Li Yanhong?! A returnee from the US, and had worked at Infoseek, the biggest internet search engine at this moment. He was also the one who developed an algorithm using hyperlinks. He even got the US patent for this algorithm.
Li Yanhong had always wanted to start a Chinese search engine company and not work for others. With this goal in mind, he returned to China to survey the situation every year.
Last year, Li Yanhong felt it was the right time. When Sina, Sohu, etc. companies got listed on Nasdaq, he knew China’s internet boom is about to start. This is the right time for him to start his business.
Li Yanhong quit his job and returned to China with his partner, Xu Yong. He hired a few Postgraduates from renowned Chinese universities and even hired an Associate professor to join him.
The company Li Yanhong founded is called Qiandu.
But Li Yanhong and Xu Yong do not have enough funds. After buying the PCs and settling their lodging, they do not have enough to pay their workers. Beijing University’s professor is even poorer than them. If Li Yanhong is unable to pay him, the professor might change his mind about joining them.
Thus, Li Yanhong and Xu Yong need a new partner.
Xu Yong had suggested approaching Sina, NetEase, or Sohu. These three companies were just listed and have enough funds.
When Qiandu’s search engine is ready, they can let these websites use them.
But Li Yanhong objected to this suggestion. He felt Qiandu might be acquired by these websites easily if the websites become their partners. They had seen lots of companies that were bought out when they are working in Silicon Valley. This is not what he wants.
Furthermore, Li Yanhong still owns the patent for the RankDex site-scoring algorithm. With this patent, he has the chips to bargain with many venture investors.
Li Yanhong saw Tai Hua Consultancy’s advertisements and heard that the three major Chinese websites had accepted this company’s investments.
……
“Is this your proposal? Is your name Li Yanhong?” Sun Lijie looked at the proposal on the table and asked.
“Yes.”
“In your proposal, you mentioned that your company will not be making profits within the next three years. Is this a typo error?” Sun Lijie asked curiously. When other companies approach Tai Hua Consultancy, they will claim that the company will profit once the fund is injected into the company.
But this guy is different. No profits within the next three years? Also, Li Yanhong is one of the names Manager Feng asked Sun Lijie to look out for.
Li Yanhong replied cautiously. “This is not an error. Based on our forecast, it’s hard for us to make any profit within the first three years. We need to invest in the development of search engines and marketing. But three years later, I dare to promise that we can recover our investments and make profits.”
“You stated that you want 100 million RMB of investment, and you are only willing to offer 49% shares of the company.” Sun Lijie smiles.
If excluding the algorithm patent Li Yanhong owns, this company is worth less than 2 million RMB. How can this patent be worth so much?
“Manager Dun, I had invented this algorithm, and this is critical for search engine. In the US, there is a company named Google. I am not sure if you had heard of this company before. Still, this company is providing search engine services for websites like Yahoo, etc. They had already started their own search engine website, and many investors are waiting for this company to be listed. If this company got listed, the value would exceed over a billion USD!”
“Are you saying that your Qiandu is the same as Google?” Sun Lijie asked.
“We are not on par with Google currently, but I am confident that Google is not our match when it comes to the Chinese search engine. This is because only the Chinese know the Chinese language better!”
“How many people are there in your company?”
“Ten, including myself.” Sun Lijie replied.
“Your scale is too small. I heard Google will be entering the Chinese market, and how are you going to compete with Google if all the websites are using Google search engines?”
“Most of Google’s engineers are Americans, and they are not familiar with our language. There will bound to have lots of errors, and we had hired all Chinese software engineers. This is our advantage. Most importantly, we are a Chinese company, and we will have the support of most Chinese.
“I can decide on this 100 million RMB investment, but the shares you are offering is too little. I dare to say other than our company, no one is willing to give you this amount. We want 70% of the company’s voting shares, and you can discuss it with your partners.”
“Manager Sun, will you give the company you founded to someone else?” Li Yanhong asked.
“That depends. If the price is right, I would not mind selling it. I think you might have heard about this. We own the shares of the three main Chinese websites, and if you accept our conditions, we can let Qiandu handle the search engine services of these websites.” Sun Lijie replied.
Those three Chinese websites will agree, but Qiandu’s search engine must be good enough in the first place.
“Manager Sun, the offer is very attractive, but I cannot accept it. I will not handover the company I set up to someone else. I heard that the major shareholder of NetEase is still Ding Lei.” Sun Lijie rejected.
“Don’t be in a rush to reject us. Maybe you do not know about the details. You can ask Sina, Sohu, etc. if we had interfered in their companies’ operations. We had never interfered with their operations and even helped them. Didn’t you notice that our company is the main shareholder of Sina and many companies, but the Chairman is someone else?”
“Sorry, unless you all indicate in the contract that the majority of the shares are none voting shares.” Li Yanhong insisted.
“What proportion are you suggesting?”
“30% voting shares, and the rest are non-voting shares.” Li Yanhong said.
“49% of the voting shares and the rest are non-voting shares. You all will still be holding on to most voting shares, and I need to remind you that the longer you drag, the harder for Qiandu to succeed. Google is developing very fast in the US, and my Boss had also invested in Google. If we want, we can use Google and set up a Chinese search engine company. Do you think your company can still survive then?”
Li Yanhong’s eyes nearly popped out of its sockets. What did Sun Lijie say? His Boss, Feng Yu, is a shareholder of Google?
This means that Li Yanhong’s patent is useless in this negotiation.
Li Yanhong clenched his teeth. “Fine. You all will get 49% of the voting shares, and the total will be 70% shares. When can the fund be in?”
Sun Lijie laughed. “The fund will be in your company’s account the same day when the contract is signed!”
Translator’s notes: The author used Qiandu instead of Baidu. Qian = thousand, Bai = Hundred.
