bookrebus Chapter 160 Financing
Chapter 160 Financing
10:00 AM, conference room on the third floor of the San Jose Convention Center.
Representatives from twenty organizations entered the room. The seven founding members of the UHSB consortium sat in the front row on the left: Dell, HP, Compaq, AMD, Sun, IBM, and Sony. On the right were ten investment institutions: Goldman Sachs, Morgan Stanley, Sequoia Capital, KPCB, Accel, and others. In the back row were ecosystem partners: Blizzard, Epic Games, and Sierra Entertainment.
Three seats were left in the middle of the oval conference table.
Ling Yun, Alex, and CFO Emily took their seats.
"Let's begin," Ling Yun said.
He stood up, didn't use PowerPoint, and went straight to the whiteboard.
"I'm not going to tell stories today, I'm going to talk about three things." He wrote down three words with a marker: strategy, technology, and finance.
"Strategy." He circled the first word. "StarCraft's goal is not to become another Microsoft, but to become Microsoft's gravedigger."
The meeting room fell silent.
"Microsoft's model is closed, controlled, and monopolistic. Our model is open, collaborative, and win-win. The UHSB standard is open source and free, the Starry Sky system kernel is open source, and the Starry Sky browser is open source. We don't make money from licensing fees, but from our ecosystem."
He drew a circle on the whiteboard.
"Hardware, operating system, browser, app store, game platform—what we're doing is creating a closed loop. Within this closed loop, everyone can make money, but we control the entry point."
"Technology." Alex stood up and walked to the projector.
He opened the demo program.
"This is the latest version of the Starry Sky operating system. It boots in three seconds, uses 40% less memory than Windows, and is compatible with DirectX and OpenGL. Most importantly—" he switched pages, "we've done deep optimization for the AMD platform, resulting in a 23% performance improvement."
Data charts are displayed on the screen.
"Regarding browsers, Starlight 2.0 will be released next month. Its JavaScript execution speed is three times faster than IE, and it supports the latest web standards."
"The app store currently has 300 apps, 50 of which are paid apps. The revenue sharing ratio is 7:3, with developers receiving 70%."
"For gaming platforms, we have partnered with Blizzard, Epic, and Sierra Networks. In the next six months, ten exclusive or first-launch games will be available."
"Finance." Emily opened the folder.
"In the past twelve months, Star Technology's revenue was $850 million, mainly from app store revenue sharing and hardware licensing fees. The loss was $1200 million, primarily used for research and development and marketing."
"We expect revenue to reach $3000 million and losses to shrink to $500 million over the next twelve months. We anticipate profitability starting in the third year."
She closed the folder.
"We need funding to speed up this process."
Next is the Q&A session.
Richardson of Goldman Sachs was the first to raise his hand.
What is the valuation model based on?
"Based on ecosystem value," Ling Yun replied. "Microsoft's market capitalization is based on the monopoly position of Windows. Our valuation is based on our ability to break the monopoly."
A Sequoia partner asked.
"What is the biggest risk?"
"Microsoft's counterattack," Ling Yun said frankly. "They may block our technology in the next version of Windows, or exert pressure through OEMs, but we have the UHSB alliance and AMD as allies."
"A man from Morgan Stanley asked."
"IPO timeline?"
"Within two years, we need to complete two to three rounds of financing, increase revenue to over $100 million, and achieve profitability."
"Jerry Sanders of AMD asked."
Can AMD's platform optimization technologies be licensed to other manufacturers?
"Sure," Ling Yun said, "but it will require payment. This will also be one of our future revenue streams."
The question-and-answer session lasted for forty minutes.
Then the bidding process begins.
Goldman Sachs, as the lead investor, made the first offer.
Goldman Sachs led a $50 million investment, valuing the company at $500 million.
This is the benchmark price.
Morgan Stanley raised his hand.
"Follow-up investment of 15 million, valuation of 500 million."
Sequoia hesitated for a moment.
"Follow-up investment of 15 million, valuation of 500 million."
At this moment, Compaq's representative stood up.
He was a middle-aged man in his forties named Robert, who was in charge of strategic investments.
"Compaq offered $40 million, valuing the company at $800 million."
A low murmur of discussion arose in the conference room.
The valuation is $800 million, which is 60% higher than Goldman Sachs' offer.
Richardson of Goldman Sachs frowned.
"Robert, this price..."
"We've done the calculations," Robert said. "The value of StarCraft lies not in its current revenue, but in its future control of the ecosystem, which Compaq needs."
AMD's Sanders immediately followed suit.
AMD offered $24 million, valuing the company at $800 million.
The HP representative gritted his teeth.
HP offered 30 million, valuing the company at 800 million.
The bidding war intensified.
Robert from Compaq raised his hand again.
"Compaq added $2000 million, bringing the total to $6000 million."
He looked at Ling Yun.
"Compaq is willing to become a strategic shareholder of Star Technology, not only providing funds, but also pre-installing the Star system in all Compaq PCs and promoting the UHSB interface as a standard feature."
This offer is very attractive.
Ling Yun looked at Richardson of Goldman Sachs.
Will Goldman Sachs follow suit?
Richardson did the calculations.
Goldman Sachs maintained its $50 million valuation but accepted an $800 million valuation.
The offer to release 15% of the equity has clearly exceeded 15%.
Finally, after negotiation, all the quotations were summarized.
Compaq: $2400 million, 3%.
Dell: $1200 million, 1.5%.
Goldman Sachs: $3200 million, 4%.
AMD: $1600 million, 2%.
HP: $1600 million, 2%.
Other institutions combined: US$2000 million, 2.5%.
Total: US$1.2 million, representing a 15% stake.
Valued at $800 million.
"Deal," Ling Yun said.
Applause erupted in the conference room.
Emily began preparing the letter of intent for investment; the formal equity subscription agreement would take two weeks to complete.
After the meeting, Robert approached Lingyun.
"Mr. Ling, Compaq has placed a heavy bet this time."
"I can tell," Ling Yun said. "What do you want?"
"Three things," Robert said. "First, Compaq needs a seat on StarCraft's board of directors. Second, Compaq's PCs will have priority access to new technology licenses. Third, Compaq will have priority in any future acquisitions or mergers."
"The first two points are negotiable," Ling Yun said. "The third point is not acceptable. Star Technology will not accept any clauses that restrict its independence."
"Then the first two will do." Robert extended his hand. "Pleasure doing business with you."
"It's a pleasure working with you."
After seeing everyone off, it was already 3 p.m.
Only Lingyun, Eric, and Emily remained in the conference room.
"An 800 million valuation," Emily shook her head. "Twice as high as I expected."
"But we also have more money," Ling Yun said. "1.2 million US dollars, enough for us to burn through for three years."
"How do I use it?" Eric asked.
Lingyun said, "The specific budget will be released next week."
"What about board seats?" Emily asked. "Compaq has one, Dell has one, Goldman Sachs has one, and we have two. Five in total."
"Okay," Ling Yun said, "but to ensure our control, major decisions require four votes in favor."
"clear."
In the evening, a celebratory banquet was held at a nearby hotel.
All the investors were there, and the atmosphere was lively.
Lingyun raised his wine glass to accept the congratulations.
Michael Dyer walked over.
"Ling, you made me spend an extra 1200 million today."
"But your equity has increased in value," Ling Yun said. "Based on an 800 million valuation, your original 10% is now worth 80 million, which is 30 million more than before."
"You're right," Dell laughed. "But let me know in advance for the next round of funding."
"must."
AMD's Sanders is here too.
"Ling, we want to sign a licensing agreement for that optimization technology as soon as possible."
"I'll have Eric contact you next Monday."
"it is good."
Halfway through the banquet, Eric found Ling Yun.
"Ling, someone wants to see you."
"Who?"
"Scott McNealy of Sun. He's waiting for you in the lounge."
Ling Yun entered the lounge.
McNealy sat on the sofa, a whiskey in his hand.
"Ling, congratulations."
"Thank you." Ling Yun sat down. "You're also interested in investing?"
“No,” McNealy shook his head. “Sun has its own operating system and won’t invest in competitors. But I have a suggestion.”
"Please speak."
"Let's unite," McNealy said. "Sun's Solaris system is strong in the server market, and Solaris has potential in the desktop market. We can share technology and work together to compete against Microsoft and Intel."
"Specifically?"
"We will establish a joint laboratory to jointly develop cross-platform technologies. For example, we will enable the Starry Sky system to run Java applications on Solaris, and enable Solaris to support Starry Sky's development tools."
Lingyun pondered.
This is a good suggestion. Sun has an advantage in the server market, while StarCraft has potential in the desktop market. Combining them can indeed create synergy.
"We can talk," he said. "We'll arrange for the technical team to connect with you next week."
"Good." McNealy raised his glass. "To beat Microsoft."
"To defeat Microsoft."
clink.