leonardwarren Chapter 263 Capital Games
Chapter 263 Capital Games
The remaining three Goldman Sachs members remained seated. The Asian man adjusted his glasses and spoke, "Mr. Ling, my surname is Chen, Chen Wenhao. I was born in Taiwan, graduated from Stanford, and have been with Goldman Sachs for six years."
"Mr. Chen." Ling Yun nodded.
"I'd like to ask a potentially sensitive question," Chen Wenhao said. "What is Xingyu's ultimate goal? Is it to go public independently, or to be acquired? If it's to be acquired, who are the potential buyers?"
This is a clever question. It bypasses the valuation debate and gets straight to the point.
"Independent listing." Ling Yun answered without hesitation. "We want to build a long-term company, like Microsoft or Oracle. Being acquired is not in our consideration."
Even if Microsoft offers $50 billion?
"Even if it's 100 billion," Ling Yun said, "some things can't be bought with money."
Chen Wenhao looked at him, something flashing in his eyes for a moment before disappearing. "I understand."
Footsteps sounded outside the meeting room. Richardson pushed open the door and entered, his professional expression returning.
"8.4 million, pre-investment," he said. "This is our bottom line. A lead investment of 5000 million, a board seat, and priority underwriting rights for the IPO—not exclusive, but if our offer and service are no worse than our competitors, they must choose us."
Ling Yun and Carly exchanged a glance. Carly nodded slightly.
"Yes," Ling Yun said, "but a written commitment is required. Goldman Sachs will assist us in completing this round of financing and introducing other high-quality investors."
"We'll do our best," Richardson said, extending his hand. "It's a pleasure doing business with you."
"It's a pleasure working with you."
They shook hands. Richardson's hand was still firm, but this time the handshake lasted shorter.
"Our legal team will send you the Term Sheet this afternoon," Richardson said, starting to pack his things. "Hopefully, it can be signed this week."
"We will review it as soon as possible."
The Goldman Sachs team left the meeting room at 10:23 AM. The meeting lasted 83 minutes.
After the door closed, Carly let out a long sigh and leaned back in her chair.
"It went more smoothly than expected," she said.
"Because they know we have other cards to play." Ling Yun rubbed his temples. "The Abu Dhabi Term Sheet gave us confidence."
"Should we notify Abu Dhabi?"
"Let's talk after I finish talking to Morgan Stanley." Ling Yun stood up. "I need coffee, real coffee."
In the break room, the coffee machine was running, the dark brown liquid dripping into the glass pot, releasing a rich aroma. Ling Yun poured himself a cup, without sugar or milk, and took a big gulp. The bitterness exploded in his mouth, stimulating his senses.
"Richardson's last phone call was probably to headquarters in New York," Carly said, pouring herself a cup of coffee. "8.4 million, that's 1000 million higher than our initial bottom line."
"But it's less than the 8.5 million offered by Abu Dhabi," Ling Yun said. "However, Goldman Sachs' resources are more important. They can help us connect with more institutions, and we'll also have a brand premium when we go public."
"What about Morgan Stanley..."
"Winston will be more difficult to deal with." Ling Yun looked at the swirling water in his coffee cup. "They are good at designing complex terms that look fair but are full of traps. In the afternoon negotiations, you need to pay special attention to the non-standard content in those 'standard terms'."
"clear."
For the rest of the morning, Ling Yun spent her time in the office processing emails. Ni Guangnan sent an update on the chip design team's progress—they had completed their first prototype design, a low-power chip for electronic watches. Although not technically advanced, the process was running smoothly. Zhao Weiguo reported on the expansion of internet cafes in China, having signed agreements for twelve more locations in seven cities. An Shiyu sent a photo of her lunch—scrambled eggs with tomatoes and rice, beautifully presented. She added a note: "Practicing my cooking skills, waiting for you to come back and test it out."
Lingyun replied, "It looks delicious."
send.
He stared at the screen for a few seconds, then closed his email.
At noon, Fiona arrived at the company on time. She is the legal head of Star Technology, in her forties, and previously worked at Wilson Sonsini, one of Silicon Valley's top technology law firms. She wore a dark suit dress, carried a heavy briefcase, and had a serious expression.
"I've already reviewed Goldman Sachs' draft term sheet." The three sat in the small conference room, and Fiona opened her laptop. "The overall framework is standard, but there are a few points that require special attention."
She pulled up the annotated file.
"First, the anti-dilution clause. Goldman Sachs is demanding a 'full ratchet' anti-dilution clause, which means that if subsequent funding rounds value the company at a lower level than the current round, their shares will be recalculated based on the new lower price. This is very disadvantageous for the founders. I suggest trying to change it to a 'weighted average' anti-dilution clause, which is fairer."
"Second, liquidation preference. Goldman Sachs is demanding a 2x liquidation preference, and it must be 'participating.' This means that when the company is sold, they will first receive twice their investment, and then receive a share of the remaining money according to their equity stake. This would significantly reduce the returns for founders and other shareholders upon exit. It is recommended to reduce it to 1x and strive for a 'non-participating' option."
"Third, the board seat clause. The document states that 'Goldman Sachs has the right to appoint one director,' but it does not specify whether this director's seat counts towards the total number of seats held by the investors. If it does, there is no problem. But if it does not, it means that the investors actually have four seats, which may exceed the number of seats held by the founding team."
Fourth, the definition of "preferred rights" in IPO underwriting is vague. What does it mean to "offer prices and services no worse than competitors"? This gives Goldman Sachs a lot of room for interpretation. We suggest clarifying and quantifying the standards: underwriting fees, research coverage commitments, and subsequent financing support, etc.
Fiona spoke quickly but clearly. She made a mark on the printout after each point she made.
"How much room is there for negotiation on these terms?" Ling Yun asked.
"Goldman Sachs might insist on a full ratchet for the anti-dilution clause, but we can negotiate other terms. Liquidation preference, 1x non-participation is a common market term, and we have a chance to secure it. Board seats and underwriting rights need to be clarified in detail." Fiona adjusted her glasses. "The key is to let them know that we understand the significance of these terms and are not some startup that can be easily fooled."
"How should we handle things when we talk to Morgan Stanley this afternoon?" Carly asked.
“Morgan Stanley’s terms are often more ‘sophisticated’,” Fiona said, pulling up another document. “They are adept at including seemingly harmless but potentially disastrous clauses. For example, ‘most-favored-nation treatment’—if the company offers other investors better terms, it automatically applies to them. This can put them in a very passive position in subsequent funding negotiations. There’s also ‘mandatory tag-along rights’—if founders sell their shares, they have the right to force the company to buy them back on the same terms. These clauses must be watched closely.”
Ling Yun listened and took notes in his notebook. The pen tip left deep marks on the paper.
"You'll come with us this afternoon," he said to Fiona.
“I’ve got it all arranged.” Fiona closed her laptop. “Also, I suggest we add a ‘no transaction fee’ clause to the Term Sheet. Some investment banks hide transaction fees in investment agreements, usually 1%-2% of the financing amount, which is borne by the company. That’s a significant amount.”
"it is good."
Lunch was a simple takeout salad. Lingyun took a couple of bites and put it down. Carly barely finished half of it. Only Fiona ate slowly and methodically, continuing to flip through documents as she ate.