sinovels Chapter 48 Harsh Conditions
Chapter 48 Harsh Conditions
What were Ernst's conditions? First and foremost was valuation.
Lehman Brothers initially valued Google at $2.2 million before the investment, but Ernst demanded $12 billion, a huge difference.
Ernst's reason was simple: Yahoo!
Yahoo's third-quarter financial report showed revenue of $143 million and a net loss of $489 million.
According to institutional forecasts, Yahoo's annual revenue this year will exceed five million US dollars, with a net loss exceeding 1200 million US dollars.
What about market capitalization? Yahoo's stock price has soared, and its total market capitalization has exceeded $16 billion.
Such a high market capitalization is simply due to Yahoo's rapid revenue growth, exceeding 8% every month.
The reason for the losses is that Yahoo is constantly expanding into new business areas. When these investments decrease, Yahoo's future prospects are very promising.
Yahoo's user base had just surpassed 20 million, and Google's net profit was much better than Yahoo's, so Ernst proposed a valuation of $12 billion.
Don't investors say that Yahoo is buying the future, not the present?
So why can't Google do it?
But Lehman Brothers obviously couldn't be the sucker. Google is different from Yahoo. Google now only has a search engine, and there are no other ways to make money besides technology licensing.
Unlike Yahoo, which has a diverse range of businesses, GG has even greater potential for revenue growth as its user base continues to grow.
The valuation gap is still a good thing; the biggest difference between the two sides lies in management.
Ernst actually wanted them to be nothing more than mascots who only provided funding, without giving them a single board seat. Lehman Brothers felt this was an insult to Lehman Brothers and to the entire Wall Street.
Let alone Lehman Brothers, a Wall Street giant, even Wenger's eyes widened when he heard the terms, as if he were hallucinating.
"Neither Lehman Brothers nor other investment institutions on Wall Street would agree to this."
In fact, in American companies, the board of directors is just a figurehead.
In the absence of absolute control, the person with the most shares has the greatest influence, not the person with the most shares. Rather, the person who can bring more benefits to the company has the greatest influence.
Independent directors are the dominant force in many companies; this is a common phenomenon.
However, there is an exception: promising startups. Wall Street is very interested in the boards of directors of these companies because they can be manipulated.
"I know that too, but we have to make our stance clear and tell these greedy capitalists that Google doesn't welcome their meddling."
While accepting investment is one thing, Ernst is much more cautious in choosing investors.
Nobody wants new investors to turn their company into a mess. If they encounter good investors, that's fine, but if everyone colludes to fleece retail investors, whether it's investment institutions or company founders, they're all united in their pursuit of greater profits.
But if Ernst had encountered some terrible investors, he certainly didn't want to regret founding Google.
Ernst knew too much about such things. For example, Leonard Bosack and Santy Lerner, the couple who founded Cisco, were eventually kicked out of the company, weren't they?
Then there's Musk, who was first ousted from his own company, Paypl, and then transformed into a capitalist, ousting Tesla's founder and taking over the reins.
There are far too many such incidents; we must take precautions to prevent them from happening in the first place.
Internet companies need to raise funds, and the amount of funds they raise is usually not small.
This game of musical chairs burning through dollars requires financial support from Wall Street; otherwise, it simply cannot continue.
So from the very beginning, Ernst had to establish rules that even if these investment institutions couldn't be made into mascots, they couldn't be allowed to interfere with Google's normal development.
In addition to these two points, Ernst also mentioned MGM.
MGM is not publicly traded. Apart from Ernst, the major shareholder, the remaining shares are held by numerous investors, with Wall Street holding the lion's share.
For example, Lehman Brothers held a 4.12% stake in MGM.
Ernst wanted to use the Google deal to buy back these shares, paving the way for MGM's future IPO.
In order to maintain better control over MGM after its IPO, it is necessary to acquire more shares.
Ernst's target was a 60% stake in MGM, which would be easier to acquire from Wall Street.
Finally, there's MGM Resorts, not MGM Studios owned by Ernst, but the casinos and hotels run by Cochrane.
One advantage of high leverage is that it enables rapid asset growth, allowing for exponential growth.
But even delicious candies can contain deadly poison; ownership doesn't lie with you, but with capital.
The entire MGM Resorts International has total assets exceeding five billion US dollars, while Cochrane's net worth is only over eight hundred million US dollars.
Most of the shares are in the hands of Wall Street and investors; Cochrane only has the right to operate and use them.
Only when the debts are paid off will Cockerell truly have control of MGM Resorts.
This gave Ernst an opportunity. He would never forget the police's scheme, and he would be unworthy of his identity as a reborn person if he didn't send the other party to jail at least once in his life.
"It seems you still haven't let go and forgiven him."
Ernst's fourth condition was that he could acquire MGM Group's shares at market price if needed in the future.
However, this condition was with Wengert, not with Lehman Brothers.
Lehman Brothers did not own any shares in MGM Resorts, and Cochrane's high-leverage funding largely came from Citigroup and Bank of America.
Ernst instructed Wenger that this condition should be added once these two institutions were involved.
He wasn't in a hurry. As long as his business grew bigger and bigger, he would eventually come into contact with these banks and there would always be opportunities.
"Forgiving him is God's business; I will only let him go to see God."
"Don't do anything reckless," Wenger said seriously, thinking Ernst was about to do something unwise.
"Your status is different now. There are plenty of ways. There's no need to go down this path, after all, the other party is also a well-known tycoon."
"Don't worry, I'm not that stupid."
Wenger breathed a sigh of relief. "So you're not planning to consider venture capital in Silicon Valley?"
There are two great places for internet investment: Wall Street and Silicon Valley. Each has its own advantages and disadvantages.
Wall Street is definitely well-funded and large, and prefers startups with relatively low risk, most of which have reached Series C or D funding and have already seen a bright future.
Although Google hasn't reached the stage of Series C or D funding, its user growth rate already shows promise for the future.
Of course, the downside is that Wall Street likes to interfere and influence company decisions for its own benefit.
In contrast, venture capitalists in Silicon Valley, while having less funding than those on Wall Street, can give startups ample freedom.
Both sides have their own paths, but truly large companies usually take both paths.
The founders of companies that grow into behemoths are usually visionary and will definitely seek venture capital in the early stages of their ventures to keep control of the company.
It's only when you reach the mid-to-late stages, when you need more funding or plan to go public, that venture capital becomes less helpful, and you start to engage with Wall Street capital.
"For Google now, venture capital is not very meaningful for the company's development."
Wenger thought the same way: "Then I'll have someone release the news on Wall Street and see how they react."