Valuation

Reading guide

Wan Weigang’s Elite Daily Lessons relays Morgan Housel’s model of bubbles: bubbles are not a moral issue; they arise when players with different time horizons are playing different games. First, a company delivers real results and attracts attention. Second, short-term players enter and push up the price. Third, long-term investors mistake short-term price movements for information the market is giving them. Fourth, short-term money leaves and the price collapses. The point is not to decide whether the market is right or wrong, but to know your own strategy and time horizon, and who the other participants are. This model is a tool for understanding, not a tool for timing the market.

Reading guide

The original post names Dedao / Wu Jun’s Letters from Silicon Valley and compares the investment approaches of Sequoia, KPCB, and YC. Some material about Sequoia’s three stages, explaining a business on the back of a business card, and a company’s DNA can be matched to the venture-capital chapter of Wu Jun’s 2008 Langchao Zhidian, but this does not establish the source of the entire post or confirm its other details. The accounts of KPCB’s investment outcomes and involvement with companies are relayed from the original post; they have not been verified by this site and do not describe current policy. YC emphasizes founders’ potential and mentors’ experience. Paul Graham’s own biography also names Jessica Livingston, Robert Morris, and Trevor Blackwell as cofounders.

Reading guide

In a shareholder-meeting Q&A, Buffett and Munger explain how they examine a business: look for a broad, enduring moat protecting a substantial economic castle, with an honest lord in charge. Under capitalism, however, every moat will come under attack, and most prove worthless. The task is to understand why certain castles have survived and what could destroy them in five, 10, or 20 years. Munger translates the honest lord into economic terms: low agency costs plus advantages of scale. They also distinguish businesses where you need to be smart only once, such as cable networks in an earlier era, from businesses where you must stay smart, such as retail, where the castle needs defending every day. In valuation, the moat and management inform an assessment of the certainty of future cash flows. No formula can tell you precisely that a moat is 28 feet wide and 16 feet deep; you have to understand the business. Berkshire’s good performance has come not from doing many brilliant things, but perhaps from doing fewer foolish things than most people.

Reading guide

Material from another source discusses support from angel investors, fundraising windows, and equity and exit arrangements. Robin adds two comments: trust is the foundation, and valuations should be reasonable. Raise somewhat more than you need according to the circumstances, rather than relentlessly seeking the highest valuation and the largest amount of capital. The examples in the source—raising 1.5 to two times the calculated amount, a 5:3:2 ownership split, and four-year vesting—illustrate particular scenarios, not universal rules. Equity, exit, and profit-distribution arrangements still call for expert advice.

Reading guide

The foreign-language material argues that early-stage founders should not sacrifice funding opportunities or good investors over a small difference in valuation. An excessively high valuation can become a constraint and add pressure in the next round. Robin adds that the goal is to find long-term partners, not someone to take an investment off your hands. The amounts and ownership percentages are hypothetical examples, not advice on an actual transaction. The highest bidder is not necessarily the worst investor, nor is the public-market price an absolute benchmark; dilution and other terms still need to be assessed case by case.

Reading guide

The Unicorn Hunters series from Surviving a Startup examines market leadership: VCs look for a company's potential to lead its market, and price itself is an attribute of quality. Network effects, scale, and category recognition create real barriers to entry. Snap's move into mobile and teenage users, avoiding a head-on battle with Facebook, and Apple's transformation from a computer company illustrate category leadership. The author's call to give up unless you can be number one needs qualification: it applies where network effects and scale effects are pronounced, rather than serving as a creed for every business.

Reading guide

In Jason Fried's fictional press release, Basecamp announces that it will stop generating revenue, pursue a higher valuation, and raise an imaginary dollar. A fictitious professor proclaims a $100 billion valuation and uses an absurd social-media-and-burn-rate formula to project 12 billion users by 2016. The piece satirizes valuations built on imagined traffic rather than business results. Its fictional framework must remain clear: Basecamp did not actually stop collecting revenue, raise one dollar, or receive a $100 billion valuation. The formula is not a valuation tool.

Reading guide

This excerpt from Touzi Yilei discusses angel investing. The earliest opportunities may have no team or company, only an idea; the basis for a decision is the person. Knowing the founder deeply matters more than files, and a spouse, relatives, friends, or colleagues can provide useful perspectives. The book also contrasts stages: angels focus on the right tail of returns, while consensus among seasoned investment-committee members often produces mediocre choices. VC and PE rely more on data and success rates. Claims that a spouse is the only person to ask or that valuation is impossible are strong rhetoric. Returns of thousands or tens of thousands of times are exceptional possibilities, not typical outcomes; basic legal and accounting checks remain necessary.

Reading guide

Robin's late-2022 view of startup fundraising over the next one to two years: pandemic-driven remote demand and quantitative easing fueled capital markets and startup investment in 2020–2021. In 2022, the continuing Russia–Ukraine war, inflation following a decade of easy money, tightening and rate hikes in Europe and the United States, and spending shifting from electronics to offline activities battered technology stocks. Meta and Netflix fell over 70%; AMD, NVIDIA, and Intel over 60%; Zoom and C3.ai as much as 90%. Sequoia and Y Combinator warned of a funding winter. Startups must return to fundamentals: will customers pay for the product or service, rather than merely hoping VCs will? The era of burning cash for market share has passed. Be more focused and lean, and right-size the organization if necessary to weather the next one to two years. VCs assess investments over five to seven years, rather than being entirely driven by two to three years of volatility, but large portfolio write-downs create operating pressure and may require valuation adjustments. Stock declines are figures from 2022.

Reading guide

Robin opens with his view that the hottest investment area of 2022 has returned to AI, especially the widely discussed topic of AI generation: the future is here. The reprinted 36Kr Shenyiju report describes a San Francisco generative-AI gathering organized by Conviction founder Sarah Guo, bringing together engineers, entrepreneurs, and financiers, including Hugging Face's CEO. Stability AI announced $101 million in funding at a $1 billion valuation; Jasper raised $125 million at a $1.5 billion valuation. Microsoft's Copilot and OpenAI's GPT-3 and DALL-E 2 fueled the excitement, with even Sergey Brin appearing at a related gathering. Investor Nathan Benaich observed considerable FOMO. Legal questions were emerging too: the boundaries of fair use for training models on copyrighted data were expected to be tested in court. Valuations and funding amounts are figures from 2022.

Reading guide

Robin opens with points he has often made: practice continually, raise money while you still have money, and approach your most desired VCs later. The excerpt from Build explains how to get noticed through a compelling story and an understanding of your audience. Most Silicon Valley VCs are not technical, so focus less on technology and more on why. A 15-slide pitch must appeal to reason and emotion; that art takes practice. Do not begin with top-tier VCs, who share information. Start with friendly investors who will give feedback. Allow three to five months for fundraising, begin before you need money, and avoid desperate financing when cash runs out. Remember vacations in August, Lunar New Year, and Thanksgiving through New Year. The checklist: no games; listen to feedback while holding to your vision; specify the amount, use of funds, and milestones; link valuation to milestones; build a data room; confront risks; seek two equally influential investors to balance each other; and, as in chess, think two moves ahead.

Reading guide

An excerpt from The Power Law recounts Masayoshi Son's 2017 visit to WeWork. Arriving an hour and a half late, he offered only 12 minutes. After a tour, he invited Adam Neumann into his car. Their 28-minute interaction produced a proposed $4.4 billion SoftBank investment at a $20 billion valuation—more than fellow shareholder Benchmark Capital had raised in its entire 22-year history. Son's capital encouraged Neumann's hubris and global expansion, but also opened an exit window: T. Rowe Price sold as much as it could, while Benchmark sold about 20% of its holding and locked in a 15-fold return on its original investment. Robin adds six observations: Neumann's reality distortion field merits watching; after his downfall he soon secured backing from top Silicon Valley VC A16 for a new venture; a pitch's length matters less than winning attention and more time; effortless fundraising can hurt both sides, while constraints stimulate creativity; basic investment principles must be remembered; and the era of cash-fueled expansion may have ended with the Vision Fund's decline.

Reading guide

As Appier's Japanese listing drew praise, Robin urged readers not to overlook the significance of another case: 91APP chose to list in Taiwan. He called for appreciation of this opportunity to set an example. A homegrown SaaS company's listing in Taiwan can influence more than its own share price; it can support digital transformation, the startup environment, and investors' understanding of the software industry. Capital markets need success stories to build confidence, and confidence takes time and accumulated examples. This is a short commentary from April 2021. The IPO valuation and events described at the time have not been externally verified and do not constitute investment advice.

Reading guide

Commenting on 91APP's IPO, Robin notes its post-listing market capitalization of about US$1 billion. Although that differs from the definition of an unlisted unicorn, he emphasizes another significance: by choosing to list in Taiwan, 91APP set an example for the transformation of Taiwanese SaaS businesses and for the capital markets. Software companies have long lacked success stories in Taiwan's capital markets. Every company willing to stay and establish itself opens a path for those that follow. He uses the example to encourage startups to grow through difficult challenges. The market capitalization and assessment reflect June 2021; its value as an example is not a guarantee of current valuation or returns.

Reading guide

On Gogoro's planned US listing through a SPAC, Robin compares it to Chien-Ming Wang and Chin-Feng Chen challenging Major League Baseball: top talent wants to compete on the world stage, and Taiwan should wish them well. He also raises three sets of questions. Are Taiwan's capital markets ready for companies with large accumulated losses, low equity, or even negative equity? Companies understandably choose the listing venue that suits them best; raising more money abroad to develop in Taiwan can be positive. And maintaining visibility in US markets requires a sufficiently large investment theme, a top-three position in a regional market, and sustained rapid growth. His concerns about Gogoro include the potential of electric scooters, revenue concentrated in Taiwan, limited international visibility, and slowing growth. The financial figures are hypothetical scenarios based on market rumors in 2021, not actual financial statements.

Reading guide

This reprint from Hulianwang Jinhua Shi recounts Netscape's August 9, 1995 IPO. The offer price rose at the last minute from US$14 to US$28. Demand was so strong that trading could not begin at 9:30; Charles Schwab even added a phone message saying, “If you are interested in Netscape's IPO, press 1.” The first trade, around 11 a.m., was at US$71, and the stock closed at US$58.25. A company only 16 months old, with US$17 million in revenue and no retained earnings, ended its first trading day worth US$2.1 billion. The Wall Street Journal said General Dynamics took 43 years to reach US$2.7 billion, while Netscape took about a minute. Barefoot on Time's cover, 24-year-old Marc Andreessen became a starting point for Silicon Valley dreams. Historical figures follow the reprinted source; original records have not been checked.

Reading guide

Robin reviews a landmark acquisition: cloud data company Databricks announced a US$1.3 billion acquisition of MosaicML, an AI startup less than three years old. Founded in 2021 with just 62 employees, MosaicML had disclosed only one financing round, at a US$220 million valuation; the acquisition represented a sixfold jump. Founded by a group of former Intel executives, its team enables enterprises to train and deploy AI models in secure environments. Automated training optimization promises training speeds two to seven times those of traditional methods. Databricks plans to combine its Lakehouse platform with MosaicML so enterprises can train generative AI on proprietary data at low cost. Robin's judgment: technology giants' acquisitions of generative AI startups are only beginning. Figures reflect company statements from June 2023.

Reading guide

This reprinted article compares several leadership transitions: Iger’s repeated extensions at Disney and eventual handover, Morris Chang’s succession planning, a founder returning to take the helm at Airbnb during a crisis, and Musk’s close identification with Tesla. What would happen if Musk left? The hypothetical itself raises a risk question. The central argument is that a great CEO must do more than lead growth: the role also demands difficult decisions and a system that allows a business to keep growing without its founder. Iger’s departure as CEO in 2020 did not mean retirement; valuations and dates are reproduced from the reprinted source and have not been independently verified.

Reading guide

An overview of Alibaba in early 2021. Core commerce formed a domestic/international and retail/wholesale 2×2 matrix, including Taobao, Tmall, 1688, AliExpress, and Lazada. In the global ‘3A1G’ cloud landscape, AliCloud had the largest share in China and Asia-Pacific. Digital media and entertainment included Youku, UC, and Alibaba Sports; innovative businesses included Amap and DingTalk. Investments included roughly 10% of Didi, 20% of Suning, full ownership of Ele.me, and over 70% of Intime. Cainiao covered 224 countries and territories and 2,800 Chinese cities and counties. Ownership, valuation, and structure reflect early 2021 and have since changed substantially.

Reading guide

The article challenges common misconceptions: Amazon did not go ten years without profit. Founded in 1994, it first reported a quarterly profit in Q4 2001 and a full-year profit in 2003, with intervening losses attributed to the September 11 shock. It listed in under three years and raised only US$48 million, less than many companies’ Series B rounds today. Nor was it always favored by Wall Street: value remained depressed after the internet bubble, before a post-2009 transformation led investors to value it as a technology company. The closing reflection favors examining one’s own actions over attributing others’ success to benefactors or inventing excuses.

Reading guide

Entrepreneurship often runs against human instinct, and chasing a high valuation is a major trap. When capital is plentiful, a barely started company can be valued above many listed businesses. Founders may develop an inflated sense of importance and think they run a large company when little exists yet. Rising valuations also impose competing demands: justify the last round to existing shareholders, make the current round attractive to new investors, and prepare a bigger story for the next. Attention shifts from products and customers to financing and valuation. Trying to serve three rounds’ valuations leads to poor decisions and misallocated resources. Written in late 2022 as the capital environment changed.

Reading guide

In episode 77 of M觀點’s (M Viewpoint) Investing Is Hard, Miula compares NVIDIA and Tesla using three considerations: industry prospects and trends, the company’s moat, and management capability. Founders seeking VC should explain four things: industry structure and future trends; why the team deserves investment, including its accumulated advantages and responses to difficulty; why it can succeed rather than giant competitors; and completed validation and feedback. The reprinted passage argues for investing in ‘the day after tomorrow’: yesterday is past, today is crowded, and tomorrow is already expensive. The day after tomorrow is taking shape but remains uncertain, with early-round pricing and ample room to develop—the stage that most excites venture investors.

Reading guide

In this installment on thinking about capital, Robin argues for a reasonable rather than high valuation. A high valuation can corner a company when capital markets, its industry, or the business turns down. Raise somewhat more than current needs, rather than assuming more is always better; steady, small steps are another option, depending on circumstances and careful planning. Entrepreneurship is lonely, and angels back founders with real money on trust alone; that trust should not be betrayed. The reprinted passage says founders must remain the protagonists, with investors serving behind them. Founders need clarity about needs, goals, and methods, and the ability to decide what to accept, reject, and say no to at the right time.

Reading guide

Secondary markets react quickly to company value. Netflix, a global streaming giant spending US$18 billion a year on production, was built by visionary founder Reed Hastings, who defeated Blockbuster, created a streaming industry, disrupted cable television, and influenced Silicon Valley through a distinctive culture. Even such a legendary company could lose 70% of its market value in six months. Why should private-market startups insist on last year’s peak valuation—or more? Robin adds that global inflation, monetary tightening, and rising interest rates would make fundraising harder in the near term than in the second half of 2021. To keep moving, founders need tangible results and compelling reasons for investors to support them. These observations date to April 2022.

Reading guide

Management teams have partnered with private equity funds to take companies such as Fusheng, Nien Made, LCY, and On-Bright private. The first two returned to capital markets, with Fusheng first separating its golf business; LCY and On-Bright still needed time to reorganize after their acquisitions and delistings. Privatization can simplify restructuring before relisting, while some companies seek higher price-to-earnings ratios and valuations in another market. Robin warns that abundant capital may bring more such deals but can also signal a bubble. Many private equity deals made before 2008 became difficult hot potatoes once the industry’s best moment had passed.

Reading guide

The second half of an interview with Shen Nanpeng. On an era dominated by leaders: the internet is winner-take-all, with perhaps two food-delivery companies and four or five e-commerce survivors. Mergers need clear commercial logic: no one wants 1+1=0.5, while everyone is eager for 1+1=5; investors act as advisers who articulate that logic. Three investment criteria have remained unchanged for fifteen years: the entrepreneur, industry size, and business model, including natural barriers to entry. Early-stage founder assessment remains an art. “Invest in the track rather than the racer” is a major misconception: the founder comes first, and confidence in values and ability can justify a “blind bet.” Long-term thinking requires resisting short-term temptations, intellectual honesty, and the courage to knock again on the door of a company you misjudged. Fund life matters more than size: how can you think long term with only seven or eight years?

Reading guide

Robin’s extended response to Gogoro’s announced US listing through a SPAC. First, Taiwan’s capital market: it is not psychologically ready for a business with potentially over NT$10 billion in accumulated losses, very low or negative equity, and continuing large losses. Regulators and investors need to learn together. Second, Gogoro itself: choosing the most suitable listing venue is reasonable, but US-market visibility requires a large opportunity, a top-three regional position, and high growth, as with Grab. His concerns include the potential of electric scooters, revenue concentrated in Taiwan, the closure of European partner Coup, and slowing or declining figures. Third, advice to regulators: 91APP is accepted because it has demonstrated its model. Taiwan may not yet accommodate a US$2 billion unicorn, but could best support startups valued at US$100 million–US$1 billion, attracting strong international teams to list here. Written in September 2021.

Reading guide

Once an investor meeting is secured, founders need three preparations. First, explain what they intend to do. Investors care about monetization and trends: not yesterday’s opportunities, already irrelevant; not today’s, already crowded; and not tomorrow’s, where mature opportunities favor large institutions. Their favorite is the “day after tomorrow.” Explain the industry’s past, present, and future, the opportunity you see, and your preparations. Second, demonstrate a distinctive edge. Barriers may come from advanced technology, industry experience, or—most often—people. With the right team, a second-rate idea can produce a first-rate outcome. Third, prove execution. Investors increasingly value the second-in-command who turns ideas into action. Use past achievements to show that you move quickly; even running in the wrong direction and correcting promptly is better than standing still.

Reading guide

Duan Yongping’s philosophy: missing an opportunity is not the concern; taking the wrong one is. The one reason not to sell a stock is “I’ve already made money,” just as its past price is not a reason to buy. The only test is value. When accounting problems led Nasdaq to suspend NetEase in 2001 and its share price fell from $15.50 to $0.64, Duan found a company valued at $20 million with $60 million in cash, only $14 million in liabilities, a fast-growing SMS value-added business, and plans to enter the gaming market he understood. After lawyers assessed the litigation risk as manageable, he used almost all his available $2 million to buy 1.52 million shares in April 2002. Even gains of dozens of times within two years did not prompt a sale. He ultimately held for more than five years and earned over a hundredfold.

Reading guide

Xuan Tian’s empirical research, published in Review of Finance in 2012, examined more than 30,000 US startups founded between 1980 and 2005. Seventy percent received funding from at least two VCs, while 88% of VC-backed companies that went public had syndicate funding. The article uses Didi’s $4.5 billion Series F as a case: Apple, China Life, Ant, Tencent, China Merchants Bank, and SoftBank pooled resources that helped it evolve from a taxi app into a smart-mobility leader. A parenthetical note records its later market-value decline as a point-in-time observation. Syndicates create product-market value through complementary expertise, networks, and information, and greater willingness to fund risky innovators. In financial markets, multiple VC backers send a positive signal affecting IPO underpricing and valuation. But an informed investor with unusually strong conviction may exclude others to retain all the gains; in that case, solo investment could produce better exits.

Reading guide

Cai Yu reviews Yang Haoyong’s battle between Guazi and Renrenche, where capital-driven momentum was a key weapon. A month-long stealth expansion into 40 cities and more thanRMB 100 million in advertising produced a gap of 1,700 versus 700 transactions. A Series A of over$200 million then constrained the rival’s fundraising options. Spending created barriers, and capital momentum drove the market toward a 9:1 split. Do not take comfort in “just do your own job well” or “the market is large enough for everyone.” Cai also cautions that capital is only the foundation; data and algorithmic moats form the deepest layer.

Reading guide

Fan Deng responds to a nanomaterials startup team: inventors face considerable entrepreneurial risk because they can love their invention more than the social problem the invention should solve. When difficulties arise, they seek to spread the invention everywhere rather than find the best solution, refusing to give up even after reaching a dead end. His example is an automatic car-cover device developed over ten years, whose creator sought investment at a valuation of 100 million. Fan declined for four reasons: assumed demand was unsupported; covering cars was infrequent; a rooftop device could be stolen; and carrying it in the trunk added weight and fuel consumption, undermining value. Real inventors begin with problems. Edison did not invent the light bulb, but his team found a suitable filament. Jobs did not invent the smartphone, but “redefined” it. Where Nokia insisted that computer functions required a computer keyboard, Jobs reportedly demanded one-button simplicity. The excerpt attributes to Bezos, via Allen Zhang, the question of whether innovation serves people or merely displays cleverness: will you show intelligence at any cost, or choose kindness? Inventions designed to demonstrate a founder's ingenuity rather than address a real problem will, in most cases, fail.

Reading guide

Zhang Xiaoyu’s case course tells the story of Orange Hotel. It may not be a success story about working with capital, but it is a very real one. After selling the company, founder Wu Hai wrote that he felt like a “surrogate mother”: he had devoted his life and youth to nurturing a child, only to realize, when the final strategic investor Huazhu took Orange over from its investors, that capital might be the child’s real mother. The account has three stages. First, capital enabled rapid expansion. Orange had only 25 hotels when Carlyle came in during 2012, but more than 200 before Huazhu acquired it. Expansion exposed the disadvantages of unfamiliar local markets, however, and the company moved from insisting on directly operated hotels to franchising and reliance on partners with local resources. Wu’s original commitments gradually changed. Second came the investors’ exit. In late 2016, Carlyle sought to exit, not simply to make a quick profit: its fund had only three years left, while preparing for a domestic listing would take a year and regulatory approval was highly uncertain. Wu knew Carlyle would not force a sale if he firmly opposed it, but said he should respect investors’ wishes and fulfill his role as a surrogate mother. In February 2017, Huazhu acquired Orange Hotel outright for RMB3.65 billion. Third is Wu’s character. When valuation negotiations with Carlyle stalled, he pledged all his options under a performance-based agreement: if the business performed poorly, all the options would go to Carlyle. He wanted to protect the share value held by early investors and his team. Each of his three ventures ended in a sale. He may not have been the greatest entrepreneur, but his loyalty and authenticity offer something to learn from.

Reading guide

Robin’s commentary begins: when a problem arises, solve it. KKT’s auction was suspended because there were insufficient qualifying lots, and the offering would switch to bookbuilding and allocation. The central issue was how to assign a reasonable value to companies such as KKT. Robin proposed revisiting the introduction of a cornerstone-investor framework: an IPO allocation mechanism for potentially promising startups whose valuation models are unfamiliar to the market. The issue had already been discussed in 2018. Then Financial Supervisory Commission Chair Ku Li-hsiung said the Taiwan Stock Exchange had been asked to collect international examples and study bringing in cornerstone investors before an IPO, within specified ownership proportions and price ranges, to strengthen a company’s investment value and stabilize its share price after listing. Discussions later stopped after GGR listed in the United States; supporting regulations and allocation fairness still needed work. The 2018 report discussed several related issues. Removing the profitability requirement for converting privately placed securities into publicly offered securities after three years could revive problems involving cheap allocations to selected investors and arbitrage opportunities. Unequal voting rights could undermine governance in a market where retail investors accounted for more than 60%. The exchange president had visited Gogoro to understand its needs: its large capital base made an auction unsuitable, and an IPO would require cornerstone investors to subscribe for a large amount. The securities dealers association suggested exempting IPOs of at least NT$2 billion from priority use of auctions, allowing cornerstone investors to subscribe for 40–60%, excluding company insiders and related parties, and imposing a six-month to one-year lock-up.

Reading guide

On October 12, 2020, SoftBank’s Vision Fund disclosed plans to establish a SPAC, or special purpose acquisition company, within two weeks. Unlike acquiring an existing listed shell, a SPAC raises money from investors to create a new shell company. Its leaders then acquire an unlisted business, effectively bringing that business to the public market. Vision Fund CEO Rajeev Misra said the SPAC would give portfolio companies a route to listing amid high market uncertainty. It would target growth companies in later funding rounds, with capital coming partly from the Vision Fund and partly from market investors. The backdrop was the popularity of SPACs in 2020. Bloomberg Businessweek reported that SPACs had raised US$41 billion that year, more than in the preceding ten years combined, and accounted for 40% of U.S. IPOs. The Verge suggested that uncertainty in the stock market was a reason: traditional IPOs could be priced too high or too low, with increasingly unpredictable market reactions. SPACs reduced that risk to some extent by providing a predictable valuation range. Companies seeking a listing could avoid an IPO roadshow and dealings with numerous institutional investors, negotiating instead with the SPAC’s controlling party. A listing could be completed in as little as a few weeks. These are reports and claims from October 2020.

Reading guide

Robin compiles Liu Songbo’s views from Dedao’s 30 Lectures on Corporate Governance. Startups easily fall into disputes over interests because business models, the importance of resources, and individual contributions continue changing dramatically after the equity structure is set. Haidilao’s Zhang Yong and Shi Yonghong agreeing to transfer shares after initially holding 50% each is a positive example; the dispute between Li Ziqi and Weinian is a cautionary one. The solution is to leave room for adjustment in equity design. First, reserve an equity pool rather than allocating all shares at once. Second, use vesting, granting equity progressively against milestones. Third, prearrange exit mechanisms, including conditions and prices for recovering equity. Ning Xiangdong also proposes a “pivotal minority”: two shareholders with 50% each give up 0.5% apiece, allowing an impartial third party trusted by both to hold 1% and mediate disputes. The post closes with Xu Xiaoping’s observation: do not pursue shared interests through brotherhood; build brotherhood through shared interests.

Reading guide

Xu Xiaoping proposes three principles for equity design. First, hold a large stake without standing alone. Equal splits such as 50:50 or 3:3:3 suggest the team has no leader, but 98:1:1 does not create genuine partners either. A reasonable structure gives the largest shareholder at least 50% and the second at least 10%, with examples including 6:2:2, 6:3:1, 5:3:2, or 7:2:1. Second, earn equity before receiving it. Shares should not be handed over on day one, but earned through four years of vesting. After one year, a cofounder earns a quarter; someone who leaves or proves unsuitable takes only the earned portion. Third, add rather than take away. For a strong later recruit, issue options from an expanded pool rather than demanding shares back from early shareholders. Most startups reserve a 10–20% option pool on day one, preserving flexibility for future equity allocation.

Reading guide

Zhang Yiming wrote this guide to choosing an employer for technical talent when Toutiao was still a small company. He introduces the EC ratio—enterprise value divided by total funding. Google, Facebook, and Tencent had very high ratios. Maintaining a high EC ratio indicates organic growth capacity rather than dependence on outside funding; a low ratio combined with heavy fundraising can suggest a business fattened by capital. He recommends that first-rate technical talent choose leading technology companies, judging technical investment and technology’s contribution to business value rather than money spent on field promotion. Drawing on his rejection of an investment offer from a giant, he argues that bundled traffic and distribution can become stimulants, distort strategy, and force a company to take sides. Do not join a company marrying into a wealthy family; join an outstanding company and become a great one together. He also criticizes obsession with titles and management headcount: titles suffer more inflation than the ruble, while WhatsApp and Instagram had tiny teams. Companies made up of people concerned with how many they manage rather than what they do cannot have high talent density. Finally, early and late are relative; the scale of future potential is the absolute yardstick. Alibaba and Tencent still grew more than a hundredfold after their fifth year. Rather than speculate on a runner-up, choose the leader.

Reading guide

GrowingIO founder Simon Zhang’s translator’s preface to Hacking Growth begins with “If you are not growing, then you are dying”—growth is an enduring business imperative. In 2010, Sean Ellis introduced the growth hacker, whose sole mission is growth. Unicorns such as LinkedIn, Facebook, Airbnb, Dropbox, and Slack used creativity and scientific data analysis to attract millions of users quickly and at very low cost. Traditional marketing addresses only the beginning of the customer lifecycle—branding, positioning, and acquisition—bundling budgets and outsourcing execution in a broad-brush, inefficient approach. Data-driven operations now extend well beyond marketing into product, sales, and service. Retention is especially important: data identifies improvements at every stage, supporting continuous iteration. Since 2017, marketing’s center of gravity has shifted from advertising and traffic toward customer experience managed by product teams. Zhang identifies four gaps between China and the United States: recognizing data’s value, mastering data-driven systems and methods, using data to guide business functions, and using analytics tools in place of manual work. These motivated him to establish GrowingIO. As demographic dividends fade and traffic benefits concentrate among winners, unit operating costs rise linearly or even exponentially. Chinese businesses must replace broad-brush marketing with more scientific, efficient growth methods.

Reading guide

The post quotes Zhang Yiming’s four reasons for rejecting a major company’s investment offer within his company’s first year: resources can act like stimulants and suppress internal capabilities, distort strategy, draw a startup into battles between giants, and make it harder to attract top talent than remaining independent. Robin comments that nothing is wholly good: gaining something means giving something in exchange. CVC may be praised, but it has two sides. Before major decisions, return to the original vision: what company do you want to build, and do you want acquisition or an independent IPO? Every choice brings gains and losses.