, but certainly uh I would expect our audience in in China might be more familiar with Alibaba's history than us. So anything we get wrong. Hit us up in the Slack and we will correct later. Second note. Almost all of the history of acts does come from a fantastic English language book.

6:28 About the history of Alibaba, uh called Alibaba the House that Jack Ma built. uh by Duncan Clark, who is an investor and uh former consultant and investment banker based in Asia, who actually was an advisor to the company. So he's not just an author or a journalist who came in. He actually had worked with the company and then um wrote this great book uh that came out in twenty sixteen. So if you want a even more deep dive Go read the book. Yeah.

6:52 But with that. Let's start the story. You know, my research starts in ninety nine when the company's founded. I in my head I was thinking like oh the okay, well like the we'll start ninety nine, you know, we'll take it over the next nineteen years. I'm guessing where you're gonna start is a little bit before ninety nine. A a little bit before I was debating going back like How many thousands of years to go back, but I'm I'm gonna save that for the carve out. So uh I I promise we will go back thousands of years, but not until the carve out. Perfect. We are actually gonna start

7:21 In nineteen Sixty four. When a young boy Named Ma Yun. is born in

7:29 Hangzhou, China. Uh, which is a city about a two hour drive from Shanghai. Until recently it was a uh in the sort of new government classification of of cities in in China a tier two city. It is now a tier one city. Thanks to Alibaba, which is headquartered there. But at the time it was it was nothing like it is today.

7:49 This was right before the beginning of the Cultural Revolution, and uh was obviously a time of great Great. turmoil uh in China. Uh lasted from the mid sixties to the mid seventies. And actually Uh Mayun's grandparents, uh not his parents were were persecuted during the Cultural Revolution. So there's a lot of a lot of turmoil going on. But when Ma is about ten years old, something pretty important happens, and that is that Richard Nixon makes his famous trip to China.

8:19 Opening up China. to the West. And that's really one of the beginning moments of of the Chinese government and and society kind of becoming more open and and evolving and towards the form of government that they have today. One of the cities that Nixon visits on his on his trip to China Is Hangzhou. It's an incredibly beautiful city.

8:37 People back in the West kinda see this and see uh the video coverage of his trip there, it becomes a tourist destination. And so lots of Americans and other English speaking people are now coming to China. Visiting Hangzhou. And Ma For some reason he becomes obsessed with English. He's never been outside of Hangzhou. His his parents are like super lower middle class. He becomes obsessed with English. He wants to he wants to learn it.

9:01 So what he does, he he starts pretty much every day bicycling from his house. Two the hotel where Nixon had stayed in Hangzhou, which becomes a tourist destination, and he just hangs out at the hotel and he starts chatting up English speaking tourists who are there and offering to take them on free tours and and he does all this just'cause he wants to learn to speak English. Pretty amazing. He does this for like Basically all of his like middle and high school career.

9:27 And while he's doing this, w one tourist who he's uh chatting with and and you know showing around the city. says, you know, your given name uh Yun, uh Ma's last name, uh boat com which comes first in in Chinese. Your given name Yun it's it's kinda hard to remember and pronounce for for English speakers. You need an English name, and Ma's like Okay, like what do you suggest? And this tourists woman is like, Well, you know, my husband's name is Jack and uh uh our son's name is Jack. Uh so how about Jack? And Ma's like Great, I'm now Jack. And that is how

10:00 Jack Ma. Very very creative of uh of her. Very, very creative. Jack. Also very creative as as we've seen here. Unfortunately not very good at math. So the

10:12 College entrance exams, the nationalized college entrance exams in China place a large priority, a high priority on on math. Jack is is not good at math, and still to this day, you know, he he gives these interviews. He's very self-effacing, but he gives these interviews, he's like, I don't really understand technology, like you know, all this coding stuff is, you know, Greek to me, and it's totally a front, by the way. He fails his college entrance exams twice. because he can't score high enough on math. He scores like the lowest percentile possible on math. He's great at everything else. He fails twice. He he finally tries a third time. He passes, he gets a high enough grade, he gets into the Hangzhou Teachers Institute uh for college. This is not a very good college. Uh but he goes there, he learns, he studies English there, he trains to become uh an English teacher, then he graduates, he has to get a job.

11:00 Turns out he loves telling this story. Kentucky fried chicken, KFC, had just come to China. Ben's lab. You I'm sure you saw this story too. Yeah. Amazing story. KFC had just come to China. They're opening up KFCs all over. They're hiring people to work in you know as cash, you know, registers or you know, cooks in in in KFC. Uh they're just hiring like anybody with a pulse, basically. They come to Hangzhou. They have twenty three open positions.

11:27 Twenty four people interview. for this position, including fresh graduate Jack May. And he's the only person who is not hired by KMC. They hire all twenty three other applicants for the KFC in Hangzhou.

11:41 Uh Jack gets rejected. And this is the moment where Jack files that away and says, When I'm on stage at Davos and telling my story, this is gonna be you too can make it if you pull yourself by your bootstraps. Yeah. When I am one of the richest people in the world and I retire to uh Uh to beat Bill Gates at his own game. Well we we're jumping ahead of ourselves. If there's one thing that he is um is his superpower is he is never disheartened or discouraged. He he gets a job anyway, working as an English teacher uh in Hangzhou. He's making twelve

12:19 Dollars a month. At this point in time. This is the the eighties now, kinda like mid eighties into the late eighties, early nineties. China, though, you know. Through all this is slowly introducing capitalism and entrepreneurship uh back into society.'Cause during the Cultural Revolution, like entrepreneurs were persecuted. Uh anything that

12:38 looked like capitalism was definitely a no no, but the government is is transitioning. So finally in nineteen ninety four, he's like confident enough that the business environment has evolved in in China and it's now safe to be an entrepreneur. He's always wanted to start a company. Uh he pledges to himself, he's twenty nine years old, he pledges to himself that now is the right time. He is going to start a company before he turns thirty, within the year. So he starts his first company, the Hangzhou Hibao Translation. Agency. Uh Hybo uh means hope.

13:11 in in Chinese, and it's a translation company. They're focused on helping local companies, you know, kind of do business overseas with uh particularly with English speaking countries. And at first it's kind of a side business. He starts he starts the company, but he keeps his job as a teacher and he's working on the side. And Something kind of amazing happens. So He's in Hangzhou and there's uh another uh county just just south of Hangzhou called Tong Lu, and and Tong Lu the the county had entered into this contract with an American company to build a highway that was gonna connect

13:45 The county and the city of Hangzhou. And they'd they'd hired this company about a year ago, nothing had happened. And so they're like, We need to send somebody over to America and just like meet with this company and like figure out what is going on. So they hire the uh the Hybo translation agency and Jack, and they send him over to America. Jack arrives in California. So details a little sparsier, Jack actively says he does not he prefers not to talk about this. It's a As we will see, very traumatic. Turns out that the company and the guy behind it were

14:18 basically a fraud and criminal. Like there was no company. Uh they had just signed this contract with Tonglu, uh the county of Tonglu to to build this highway, but there there was no construction company. Jack shows up he Unclear if he gets kidnapped or held hostage or something. The the guy's company, he's like, I don't you know, you can't go back to You can't go back to China and like tell them that, you know, you've you've discovered that I'm a fraud. He ends up getting held hostage, quote unquote. In a hotel in Las Vegas. Yeah. And he manages to escape from the hotel in Las Vegas. And somehow get himself out of

14:52 the city and he's trying to get back to China and he gets to Seattle. He has friends uh who are also English teachers in Seattle. This is now nineteen ninety five. He's his first time. He speaks great English. Uh he's an amazing orador, uh as we'll we'll link to, I'm sure, in the show notes several of his of his talks. He's escaped, he's on the run. Uh he's he finds himself in Seattle. And while he's staying in Seattle, he's trying to find a way to get back to China and back to Hangzhou. a friend of who the the people he's staying with is working this is nineteen ninety five, working for an internet consultancy business in downtown Seattle, because you know, it's 1995. Like, hey, Amazon is like there. You know, this is the go go years, the internet. The friend of the friend takes Jack one day to the office in the US bank building in downtown Seattle, right there, and shows him, you know, what he's working on. Shows him the internet. Jack's never seen the internet before. And he's like

15:45 Oh my God. Uh it uh it is a a life changing moment. So the first thing he does, the first thing you can think of, he he searches on the internet for beer. And and Jack's like, uh he still when he talks about this thing he's like, I don't know why I searched beer. I I don't even drink beer. But uh beer was the first thing that came to mind. And he notices he's he searches beer, he sees all these results for American beer, Mexican beer, German beer, uh, but there's no Chinese beer. And he's like, Oh, well, I'll search China and see like what comes up. Basically nothing comes up for China and he's like, I wonder how he's searching. In N Yeah, so I wasn't able to figure that out either. Like I mean, there were search engines, or

16:26 Yeah, yeah. Sort of. Are we pre Yahoo? Yahoo existed, right? Huh. Yeah, Yahoo definitely existed. Yeah.

16:34 And excite and uh maybe Alta Vista was around then. Yeah. Um This has whisperings of our previous episode with Kara where she was like, Well, I saw the internet and just instantly got it. Like this was gonna change the world And I think Jack had that sort of similar insight of like, I don't know why anybody's doing anything else. This kind of like basically directly leads to Alibaba here, although we're gonna you're gonna have to sit through another twenty minutes of history and facts before we get there. But but he searches he searches out, he's like, All right, well Nothing shows up, huh? I should just like make a page for for Hope Translation Agency, you know, like this is this is great. People search for China and then they'll find my translation firm. So on the spot, he's in the office of this internet consultancy. He just hacks together like uh he has them like, you know, he's like, oh yeah, put like my info up there. They create a website for for

17:20 Highbo translation agency and there's there's only text. Has the name and a phone number and there was an email address It must have gone to the internet consulting firm or something. Later that day, they get five emails for translation business requests. Three from the US, one from Japan, one from Germany. And so his friend, the the friend of the friend is like uh hey, Jack, um You've got some like business requests coming in. And he's like business are going like what this is not so like this is probably more business than they've done in like a year. And uh so he's like

17:53 Okay, now I see the opportunity. I need to like forget making this translation agency. I'm going to go back and I'm going to build a whole company to help Chinese businesses list themselves online. Like this generated so much demand for me. Like imagine all these other businesses in China. D do you know what else he uh he saw and vowed while he was visiting Seattle? To crush Amazon? No. He uh apparently looked he was like over on uh Queen Anne, Queen Hills a um neighborhood in Seattle, and like looked around and saw a bunch of big houses and vowed one day I will be rich enough to buy one of these houses.

18:29 And it's so I mean literally while this is happening, like I'm sure So I I I looked this up. Amazon was not yet in there. Uh I think it was their second or third headquarters was in downtown Seattle. I think they were still down in Soto. I'm sure Jeff Bezos and Shell Kaplan and everybody were like

18:46 just a mile down the road working on Amazon at this very moment. It's crazy. Totally crazy. Before he flies, Jack does a he does a deal with this internet consulting firm because like as far as he knows, like They are the internet, you know, they're the gateway to the internet. Uh he flies home to China and he brings a a computer with him. He gets back and he creates a company, uh is a deal with the internet Seattle firm. Uh it calls it China Pages. And he's gonna do Exactly, you know, what what he said. He's gonna start building websites for Chinese businesses. So he starts going around Hangzhou and talking to all these companies that produce things or you know offer services and like, hey, we can get you business, we'll put you on the internet.

19:28 The one problem is that the internet doesn't exist yet in China. I mean it You can get on the internet in China, but like maybe only the government can like definitely nobody in Hangzhou is is on the internet. Like uh and definitely not these small businesses. So they're like Uh are you trying to scam me? Like what are you talking about? It doesn't go super well. Like you get some customers, but it's not a a wild success. At the same time, I mean the the government sees the power of the internet. They are starting to push the internet and technology through the state owned enterprises as like a way of the future and something China wants to get involved in. Turns out that there was a state owned uh an SOE, a state owned enterprise backed company that was also doing sort of the same thing.

20:10 They end up acquiring China Pages and rolling it up into this quasi government, quasi private entity. Jack moves to Beijing. That's not like when we think about an ex that's not like life changing for Jack in any way. Unclear what the economics were here. I mean, basically like the government acquired the business. Certainly, certainly not life changing. And as a result, Jack moves to Beijing because that's where the government is. He ends up leaving the company. He's he's kind of disillusioned at this point. Well I mean he's not easily disillusioned, but he's disillusioned with this company. He goes to work for another government agency uh that's working on another initiative for uh bringing the internet to to China called Infoshare. And he's really interested in this. He thinks, okay, this is like great. This is the government is now gonna push what I was trying to do with China pages. And and InfoShare launches the China market site. And and what the China market say.

21:03 the goal was to allow producers of commodities, so I don't know, soybeans, rice, what whatever commodities, nails, parts, whatever, to list their goods for sale on this site and for buyers to contact them. And all of the discussion is gonna happen in these secure chat rooms on the site. And this is essentially what Alibaba would become But because it's a government agency, you have to go through both buyers and sellers have to go through an insane amount of bureaucracy just to get onto the site. They gotta go to like the local government agency, they gotta register, they gotta wait for all this stuff, they gotta talk to you know, a thousand ministers. So Jack is like, this is it. Like this is the this is what is gonna work. But like there's all this friction, all these barriers to entry. He's like uh what's gonna happen? At the same time.

21:48 Yahoo, which we Referenced earlier. has just gone public. They are like the world, you know, internet darling. Everybody in America is crazy about Yahoo at this point. People in China are figuring out oh this portal thing, like and and

22:04 It wasn't search at the time, it was directories. This is like the key to unlocking the internet for consumers. So There are three companies that sprout up in China, Cina, Sohu, and Netes. So they've all they've all popped up. And Jack, of course.

22:20 sees all this uh happening and he's like okay, this is really interesting. Yahoo, this is Pretty interesting. Nineteen ninety seven rolls around. Jack's been doing this with the g in the government for a little while. And uh Turns out

22:34 Who comes over to visit China and visit Beijing and the government. Jerry Yang. Uh even better than Richard Dixon. Even better than Richard Dixon, exactly. Uh not CEO at the time, but but founder and chairman of Yahoo. Jerry comes to Beijing. And and the government is like, all right, well we need some you know, we need someone who like is both a government employee and gets this like internet thing to kinda Show Jerry around. And uh and who does that end up being?

23:03 Jack Ma. Pretty cool. I didn't realize until uh digging into this a little bit that that was you know long before Alibaba that they started this relationship. Well, not that long before Alibaba, as we'll see. Uh but uh but yes, before Alibaba. It's when uh Jack's Jack's a minister in the in the government and uh and he's the envoy. Assigned to Jerry. And so he goes there these great pictures. Of Jack and Jerry and some other Yahoo executives, you know, on the Great Wall of China, doing all these, you know, tourist sites, and Jack's there with him the whole time. So as he as he gets to know Jerry, he realizes that like, okay

23:41 My vision here. If there's any chance I'm gonna realize it, like it's not gonna happen in a within the government uh here. I need to I need to go become an entrepreneur and do this. So he leaves the government, he moves back, he leaves Beijing, moves back to Hangzhou. And he brings a bunch of his colleagues from the China Market uh initiative within the government, he brings a bunch of them back with him to Hangzhou.

24:02 And he decides that They're gonna start a company. So Jack and his wife rent an apartment. Very famous apartment that we will see at building sixteen one Lakeside Gardens in Hangzhou. They start the company there with all these people. There are eighteen co-founders of this company. So it's it's amazing when you look at like the the founding photo. Like you expect to see like a few people in a dorm room or a few people in a garage or this must have been like maybe a year into the company or something, but like nope, it's all eighteen people. They're all co-founders. They're all piled into this apartment.

24:37 Yeah. I mean what was it when we did the Xiaomi episode, it was like There's seven or eight co founders of Xiaomi's or something like that. Like Yeah, eighteen co founders of L. It's like uh it's the tech theme a little bit, but like think about if you can actually stay organized, what an accelerant to a business if you have that many people from day one instead of, you know, biting and scratching for every person you're gonna bring on, especially if you've all worked together before. Totally. Yeah. I that's exactly what I was gonna say. Not only is this like the team is fully formed, but they've

25:08 Oh. Built. this already within the government. Like, uh this is an airlift here. They just airlifted the team from Beijing to Hangzhou. So Jack's trying to figure out what he wants to call the company. He he doesn't want this to be just a Chinese company because remember, this is this is all about international trade, and he wants these businesses, you know, commodity suppliers and other businesses to be able to

25:31 Do business with with companies anywhere around the world. You know, on the first day of the website for his company, he had requests from the US, from Germany, from Japan. He wants a name that'll work in any language. He also wants a name that starts with the letter A. So he settles on Alibaba. He's inspired by The term open sesame. Uh it was something like he thought of the name and then I think he even He was like at a cafe and then asked the server, when I say Alibaba, what does that mean to you? Or what does that invoke to you? And the the server says open sesame and he grins and he's like perfect. And then he goes and he like asks like eighteen people on the street the same thing. And then there they he gets like some significant number also said open sesame and he was like perfect.

26:15 Perfect. Yes, exactly. He starts walking around wandering around Hangzhou asking all these people, English speakers, Chinese speakers, everybody. And everybody's like, Yeah, open sesame. And that's he wants like Alibaba to be the the magic word to opening business opportunities. So and and that's of course from the what's the classic story, the Arabian Nights, uh Yeah, Thousand and One Arabian Knights. Yeah, yeah, yeah. Yep. Yeah. So he he starts the company. Turns out Alibaba.com is owned by a Canadian

26:45 Guy It takes them I think it takes them about a year to negotiate buying the domain name, uh, from them. Uh, but they they do buy Alibaba.com from uh for something like four thousand dollars or something from a Canadian businessman. Domain names just keep showing up unacquired. I know. Boy, if there's one thing that's constant among a bunch of our companies, it's long drawn out domain name acquisitions. Seriously. So they start the company. And and it's exactly what um

27:12 as we've said, what they were what they were doing with China Market. It's a bulletin board for businesses that you're gonna businesses are gonna be able to find demand for their products or services and then be able to chat with potential customers and and facilitate transactions. This may be apocryphal, but but Jack talks about this now. He kind of takes inspiration from his favorite movie. which is Forest Gump. And and the Bubba Gump Shrimp Company in in uh in Forest Gump, where the shrimp company, like they made their money. They turned into a big business by harvesting Shrimp. Like

27:46 Tiny shrimp, like not like big swordfish or whales or whatever, like all these other businesses. And so he's like we're gonna do the same thing. We're gonna harvest the shrimp. And then invest in apple. Like that's slightly different, uh yeah. So he's like, We're not gonna focus on big businesses. We're gonna focus on really, really small businesses. The shrimp. And it was like, Okay, so they get going and they start signing up these small businesses. As they're getting going, A pretty unlikely person with a very different background. Somehow here's about This new company Alibaba.

28:19 Guy named Joe Psy. Who is A Hong Kong based private equity investor. And Joe's pretty interesting. So Joe grew up in Taiwan.

28:29 Uh and again, remember like Jack grew up during the Cultural Revolution and, you know, Taiwan's splitting friend, Jack's grandparents were persecuted, but Jack's family stayed in China, they became communists. So there's a little bit of a like Culture clash there. Joe Gros of Taiwan, he ends up going, coming to the US, he goes to the Lawrenceville School. He goes to prep boarding school, uh Lawrenceville in New Jersey, right down the road from Princeton.

28:52 He ends up going to Yale for college. He goes right into Yale law school. He then works for, I believe, Sullivan and Cromwell, super white to law firm in New York. And then he gets into private equity and then he comes back to Asia and he's working in Hong Kong as a private equity investor. So like completely different background. And he hears about Jack and Alibaba. He's like, I gotta go visit this guy. So he goes over to Hangzhou He visits them in the apartment and he's like This is crazy. Like Jack is completely nuts. Like this guy is like

29:22 Crazy, but he has these seventeen other people that are with him. And he and he decides like You know, if one person is saying has this crazy idea, like he's probably crazy. But if you've got eighteen people, it's probably a movement. We will definitely link to this in the show notes. Dave and I were I messaging about it uh last night. There is a wildly cool video from this time period of Jack Ma sort of rallying the troops. He's he's getting everyone fired up and he's pacing around

29:52 the apartment. And it's, you know, nineteen ninety what, nineteen ninety nine? Actually it's a it's a little later, so this is when they launched Tau uh a couple years later. So the apartment's gonna come back. It looks like it's about eighteen people. I mean it really the team doesn't seem I think it's like seven or eight people that launch that launch Tabao. But but it basically the same thing had happened with the original Alibaba. The takeaway from this video is A few fold.

30:17 he's sort of lecturing on the the uh verdict of hard work and of the virtue of hard work. And he said, look, if we're an eight to five culture then we should all go get different jobs. There's there's other things for us to do here. This is we're gonna be round the clock. This is all in, the only way we'll win is is by doing this. And the second interesting point is he he looks and says I have been to Silicon Valley and I have seen the way those companies work and it he's I mean alluding to Jerry Yang, of course, and he says we need to be more like them. And we need to go and have that that work ethic, not the work ethic that, you know, we're used to here. And hearing that uh from ninety nine is totally fascinating because that is

30:58 in many ways completely flipped now. I mean, heck, the nine nine six podcast is called nine nine six for ninety nine hours a week, six days a week. The Chinese work ethic is, you know, near unmatched when we look at the um really the beginning of it. And and the other important point he makes is that Our competitors are Yahoo or eBay or Amazon. They're not

31:21 the other companies in China. And nobody else was really thinking this way at the time. And so Joe is like he's Smitten. He goes back to Hong Kong and he tells his wife he's like I wanna go join these guys. And his wife's like Uh, how about we both go visit them. So Joe he's making he's making over seven hundred thousand dollars a year. This is nineteen ninety nine, making over seven hundred thousand dollars a year doing PE

31:44 in China. He brings his wife over, convinces her that like no this is gonna be a thing. They move to Hangzhou and And He accepts the role, he's the COO and CFO of this newly formed company, Alibaba. For a salary of six hundred dollars per year.

31:59 Mm-hmm. It's jobs in. Yeah. Unreal. Well, it paid off. So

32:05 Probably maybe at the maybe at the insistence of Joe's wife. Uh Joe's like, we need to get raised some money for this company. So He's like, I got this. Like, you know, he's super white too. He knows all this stuff. He's working in private equity. He's like, We'll we'll do this. We're gonna go over to the we're gonna go over to California. We're gonna go over to the US. We're gonna go to Sand Hill Road. We're gonna go pitch all the VCs, like this is great, like we'll we'll raise money. Let's just like put together a pitch deck and like it's nineteen ninety nine, we'll raise money, no problem. Jack is like I don't do pitch dec. I just tell the story. Joe's like no, I really think we should have a pitch deck. It's very recruit, like n Nick, like yeah, if you wanna Yeah, you you you can come and hang out in VR if you want to hear our story, but I'm not gonna like send you a PowerPoint. Yeah, and that worked in twenty sixteen.

32:51 That doesn't work in two nineteen ninety nine. So they come over. Everybody at Sand Hill's Lake. Y who, you guys? You're in China? Like you're doing what? Like uh yeah, send me your dick like Anyway. It doesn't work. They come back, they haven't raised any money. But

33:10 there is something that happens shortly thereafter, which is a company called China.com goes public. And this is the dot com boom. Uh Nobody even knows what China dot com does. It it may or may not do anything, but all of a sudden it has a multi billion dollar market cap and everybody's like China, the internet. Big opportunity.

33:26 So Goldman Sachs? course has an office in in Hong Kong as well. And there's an investor there named Shirley Lynn. And she knows Joe and she's looking now for Chinese internet investments and she sees that Joe has like gone to

33:40 move to Hangzhou and and and join Dali Baba. She's like, I'm gonna go see what's up. So she comes over, she comes to the apartment Building sixteen one Lakeside Gardens in Hangzhou. And uh she's like, How about I buy your company for Goldman? And Jack and Joe are like uh well, you know We don't really want to sell like a majority share to you and and and Shirley offered five million dollars uh for a majority share of the company. They negotiate her down to

34:05 Fifty percent. They're gonna sell fifty percent of the company to Goldman for five million dollars, ten million dollar valuation. Boy, that is a that is a delutive little seed around there. I mean, large seed round. Very deleted. Shirley brings it back to Goldman investment committee and she's like, That's five million dollars. Like this isn't gonna be a big deal. And Goldman's like, I don't know about this. Like this seems crazy. Like let's can we like reduce our stake down and syndicate some of it? So they do. Goldman invests three point three million dollars, they get a thirty three percent stake, they syndicate out the rest of it, and they raise five million bucks. So They start growing.

34:38 Couple weeks later, Shirley's like, She really likes these guys. She's taken by Joe, taken by Jack. She starts talking them up. She talks them up to another Goldman client. Masayoshi san Over at Softbank in Japan. Unfreaking believable. Uh totally unbelievable. So remember, Jack has already met Jerry Yang. fortuitously, uh through his government job.

35:01 Now Goldman has invested in in Alibaba owns thirty three percent of the company. They're talking it up to Masa and and they're like, Yeah, you should just come meet like uh come meet this guy Jack. Masa meets Jack in Hong Kong. Within five minutes, Massa's like I like this guy.

35:19 I want to invest. Typical M of it. Conviction based investor. And um I don't recall exactly, but I believe his initial offer is he's like He wants to buy a lot of the company. He's like, How about I invest forty milyen dollars in the company. for a forty percent stake. So remember, they were just valued a couple weeks ago at ten million dollars. Goldman bought we're gonna buy half of it. They got cold feet, they you know their scooter company or something. Seriously. A couple weeks later, nothing has really changed. Massa's like hundred million dollar valuation, I'm gonna buy forty percent.

35:54 So again, Jack and Joe they're like uh I don't know, how about how about half of that twenty million dollars for a twenty percent stake, same hundred million dollar evaluation. Masa apparently emails them back like within minutes and he's like go ahead. I'll have my people see to it. Within you know weeks they they go to Sand Hill, they strike out Now they've got twenty five million dollars. they're valued at a hundred million dollars. They've sold a lot of the company, unfortunately, though, as we will see. They have all these resources, what do they do?

36:23 They go back to Silicon Valley. And they hire a senior engineer away from Yahoo named John Wu To become CTO of the company. And they're gonna build the technical team in Silicon Valley. Oh.

36:37 Yeah. Very very bold. So this is all, you know, year two thousand now. Unfortunately though, the bubble bursts. And all of this behavior, you know, the the tide goes out and and everybody who's, you know, not wearing swim trunks uh gets exposed. Alibaba is of course. Yeah.

36:56 Fortunately, though, they had not spent that much of the money when the bubble popped. They still had twenty million dollars in the bank, but they've got this crazy structure where they've got a Silicon Valley tech team. They still have no business model, by the way. They're they're listing businesses. They don't take a take rate on the transactions. So They have zero revenue. Just to make sure we hammer it home,'cause I think it's like important to be explicit about this, they're a B to B marketplace. Like they are f helping small and medium sized businesses find other small and medium sized businesses doing international commerce. There's some structured, some unstructured. So there's sort of discussion boards for unstructured uh sort of commerce or negotiation. And then there's the structured, you know, Amazon style. I'm gonna click this button and buy this many things. But it's really And I think at this point it's really just all unstructured. Like It's just a bulletin board.

37:43 Maybe there's some of the structured stuff, but they're only beginning to build that. Yeah, I think it's important to sort of anchor on okay, that this business doesn't really look anything like Amazon. They're not a first party seller. They don't have a formalized third party seller ecosystem. It's hey, if you want to do commerce, you should come here and we'll loosely help facilitate that. Money can flow through our platform. Exactly. Take any of the money.

38:08 All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI first world, that doesn't hold up anymore. Yep, your risk surface changes every week now.

38:30 A vendor turns on an AI feature or someone writes in a new model without telling IT And your posture is different than it was last week, let alone at your last audit. Fanta's own research found that around seventy percent of companies have this quote unquote shadow AI running with no security review at all. Right. And that's where Vanta comes in.

38:50 They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's governance, risk, and compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half. In half.

39:11 Which is exactly why more than sixteen thousand companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake. All stay audit ready and catch the risks that crop up between audits across every vendor. Every AI tool. The whole environment. And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust.

39:37 We're huge fans of Vanta over here, and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get$1,000 off Vanta at vanta.com slash acquired. That's V-A-N-T-A.com slash acquired for a thousand dollars off. And just tell them. That Ben and David sent you. So the bubbles burst.

39:57 It's now two thousand and one. And fortunately they have the twenty million in the bank, but they have kinda No prospects and no business model. They hire a guy from GE, Savio Quan, to come over as COO and kinda Be the adult in the room here.

40:13 Jack ends up giving half of his office to Savio. He scales Savio's like, You have the Silicon Valley tech office. This makes no sense. Let's shut that down. That's gone. They cut monthly burn by half and they kinda write it out and they figure out the business model. And the business model that they land on, they're kind of inspired by remember the you know, the meeting with with Jerry Yang and Yahoo and Yahoo really working. They figure out that like the taking a take rate of transactions doesn't make a lot of sense in China because it's such a like that's orthogonal to the way things

40:45 work there, people are coming online for the first time. They don't understand like why they would give a cut of their business to somebody else. What does work is sort of what Yahoo does and what Google does is is getting These SMPs get them more business. Have them they're they're totally willing to pay for more business.

41:03 And so what they land on is essentially an advertising based model where Anybody can join Alibaba. list their services in the uh in the marketplace. Um But if you want to get featured in the marketplace and have more prominent placement, you can

41:19 By placement. It's like a pay to promote, kind of like the, you know, how eBay let you in the old days, I'm sure they do still do something similar, put a purple box around and appear first in search results, and sort of you can either pay on a SaaS basis or pay on a per transaction basis, or I'm sorry, a per listing basis to sort of bump up your your likelihood of being the selected supplier. Totally. Or or like Ad words, right? Like, you know, people are searching for things, you can get the organic results, but like there's also the featured AdWords at the top. And so kinda as a result of this

41:52 Alibaba essentially becomes like if you imagine Amazon and Google All in one. Like imagine Amazon without Google, where everybody is searching like the place where you start. Your search for something is Alibaba. And the place where you transact. Is Alibaba.

42:08 Turns out that's a pretty good business model. Yeah, and it's important to point out too, you mentioned it doesn't make as much sense in China for a business to just say, Oh yeah, you can have a cut of the revenue because that's sort of the expectation um that there's all these pieces of infrastructure and we give a little cut of revenue to each one, and you know, we're able to preserve some amount of margin, and then that's our our business. In China, even today, the e commerce ecosystem is so much less developed, the sort of delivery system and the uh payment processing and all you know, it's it's I think we take for granted in the US all this sort of trusted infrastructure that exists that

42:46 make it really easy if you want to just become your own e commerce site, you can. I mean, Shopify makes it easy, the payment processes make it easy, all these things make it easy. In China, it's ludicrously difficult to start your own e-commerce company. And so it makes tons and tons of sense to go do it on another platform it's not painfully obvious right away when you're like, Oh yeah, they'll just take a cut of revenue. That that's the way that these things work. Well you gotta remember too, like in the US Pretty much everybody at this point knows what the internet is. You know, now we're into the early two thousands, like businesses understand like oh yes, the commerce platform, like I And this is not the case in China. Like People don't know what it is, and so Alibaba actually the

43:26 develop and still have as extremely large sales force of these are like people That are going and knocking on doors of physical small and medium sized businesses throughout the country, in the provinces all over, and being like Hey. We can get you more business via this thing called the internet. Don't even worry about what the internet is. I mean, at this point everybody knows what the internet is, but back then it was like, you know, hey, we'll just get you business, you know? It's a super different like education and value prop sales proposition. It's interesting thinking about outbound sales to do education around you should have your business on the internet.

44:00 Totally. I mean like US based internet marketplaces like You know, the thing is uh this is Actually not true in practice, but the belief is like, Oh yeah, you don't like spend money on acquiring supply. Like supply comes to the platform because like You know, you're

44:16 eBay or your Airbnb or whatever, and you're and people are like, Oh, I can make money doing this. Like, of course I'll join the platform and make money and then give the platform a cut of the money. That's that's not how it works in China. Uh at least at this time. Um It starts working. Really well. Two thousand three comes around though, and they've got A challenge.

44:37 Which is Ebay. has decided that they want to be a global company. So Meg Whitman is now CEO of eBay. eBay has gone public there, we know one of these darling internet stocks, even though you know, ca they've they've kind of made it through the crash. Uh Yahoo is in shambles, eBay is is the new Silicon Valley star. They decide they're gonna go global.

44:59 They're gonna come. To China. And how are they gonna do it? They end up acquiring a company that was a competitor to Alibaba called EachNet. But they're focused on consumers. Now now the the line in China between consumers at this point and The

45:16 very small businesses that Alibaba's going after is is pretty blurry. And so there's there's you know, while Alibaba is as we've said is always a B to B marketplace, like It's actually not that some of these are very, very small businesses run by individual people offering goods and services on the platform. It's not that much of a stretch to say like uh this kinda looks like eBay in a lot of ways.

45:38 Jack is now pretty worried that eBay and and Ethernet are gonna start coming after them and competing with them. He decides he needs to do something about it. But the main Alibaba platform. he doesn't think is the right way to go about it because it's all the marketing and all the positioning is focused on on B2B. So what does he do?

45:56 He creates a Skunk Works team. This is where the video comes in. Of the top people within the company. And he's like, We're gonna go somewhere, we're gonna start

46:06 A new product within Alibaba. Where are we gonna go? We're gonna go back to the apartment. Okay, that starts to come together. It comes back to the So Building 161. Very like two jobs and the Macintosh. Told it they're gonna fly the pirate flag in the apartment complex. I believe there were seven people who started Taobao, what would become Taobao within Alibaba. in this apartment. He gives this amazing speech and there's a documentary being made, uh, and that's where the video is there. Uh we'll link to I think it's called The Crocodile in the Yangtze or or something like that. We'll we'll link to it. And he's like we need to build a official B to C

46:43 you know, marketplace here in China to compete with eBay. They decide that they're gonna call it Tao Bao, which literally means treasure hunt. And it's completely secret, totally clandestine. Nobody at Alibaba knows that this is happening except for Jack and and this this uh Skunkirks team. So they uh they they start building it and then to test it, they were like, Well, we can't let anybody know we're doing this. Why don't we just like start buying and selling stuff on the platform ourselves? So Jack gives gives needed, he's like, Everybody's gotta go home.

47:16 find four things that they want to sell on the platform, bring it back and then like we'll list them for sale. So they l they they list they find a bunch of stuff they list for sale, then they're just buying and selling stuff themselves. Uh and then they start telling a couple people And then slowly third party demand comes on the platform. They're still just selling their own stuff. It's kinda like a snowball rolling down a hill. It just starts building and building and building. To the point where people start hearing about this new this new site called Tao Bao, people are talking about it in Hangzhou. Alibaba employees start coming to Jack and they're like Jack, like we've got a new competitor. Totally. Totally. And he's like, you know, and people are getting really good. You all have shirts in that competitor. So he does he finally does a big uh a big corporate event, does an announcement, brings the team on stage, and uh announces that

48:11 Taubow is Alibaba. And apparently like people go nuts. Uh Totally awesome. Totally awesome. So they start now competing against eBay and like they they start winning. So the other important thing about Tau Bow is Is just like Alibaba. They don't have a take rate. So they're not taking a cut of the transaction, a hundred percent of the money goes from the buyer to the seller. It's a pretty good way to grow.

48:36 Pretty good way to grow. And eBay, of course, takes uh uh you know, has a cut and they're Yeah, if Megwetwin's there they're uh either about to be or are a public company right now. They have pressure to Definitely public company. You know They're taking a take rate and they're having fees'cause that's eBay's business model and you know, Tau Bao says we're not doing any of that, at least for now. Yep, yep, not doing it. And and indeed they like eBay goes on a total offensive because'cause Tabot starts taking market share. Ebay had basically a hundred percent market share of B to C, you know, of of an eBay like product in in China. It drops to fifty percent within a year. Talbot's taking share. Ebay Meg Meg Whitman

49:16 And a whole bunch of the senior executives at eBay, they actually move to China for several months'cause they're like, this is so strategically important that we are gonna go all in And turn this around. There's an amazing there's an HBS case study about this of like eBay's complete fiasco in China. And they're pummeling Alibaba and the press, they're like, This isn't a business. This is like, you know, you're selling dollars for fifty cents and like we have a real business. In the meantime. Meg comes over to Hungz and meets with uh meets with Jack and and tries to buy Alibaba and offers a hundred and fifty million for Alibaba. Remember, they're already valued at a hundred million several years ago from from Softbank and Massa. Jack and Joe are like

49:58 No. No but But we may use you as a stalking horse. Well, that will that will come around in just a sec. Yes. No but no to you, but maybe to somebody else. Externally in all of their earnings releases, eBay's talking of like how great they're doing in China, but internally like they're they're super, super worried. So after this meeting, Jack and Joe are like, Okay, eBay is like literally Meg Whitman is now living in China. We need to do something. We don't have we haven't raised any more money since the soft bank round. We need a lot more resources to compete with eBay for for Tau. So

50:39 They go over to Who else? Jack's old friend, Jerry Yang. Hey, remember when we were checking out the Great Wall together? Yeah, exactly. Exactly. So The meet with Jerry.

50:51 Uh Jerry's pretty excited about what's going on. Jerry offers A billion dollars. For a forty percent stake. In Alibaba.

51:00 The fundraising history of this company is is Insane in terms of valuations, kinda like today, insane in terms of valuations, but like they are selling just huge, huge chunks of the company. They do the deal. So they sell another forty percent of the company. To Yahoo. And Yahoo had already tried to invest in some of the other portals uh in Chinens, and they'd realized

51:22 Just like Jack had come to the realization that like a portal slash, you know, search engine type business doesn't make as much sense in China. What makes sense is this fully bundled, you know, eBay, you know, an Amazon plus Google model here, Google Yahoo. And SoftBank was already a major shareholder in Yahoo through the Yahoo Japan partnership. So Jerry's like, Okay, great. Let's do this. I'm gonna make a big bet. Jack is uh super inclined to do this because he trusts Jerry. He thinks Jerry's gonna be around for a long time. I'm really doing this deal, you know, as a person to person deal. In indeed. And I mean Jerry like this is huge conviction. I I can't remember

51:58 recall exactly, but Yahoo only has like three billion of cash at this point. And they've gotten pummeled in the the bubble bursting. And so they're only just coming out the other side here. And as we'll see, they're about to get into a whole world of hurt in the next couple of years. This is like a super high conviction bet. They're investing like essentially a third of Yahoo's cash into this Chinese company uh that's fighting eBay. So they do it. They raise the billion dollars. Turns out they probably didn't even really need to raise the billion dollars because EV China just kinda like It's a house of cards and collapses under its under its own weight and mismanagement and eBay at this point then goes off and buys Skype.

52:36 Potentially in part to just cover up the disaster that was China, like, hey, look over here. Which we didn't get into on our Skype episode, but uh It's a fun fun side note here. So they do that. Tao Bao wins in China. They are now the dominant and only player in

52:53 B to C, and of course they've got the legacy Alibaba B to B marketplace business as well. The company is just growing like crazy. So On the back of all this a couple years later. In November two thousand seven They decide, you know, Taobao is is growing like crazy. It's still young.

53:11 Jack and Joe decide What if we We want to go public. We want to raise some more capital. But Taobao's still young, but What if we

53:20 list just the legacy Ali the B2B Alibaba business. So they do that. Which is interesting. We should take a quick second here to look at that. Lots of businesses go public when they have a legacy business and a new growth business. And a lot of the times what they'll wait to do is wait a few quarters into the new growth business. So there's some predictability there. So they can they're able to forecast earnings. I was racking my brain when I was reading this of businesses that took the opposite approach. I was saying, uh, somehow we will only IPO the legacy business line and keep the

53:53 new growth business line private. I mean that at least in sort of my the the small number of US based IPOs that I'm aware of, that is not something I I don't even know how you would structurally do it. Like you create a holding company, you know, you IPO one business, the holding company owns a a bunch of the IPO'd company and the new small company, but anyway, it's super messy. It is super messy. The other interesting thing to remember here, and you know Impossible to know, but like

54:22 The cap table for Alibaba is pretty crazy at this point. You know, Jack Joe. and all the other co founders and employees The other co founders got serious equity, by the way. Like this was super Not

54:35 normal of Jack. Like it wasn't like they're just token co founders. Like they had a lot of equity. They own such a small percentage of the business at this point. Right. And then there's Goldman, there's SoftBank, and there's Yahoo. What year are we in right now? So we're n we're now in two thousand seven. One thing worth pointing out, and it's almost just like as a Yeah.

54:52 Like a point finger and laugh. Um In two thousand and four, Goldman decided that they should ex exit the business. And so Goldman managed to turn their three point three million dollars on a ten million dollar valuation of Alibaba into a magnanimous twenty two million dollars in two thousand and four when they exited the business. Unbelievable. This is unbelievable. So what happened was Shirley Lynn, who is the champion for Goldman, she had left Goldman. And this is the point.

55:22 Uh I I meant to say this earlier. Ebay is is now competing very vocally and on the world stage in China, talking about how they're gonna crush Alibaba, everybody else at Goldman is like, Phew, we better get out of this dog. And so the the Goldman partnership decides to to unload this investment. They sell it off to an investor group of which a large part of was GGV. And that's how GGV ended up becoming uh shareholder in uh in Alibaba. Yeah, that was before obviously the Jerry Yang deal. So that happens literally within a year. Yahoo invests a billion dollars in the company, eBay completely collapses, and Goldman makes Uncharacteristically for them probably the worst financial decision maybe in history. Private company investing is a whole different ballgame. It's hard. It's thrashy, you know. Yeah, I mean, this is pretty bad. This is this is a pretty bad decision.'Cause like what's the downside for Goldman to just keeping this? Like why not? You know? But

56:16 Anyway. So we're now in two thousand seven. They've decided they're gonna IPO the legacy Alibaba business. They do that. It goes public on the Hong Kong Stock Exchange, November two thousand seven. Valued it.

56:27 Nine billion dollars at the IPO closes day one of trading at twenty six billion dollars. But again, Tao Bao, you know, is not part of this, nor is The other big part of the business that they developed probably really through and learned through their fight with eBay. They have this even newer business called

56:46 Alipay. And Alipay started as the Alibaba version of PayPal. Uh, you know, as they're now competing in with eBay and doing B to C in China, they realize that People in in China like A big barrier to them adopting this platform is they don't have

57:03 credit cards or credit or any way of transacting online. And so they they need to have a platform like this. So they create they essentially Copy PayPal. Create Ali pay. And it starts growing hugely.

57:17 So much so, to the point that like you could start to see now, uh start to see at this point, and certainly now Alipay is is like the largest financial institution in China. Uh because All of these masses of of Chinese consumers coming online. Uh for the first time. you know, they don't have bank accounts, but they're now transacting online.

57:38 they need Ali pay and it becomes uh essentially their financial institution. it's probably worth a little bit of a a detour at this point to talk about the ownership structure of Alibaba itself. So Alibaba has you know taken all this investment from Yahoo and others for a variety of reasons it is tricky to directly invest into a Chinese entity. So a Chinese entity cannot be owned by a foreign ownership group, especially to the tune of, you know, forty percent of of the the business. There's something called a variable interest entity or a VIE that is set up in the Cayman Islands. that is the entity that um Yahoo and others actually own, and then there are contractual business relationships between the Cayman Islands entity and you know Alibaba proper that is actually owned by um Josai and uh and Jack Ma.

58:25 So it's it's important. as we sort of finish here the the story of Alipay to understand exactly what Yahoo owns equity in and exactly how that structure works and and why it was set up. And this all comes to a head pretty much immediately. So The capital that they raised at uh legacy Alibaba goes back up to Ali the new Alibaba group and is going to be used to fund continuing to build out Tabao and Alipay.

58:50 Very, very shortly thereafter, in the beginning of two thousand eight, Yahoo's going through all sorts of struggles. Microsoft offers to buy Yahoo, uh, very publicly, and this is, you know, all plays out in the press and uh probably most of our listeners are aware we'll have to do a episode someday. And in fact, Kara Sweisherk does the best coverage of this of of any point. part of part of what, you know, kind of makes the the act two of her career. Jack and Joe though, they're like

59:16 Oh no. Like if If Yahoo sells to Yahoo owns forty percent of Alibaba Group. Like if Yahoo sells to Microsoft, Then

59:27 What's gonna happen? Then all of a sudden Microsoft is gonna own. Forty percent. Of Alibaba. They start freaking out. And they start talking to Jerry and trying to find ways to Buy back.

59:40 the stake that just two years earlier Yahoo had invested uh in Alibaba. Fortunately for Alibaba. And and I gotta imagine perhaps as part of this, Jerry Yang rejects the offer. From Microsoft to buy Yahoo. But shareholders.

59:55 Yeah. Uh they demand Jerry Yang's resignation because like Yahoo itself was way overvalued by Microsoft in this acquisition offer, but people didn't quite realize how special Alibaba was yet and how much Yahoo owned of it. So Yang gets forced out and new CEO, Carol Barts, comes into Yahoo and she and Jack do not get along. Like there is serious, serious bad blood here because Carol's brought in to be like champion of shareholders and like realized shareholder value at Yahoo. And now people are realizing through all this, like ooh, a big part of Yahoo's value is this Alibaba stake. And

1:00:33 Jack and Joe are like I'm trying to build a company here. So this does not does not go well. And this is where the drama with Ali Pay really starts. So as this is going on In China. Remember, there there are no big consumer banks. Like they're they're banks, yes, but like

1:00:49 Most people in the country do not have traditional consumer bank accounts. And it becomes pretty clear that Alipay or any of its competitors, like these new PayPal like entities are going to be the m way that the majority of Chinese people bank. The government freaks out about this. So the government and and remember now

1:01:10 Alibaba Group is owned mostly by foreign national. people and corporations. You know, so you got SoftBank in Japan, you've got Yahoo in the US, uh, you had Goldman Sachs who then sold their stake to GGB and others. The Chinese government is like this isn't gonna fly. So they start talking about passing new regulation that all financial entities A hundred percent by Chinese.

1:01:34 nationals, both entities and and persons. Which of course Ali Pay technically is, but sort of spiritually isn't, since they have all these contracts in place to to do profit sharing with the ownership group of the Cayman entity. Right, right, exactly. It was not gonna it was not gonna fly there. So while this is happening, and of course Jack Ma is bickering with Yaho and Carol Barts, Jack.

1:01:58 Transfers Alipay. outside of Alibaba group into a new entity that uh he and Joe and other other Chinese nationals control. And they transfer it for a value of fifty one million dollars. By any measure probably not a uh um accurate reflection of the true value of Alipay.

1:02:19 Uh, which again is now the biggest bank in China, essentially. And it only sort of comes out in like a footnote of like a quarterly update the next quarter that that they did this, and they use some phrase like I don't have it exactly in front of me, but like we've uh unintegrated Alipay from the entity or something like that. This isn't an issue for Alibaba.com, which is public in uh on the Hong Kong Stock Exchange, it's a major issue for SoftBank and Yahoo.

1:02:49 And so it's unclear whether Jack and Alibaba told Softbank and Yahoo that they were gonna do this. Even if they didn't Yahoo and Softbank did not disclose this in their financial reporting. Like what they should have done is immediately issued eight K's to their shareholders and said that this is happening. They didn't And so this triggers like all sorts of investor unrest, SEC investigations, all sorts of stuff. Because this is massive value that shareholders of, you know, again, Yahoo and and and SouthBank aren't getting this information. It's worth just because we won't cover this too much later, it's worth flashing forward to today. Alipay becomes ant financial.

1:03:29 And financial is uh close to an IPO. I think it's like the largest financial institution in the world, or on its way to be. I know it's bigger than Goldman Sachs. This is uh It's uh the story is crazy. We've done as much work as we can to figure it all out. Again, listeners, if you know more than us, let us know. And we're trying to keep these episodes shorter, which is going phenomenally well right now, isn't it? Yeah, phenomenally well. Anyway Finally in two thousand twelve Alibaba settles the situation with Yahoo. Uh they agree.

1:04:01 That uh after years of bickering, that Alibaba is gonna buy back half of Yahoo's steak, so twenty percent Alibaba for seven point one billion dollars. Plus An agreement that Another twenty five percent of the stake, Yahoo will exit either in an IPO or sell back directly to Alibaba. Which Yahoo I think does do. They sell twenty seven percent at at the IPO.

1:04:24 They do. But that's not all of Yahoo's take as as we'll see in in in just a sec. So but at least it's voting rights. So now w once that's happened, between SoftBank and Yahoo, they no longer control majority ownership in Alibaba. This paves the way for Alibaba group. Uh which they do in two thousand fourteen. Alibaba Group buys back.

1:04:47 all of the Alibaba.com uh shares. So pulls that off the Hong Kong exchange so that they can uh IPO the whole thing on the US exchange. On on the New York Stock Exchange. Notably not the Nasdaq, which tech stocks typically go out on, but Alibaba uh group sites to bankers, uh, we did not trust the stability of the NASDAQ platform after the Facebook debacle, since we're gonna be uh doing a significantly larger IPO and uh trading was halted for four hours or whatever when Facebook went out. So Totally. And trading still gets halted when uh Alibaba comes out. But it wasn't wasn't as bad. Twenty five billion dollar IPO. in twenty fourteen, the still the largest IPO in history.

1:05:30 Closes up. Period. Full stuff. And and and just to put that in some context, Visa in two thousand and eight was eighteen billion, Facebook was sixteen billion, GM in twenty ten when the government re-IPO'd it was only sixteen billion dollars. Goldman Sachs just to give a cause we're 'Cause they're a big part of this episode. In May of ninety nine they uh they IPO'd for three point seven billion. So to give you a sense of the the true scale of this, there's four IPOs ever above fifteen billion dollars and then they they quickly go down into the three, four, five, six range after that. So They end the first day up twenty five percent at a market cap of just under two hundred and forty billion dollars, which at the time is larger than Amazon and eBay combined.

1:06:16 Which is Crazy. And and again I remember this happening. Like most people You know, in the US, even in tech, they were like, Oh, Alibaba, like what that's like the Amazon of China again, right? Like, you know, people didn't really understand this. But the institutional community was like This was The hottest IPO of all time.

1:06:35 And finally unwinding this whole crazy structure and getting access to investors, uh, in this is incredible. Yeah, and I've got some good acquired IPO trivia here. So the guidance was sixty to sixty six per share, it priced at sixty eight. The stock actually opened at ninety two and then went up from there. Like everything about this was crazy. Alibaba's underwriters announced that they had exercised a green shoe option to sell fifteen percent more shared than originally planned, boosting the total IPO to twenty five billion from the originally planned twenty one point eight billion. David, do you know what a green shoe option is and why it is called that?

1:07:11 I did actually used to know b the answer to both of those questions. I think I recall that Please. Elucidate.

1:07:19 Basically, it's when the underwriters are um allowed to support the share price after the offering without putting their own capital at risk. So they're basically allowed to s sell more to support the the share price. The reason it's called a green shoe option was it w the first company to ever do it and have this written in as a term uh with their underwriters was Green Shoe Manufacturing, which is now stride right. Oh. What do you know? There you go. There's your trivia for the day.

1:07:47 I always thought it was like a Same as like the white shoe law firms of like, you know I thought that too. Yeah. Yeah. They guess it was green shoes'cause you know, they're bankers, they make so much more money than the lawyers who only have the white shoes after. In this IPO y when Yahoo sold their stake. that that was a casual nine point four billion in cash flowing into an entity that has no cash and no growth. Um, which is just fascinating to think about and and how rare that is.

1:08:16 Well Let's come back to that. So the IPO happens. There's some ups and downs that we'll just gloss over here as a public company, but a year later they're actually trading under the IPO price. Uh things aren't going well. There's some drama with the Chinese uh government about piracy on the platform. That all gets settled as a result, though. Jack had already stepped back into the chairman role of Alibaba Group. He was no longer CEO of of either Alibaba or he was never CEO of Tabau or Team Hall or Alipay. The CEO of Alibaba Group, though, Jeffrey Lu, gets replaced by the COO, Daniel Zhang, uh, who's now still the the CEO of of Alibaba Group. Anyway, though, twenty seventeen Yahoo.

1:08:52 gets acquired by Verizon. So now what is Verizon gonna own? Because Gall who still owns 15% of Alibaba. Which is crazy, right? They s they they sold nine point four billion and they still own fifteen percent of the public company. Right. So what's gonna happen to this is for is a US telecom company now gonna own fifteen percent of Alibaba? No. Yeah, so as it turns out, and I I remembered reading this at the time, but had completely forgotten about it, what

1:09:21 Verizon actually bought was not Yahoo Inc., but was Yahoo's internet presence and and their website and their brand and the the whole Yahoo business, but they did not buy Yahoo Japan. Or the stake. Yeah.

1:09:35 Alibaba, which were then m transferred to a separate entity, sort of all the remaining pieces of Yahoo that are not Yahoo, uh that went to Verizon, and that separate entity is called Altaba. I think this is actually like the best part of the whole story for all the crazy stuff. Yeah. And the Legals, this is the best part of the story. So Altaba is a publicly traded company. Based out of New York. That owns Two things. Actually, I think they're about to own one thing, because it sounds like they're divesting Yahoo Japan. They own a a series of other things, actually including some of Seek Geek, some of Eastman Kodak, some of Paperless, some of Hortonworks. Like they're they're doing some investing. They owned like a six percent stake and snap at one point. Yeah, yeah, yeah. Which they they sold in September 2017.

1:10:19 for seventy million dollars. So Altaba is this thing That That is worth a bunch because it's it owns fifteen percent of Alibaba. Like it's a publicly traded thing with a market cap of thirty eight billion dollars. Uh that uh by looking around LinkedIn has 10 employees, all of which are finance and operations.

1:10:41 I I And the CFO is based in Omaha, Nebraska. Yes, yes. Every employee is in uh is in uh New York and San Francisco, except for the CFO and Omaha. Crazy that this entity exists. Yeah, thirty eight billion dollar market cap for Altaba. Which Yeah, okay, that's crazy. Ten people at this company.

1:11:00 The crazier thing is that fifteen percent of Alibaba, like the value of their stake in Alibaba, is over eighty billion dollars. Like Alibaba is now a four hundred and twenty something billion. market cap company. Well Altaba's market cap is is like thirty eight, thirty nine billion, so I don't know. Uh Right. Yeah, no, it's trading at a significant discount to the value of their Oh, interesting. Like because they can't get liquid on it? Yeah, I think it's that the market thinks like This is crazy. Like A, Jack Mile and Alibaba probably hate this. Uh, and so they'll do anything as they have done in the past to like transfer Ali pay out and be like share tenders for lower prices. Yeah, who knows what's gonna like there's just risk here of like what's gonna happen. But like that's a serious, serious discount to the value of the shares that they have. That's a good way to get some potentially high risk exposure to the uh Alibaba upside.

1:11:51 Indeed. Indeed. Oh or you could just buy The end of the story here. I promise, uh, is just This week. Alibaba.

1:12:02 announced, Jack Ma announced, uh, that he is going to fulre. one year from September tenth. So September tenth twenty nineteen. He is going to fulfill from the company. He will no longer be chairman, uh, Daniel Zhang The current CEO is going to also assume the chairman title.

1:12:20 Uh and he's going to turn himself full time to philanthropy. You know, similar to Bill and Melinda Gates. Pretty cool. Pretty cool.

1:12:29 It's amazing. Now that you know his story, uh listeners, he he is a just absolute icon and hero in China. I mean if you think Bezos and Gates and Elon Musk kinda combined. Uh he's inspired the masses. Well and what's so cool. His story is so unique. I mean, he was born right before the cultural revolution happened.

1:12:48 In A tier two city in China. and didn't start his first company until he was twenty nine years old. Was terrible at math, you know, like still jokes he doesn't get technology, but like From that.

1:13:01 he has become, you know, arguably like, you know, I mean Up for debate, but you could make an argument that Alibaba is the most important technology company in the world right now. has turned it into, you know, half a trillion dollars in market cap. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow.

1:13:20 If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is uh no longer the hard part. Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks Are real. Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI control tower.

1:13:52 Yep, AI control tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with Any AI, not just theirs. Every device on your network, every permission across every system. Every AI agent visible and secure in one place. And ServiceNow can do this because they've spent more than twenty years building the operational backbone of the enterprise, the workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. ServiceNow

1:14:27 already runs more than a hundred billion workflows annually and trillions of transactions for more than eighty five percent of the Fortune five hundred. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future, that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale. Go check out service now.com slash acquired and tell'em that Ben and David sent you.

1:15:03 If you're listening to this episode, it's worthwhile to walk away with a little bit of an understanding of the shape of the current Alibaba business because they have a lot of different brands. And I think I was pretty confused coming into uh this before doing the research, so I I've I sort of try to consolidate a little bit of an understanding of what all their properties are and what their strategy is. So we've talked about Alibaba.com, we've talked about Taobao, which is um um their consumer to consumer marketplace, which is the most popular consumer to consumer marketplace in the world. And the phrase is if it's not available on Tao Bao, it's not available anywhere in China or probably anywhere in the world. They've launched a new site, sixteen eighty eight.com since you know, somewhere along the lines, I don't have great dates here, but that is uh like Alibaba, but instead of being international, it's a domestic B2B trade site in China. They also have T Mall.com, which is B to C. It's an online marketplace for quality brand name goods that competes with JD.com. It's it's similar to Amazon.com. You know, think third party sellers selling to consumers. That's T Mall.

1:16:05 They've got AliExpress, which is also B2C, like T Mall, except uh in sort of sort of quality brand name goods, it's small businesses in China that can sell anywhere internationally. So you can buy, you know, it's it's actually pretty fun to go to AliExpress um and and just see what kind of crazy stuff you can buy. It often will take like three to nine weeks to ship to you in the US and it may or may not come and uh you have really no idea who you're buying from or or any sort of quality standards, but like stuff is crazy cheap. and it's super eccentric and you can find wild stuff and it may be p like how it's pictured, it may be not, but I've bought some stuff and it's super fun to uh to see what you can find on AliExpress. They also have Etou, which is a shopping search engine. Obviously Alipay, which they've they've spun out, and then Alibaba cloud computing is sort of their big bet on the future. And when you look at w their financials today, cloud computing represents uh six percent of revenue.

1:17:03 the China commerce is seventy percent, international commerce is eight percent, but six percent coming from cloud computing, seven percent coming from what they call digital media, which is interesting to juxtapose against an Amazon. You know, we keeping AWS, AWS, AWS, it's a super high margin business relative to the rest of their business. A W S uh their quarterly revenue last quarter uh was eleven percent. So you sort of look at these high growth, high margin things inside of these companies, Microsoft, Amazon, Alibaba, uh, their cloud computing division, they're sort of, you know, right in that same ballpark. I think uh AWS looks to be about twice as big, but I think AWS may include some of what Alibaba would call digital media and innovation efforts. So when you kind of squint, you can see that both of these businesses are are trying to make cloud computing a real higher margin part of their business at sort of at the same time and and using the same strategy there. So And then of course the other piece, which as we discussed, is

1:17:59 not part of Alibaba Group, but is part of this business, which is like Goldman Sachs plus Bank of America plus PayPal. All in one, which is Alipay. Absolutely. Uh absolutely and might end up being bigger than all of this combined.

1:18:15 So that's sort of the sense of what the revenue streams and the properties owned by Alibaba are. And I wanted to finish with a quote from Jack Ma that really sort of sums up it's a little bit of a block quote here from twenty fifteen. We'll include a link in the show notes to a talk that he gave But he frequently is asked this question, what is the difference between Amazon and Alibaba? And he said, The difference is we do not buy and we do not sell, but we help small businesses to buy and sell. This is twenty fifteen numbers, but We have ten million small businesses on our site that buy and sell every day. We do not deliver packages ourselves, though we have more than two million people who help to deliver our thirty million packages per day.

1:18:51 We do not own warehouses. But we manage tens of thousands of other small and medium sized delivery companies. We do not own any inventory. But we have more than three hundred and fifty million buyers, a hundred and twenty million buyers coming to shop with us every day. Our global revenue is three hundred ninety billion, possibly bigger than Walmart globally. Here in America, e commerce is e commerce.

1:19:12 In China, e commerce is a lifestyle. It's like Starbucks. It's not about how much people like coffee. It's about the lifestyle of going to Starbucks. So it's fascinating thinking about sort of the the shape of the business.

1:19:26 uh the fact that it's super low low asset. Like it's a very asset light business relative to Amazon that has warehouses and delivery trucks. They just bought like twenty thousand more delivery trucks or something. Alibaba has none of that, yeah. None of it. Super exactly. Jack also talks about like his um You know, I think he means this as like his vision, but but also the business model of the company. Like they support entrepreneurs. He was an entrepreneur in China multiple times before starting Alibaba.

1:19:54 So how do they make all that work? There are thousands of entrepreneurs who have logistics companies that operate on the platform. There are thousands of entrepreneurs who are sellers on the platform. They just provide the platform for everybody. as you say, I mean it's kinda like we were talking about earlier. It's like this, it's like Amazon plus Google, you know? Like it's Amazon with the capital Uh attributes, intensity attributes of Google. It's a great way to phrase it. Yeah.

1:20:19 Super cool. So That's uh in an hour and a half or less. The history and facts Valley Baba. Should we move on? Yeah. Yeah. I mean we do narratives on the show, so we're switching our narratives theme to be uh uh specific to what's the bull case, what's the bear case. I think we've made a lot of it along the way here. The the bull case is easy. when they were getting ready to IPO, they had two hundred and eighty million customers spending three hundred billion a year on everything. It was the dominant way that people bought things on the internet in a in the largest emerging economy in the world. They handle eighty six percent of online retail sales in China.

1:20:59 Like how bananas is that? That's a bunch of bananas. I don't know. I don't know the share price, but it's not hard to believe that this is gonna be a juggernaut for a long time. Or I d I guess I don't know how to uh look at uh how much is priced in, but that the bull case is come on guys, how could you not believe in this.

1:21:15 There's a few reasons to be a bear. People one was that the IPO price people believe was too high because They they do have a large growth multiple. I mean they're the company is sort of expected to continue growing at this crazy rate that it's been growing. And of course we're talking in in terms of twenty fourteen here, but it's already a huge company. Like it's already doing eighty six percent of online of e commerce in China. So how could it possibly keep keep growing at the rate that it needs to in order to fulfill the the market cap? The other bare case is people basically saying, Look, I don't I don't trust the structure. I'm not directly

1:21:51 buying a share in the thing that creates the value. I'm buying shares in a thing that has an agreement with a thing that creates value. I think this was probably the biggest knock against the company in the IPO and the risk is like, what is going on with Alipay? Like Right. And not to mention whenever you're buying a a Chinese IPO, there's the factor of I don't know how risky things that the the government could do will be.

1:22:17 potentially force I mean it's unclear why they did it, but probably because of at least in part because of the government, forcing this business to transfer its most promising, potentially largest future business. outside of the company. That's the sort of barren bull case. If you look at the where it IPO'd in twenty fourteen

1:22:37 Um, the market cap was just under two hundred and forty billion. Okay. So you know, has has approximately doubled since then. It was up in the five low five hundreds earlier this year. It's now down around four hundred, but You know, over what, four years they've managed to to double their market cap. Um, they obviously generated a ton of cash and continue to reinvest that.

1:22:58 Well, we're bleeding into tech theme, so I might as well just say it. I mean like I can't think of you know, we haven't covered the the the B and the T yet of of BAT in in China. Yes. So we may we may I may revise this statement after doing that, but I don't think so. Like I think you could make an argument. That there is no entrepreneur and no company.

1:23:19 That has Ridden. a bigger wave better than Alibaba has. And that wave is the consumerization of of China and the rise of middle class in in China from from nothing. And and if you think about Alibaba, it went from like, you know, They just timed this perfectly. They they they went from

1:23:40 Capitalizing on businesses being started in China. So entrepreneurs, you know, the beginning of so this is the beginning of made in China. Uh Alibaba was there for that and helped facilitate made in China getting distributed around the world. Then they were there with Taubau to bought in China. You know, what do all the entrepreneurs and people who started businesses and people who work in these businesses who's now who've now made money They want to producing things now they want to consume.

1:24:05 Alibaba wrote that better than anybody and beat eBay at its own game. Now what's next is like What happens to all that wealth in China? Like who manages it, like, you know, where are these people gonna keep their money, how are they gonna manage it, how are they gonna grow it. Who's best positioned to do that?

1:24:22 Alibaba and Alipay. You know, it's incredible. It really is the ultimate marketplace business. I mean, you're thinking about like the ultimate sort of uh Well, there's a my bleeding into mine, on page one thirty nine of the F one, which is sort of the the foreign filing of the S one, um they have a uh Sly that's the network effect on and across our marketplaces. And there are a Disney like amount of arrows that are between all these different properties and how it all fuels each other. And David, not only do they ride the wave well, but they created

1:24:54 It just uh incredible number of motes around their business and around um um how it's it's absolutely a no brainer for everyone in the ecosystem to use their infrastructure. Totally, totally. I mean I'm so excited that that Jack Maug's retiring'cause we're gonna have to call him up at Wave and uh asked you to We can back his new business. Yeah. Oh, I'm sorry. Yeah, I mean he's the best marketplace entrepreneur of all time. I mean, you know, we'll take basis, but like uh I think head to head I would have to choose Jack here. Wow. Bold. Another one that I've got is uh just as customer obsessed as Amazon. Jack regularly says uh the the priorities of our business are that the customer is number one, employees are number two, and the shareholders are number three.

1:25:37 And a big part of of why he talks about that is, you know, when things have gone rocky for our business, shareholders have gone away. Um, and and capital hasn't always been there for us and certainly hasn't been incredibly supportive and our employees stick with us, but it's it's really always about the customer. Lot of people say that. You know, it's it's easy to say, but when you prioritize things the important bit that you're saying is not what you're calling the first priority. It's what you're calling not the first priority and being willing to commit to

1:26:05 being consistent in saying that that other thing is is not the highest priority for us. And so I think in doing a lot of crazy things to satisfy the customer, they're often giving up margin, but it's been a twenty year bet, much like Amazon to to do that. Well it's uh it's about trade offs, right? I mean like And you've seen it in the history, right? Like they Jack was willing to be incredibly generous uh

1:26:30 uh perhaps to the point of uh ludicrously so with the company's equity not only in equity for employees, but you know, the the investments he took and and how you know how much he was willing to give up to shareholders. But it comes from a mindset of like What do I need to do to build the base to have the employees who can serve the customers like I need that capital. Like so Okay, I'll sell forty percent of the company. Like,'cause that's gonna help me have

1:26:57 The employees and the infrastructure to serve the customers best. My other technology that I think this story like Illustrates really well. This is Subtle and hard to Get in the

1:27:07 investing world and and hard to get right, but like Jack does this so well in in in the company. If you've got a if you're in a market that is You think is going to grow rapidly in the future. Like Small businesses in China, like consumers in China, like wealth in China.

1:27:24 What matters is not who has the most market share of that market. Today. What matters is who is going to have the most market share tomorrow. And and this is like I mean, that sounds obvious, right? But like look at um I think you can apply this framework to food delivery in the US, right? Like food delivery, you know, was a super quote unquote overinested category a few years ago. You had DoorDash, you had Postmates, you've got Caviar, you've got you know Amazon Prime now and all this stuff, and people are like, Why are people throwing money at this? And like, why does it matter? And you know, isn't this category done? Well

1:27:58 No, it was just getting started, right? Like and so now, you know, DoorDash is what, like a five billion dollar company, right? And like people thought it was crazy to invest in that. Uh, but what mattered wasn't like who was winning at the time. What mattered was who was gonna win in two or three years when the market was much, much bigger. Mm-hmm. That's a great point. Yeah, I think uh you and I were having a c a conversation around a separate topic last week and actually we were this is what we were thinking about. We were thinking about acquired sponsorship stuff. And we were like, Great, we we have this pile of money from sponsorship. How much should we plow into growth? And you said, Well, do you still think there's growth ahead of us? And I was like, Well, absolutely. And you're like, Well Then all of it.

1:28:36 in in fact, m more. How do we go you know, like where can we go borrow to to be able to invest even even harder. And so it's such an interesting framework for thinking about a business that it's like to the extent that you believe there's growth ahead of you, you should invest d a hundred and ten percent. And to the extent where you feel like you've had all the growth you can, that's that's when you start harvesting. Yeah, totally. Or like, um, you know, Google Dropbox are both great examples of this. Before Google, there were lots of search engines, right? Google, you know, Alta Vista or Yahoo or whatever had so much more market share. But like the question w was in the totality of the search market Where it like most consumers have not yet

1:29:15 Come on line. And so like there was still an opportunity to win those future consumers. Same same in storage. Like there were tons of storage companies before Dropbox and Box, right? But like the vast majority of the market hadn't happened yet. And so they could win that future market. Well So we move on to grading? Let's do it.

1:29:33 So normally the way that we grade IPOs is for the post IPO shareholders of the entity. was or just say the shareholders of the entity, was IPOing a good idea and um did it allow them to do value creating activities with the cash that they generated. That's also relative to uh their other options. Alibaba is such a

1:29:56 outlier in every way. The I can't point my finger to one thing that that having that cash allowed them to do that if they didn't IPO they wouldn't have been able to do. I can't point my finger to like one reason why they needed to go public, but like It was the inevitable thing. They did it in a phenomenal way. They've grown really well since then. Uh it's hard to not see this be an A and it kinda breaks a lot of our criteria.

1:30:23 Yeah. Well even just think about this, right? Like Um, the stock has doubled since the IPO four ish years ago. Okay. Sounds fine, right? Like that sounds like Not bad performance, but not amazing.

1:30:37 But what does that mean? The stock has doubled. That means that At IPO it was a two hundred and forty billion dollar market cap company. They have created Two hundred and forty billion dollars of market. Value creation basis rather than a relative one. It's like Yeah, exactly. Like that's insanity. Where else can you go park two hundred billion to turn it into four hundred billion? one of like A Apple or Amazon a few years ago.

1:31:01 No, well they don't have the same growth anywhere close to the same growth rates. No, they do. Amazon was a better investment. Yeah. Yeah. Amazon was a better investment in terms of just market cap creation. But what's interesting about this I'll get to grading, I promise. Is um What has happened. is so clear like doing this episode, doing this research to me. Is now so clear I see where the vision fund came from.

1:31:24 Because Like Massa and Softbank parked, you know, a a long time ago, a small amount of money. But like when this was the largest IPO ever, right? And in four years has doubled in size and thus created two hundred and fifty call it billion dollars of market cap.

1:31:42 I think he saw that and was like Oh with these these huge, huge tech companies in huge categories. can still create like It's it's it's is your value creation ahead of you or behind you. It took Alabama nineteen years to get to a two hundred and forty billion dollar market cap. It took them four years to create another two hundred and forty billion dollars of market cap. You can invest these huge, huge sums of capital.

1:32:07 And still get massive dollar returns on it. So you look at that and then you look at like through that lens and you look at what they've done with ride sharing with Uber, with Grab, with Didi, with all the other ridesharing companies they've invested in and other stuff that they're doing. I think it's just i I think it's informed by This insight, right? Yeah, that's a really good I mean he had a front row seat to all of it, so y he's a lot of reason to believe that it's possible and can can happen again.

1:32:34 Yep. Now of course you're like gonna be wrong on this. Uh but That's why it's a fund. Well then that's why it's fun, right? But like that's what that's what's interesting here is like If something works, it's almost like venture capital dynamics, like You t you two X a a huge invest but you just two X'd like that's two hundred and fifty billion dollars of market cap there. Like that can pay for a lot of losers.

1:32:56 Um Yeah. So Uh great. This was For sure an A because Otherwise, like this value creation

1:33:11 w A wouldn't have happened in the public markets. But B, I think it's unlocked like uh a whole new way of thinking about technology investing. And we may look back on this in a few years and be like, man, what were we smoking back then? But I think if you look at the fundamentals of of Alibaba, And the business, just like we've been talking about, it's like It's real, you know, like they're gonna be the largest financial institution in China. They already are. They're gonna be the largest financial institution in the world. That's incredible.

1:33:39 Yeah. For sure. Well, ant financial episode will have to come soon. Yeah, coming soon. All right. Alright, carve outs. Carbouts.

1:33:50 Alright, uh mine is the Origins podcast by the guys over at Notation Capital, which is a great podcast all around, but on episode thirty three they uh they had Mike Maples uh Junior from Floodgate Capital on. And Floodgate was really one of the first seed funds in two thousand five, oh four, oh five in the Valley and uh Mike is uh brilliant and a visionary and and knows what he's talking about, and he's got some numbers to prove it. So he he revealed on the podcast they invested seven hundred and fifty thousand dollars in lift at five point five million post. They were in in Twitch at a three million pre. They were in Weebly at a 2.1 million pre. I mean, they they've just had some awesome, awesome investments over the years. This podcast is so interesting because so the Origins podcast is a podcast for LPs. and sort of about the relationship between VCs and LPs. There's sort of n no one who's thought more deeply about that than than Mike over the years. And one of the really interesting points that that he talks about is how your fund size is your strategy. And a lot of people set out with a strategy and then raise a a different fund size because they were targeting something and didn't hit it. Or they were oversubscribed and decided to to open it up more.

1:35:02 Or in some ways, somehow their uh fund size ended up being discongruent from their strategy because they were aiming on a set of things where there was only a finite number of companies, but they were very successful, so now they have a freaking huge fund and they have to figure out what to do about that. I haven't been this enlightened on um sort of thinking about the venture landscape uh in in a while. And I think that uh uh if you're interested in why venture is hard and what competencies uh it takes to be a venture investor. It's really, really interesting and I I can't suggest it highly enough. So Mike Maples Junior on the Origins podcast. Super good. I

1:35:39 Love the origins guys. And uh Mike was just great on this podcast, so Definitely, definitely recommend and it's been this has been my life for the past two years is Figuring out our strategy at Wave and our fun size and aligning all that and uh It's actually a lot harder than you might think. Uh we've had to do a lot of uh uh a lot of thinking and planning around that and are still doing so even, you know, after we've raised the fund and are making investments. So super great. Anybody who cares about the business adventure, um

1:36:06 We will love this podcast. Mine is uh very relevant to this episode. So way back I can't remember what episode, maybe it was Snap, uh we did as I think I did it as to carve out the Sunsu's The Art of War, which is fantastic. Always worth rereading. sort of inspired by that and and some other stuff and this mini series on China that we're doing, I just finished reading The Romance of the Three Kingdoms, which is another ancient Chinese uh text. And it's kinda like

1:36:36 this is a super bastardization of it, but like uh in general you could think of this as like a very extended novelized version of the concepts in the Art of War. It's super cool. It was written in the 14th century about like the second century, the three kingdoms era of of China. And battles between them and uh famous generals and warlords and um it's it's super cool. It's historical fiction, like All of these things happen. They definitely didn't happen as described in the novel. Like there's magic and all sorts of stuff, but it's like uh like novelized version of history and really fun to read.

1:37:14 It gives a lot more. insight into the very short stuff in the Art of War. Uh, I was like, Oh, that's what he's talking about. Like Hm.

1:37:24 Cool. I gotta add it to the list. It's a long list. If you've got a couple months to uh get through thousands of pages of translated Chinese text, uh highly recommend it. Perfect. All right listeners. Now is a great time to talk about one of our favorite companies, Statsig.

1:37:42 Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI powered experiences at scale. Yeah. In the crazy speed of today's AI world. Shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly.

1:38:03 The real advantage is how quickly you learn what changes actually created value for customers. And how fast you can use that signal to guide what you ship next. This is where StatsIG comes in. It brings experimentation, feature flags and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. Alright, listeners, that's gonna do it for today. Thanks for uh going on another journey with us.

1:38:41 Uh if you like the show, tell your friends, uh scream it on the internet, however your uh your favorite way to do so, or leave us a review on Apple Podcasts. Indeed. We'll see you next time.

What you see above is a preview of the first minutes. One unlock costs 10 credits and covers this episode forever: full segment and word-level timestamps on this page, plus .txt, .srt, .vtt and word-level JSON downloads, as many times as you like.