The meeting with Huang Qifu didn't take long. This financial genius had no particular objective in meeting He Zhengcheng; he was simply curious why He Zhengcheng could discover the loopholes in LTCM and why he was so certain that LTCM would face bankruptcy.
How could He Zhengcheng know why LTCM ended up that way? If you learn a bit of financial knowledge, many books will immediately present its case to warn everyone not to be overly superstitious and to pay attention to the risks of leverage.
In the eyes of Huang Qifu and his peers, LTCM's black swan event was almost man-made. Although they were already facing losses before Russia announced its debt default.
But if there hadn't been excessive public attention, Russia's default, coupled with market concerns about LTCM's bankruptcy, international capital market funds wouldn't have sought to avoid risk, nor would a stampede effect have occurred, further exacerbating their losses.
MMP, He Zhengcheng really wanted to curse a hundred thousand times. What did their bankruptcy have to do with him? He merely stated the "facts."
Although some things in between are hard to explain clearly, couldn't you understand it as a gamble?
He Zhengcheng had no intention of arguing; let him say what he wanted. Only LTCM itself could bring about its downfall. If it weren't for the super leverage of fifty or sixty times, Russia announcing a debt default two or three times wouldn't have caused them losses.
Everyone understood this fact. Although Russia is a big country, its global economic status and influence on the world are limited.
For example, if Russia were to go bankrupt one day, the global capital market might just go "Oh!" The stock market would symbolically drop for two or three days, and then business would resume as usual, because they are an dispensable entity.
Finally, when he learned that Huang Qifu had established another investment fund, he showed no reaction. He couldn't even clearly explain what financial derivatives were, let alone invest in them.
"What value do funds like yours have? Are they just to increase market liquidity? Don't you think such a life has little meaning?
Do you know the core of Shanhai Capital's investment? We want to invest in the rise of a country, help entrepreneurs there grow, and at the same time realize our own life's value there!
You've learned so much financial and economic knowledge, don't you know that all economic principles are summaries of reality? But the economic environment in Daxia Country and the European and American markets are so different, why haven't you thought about going there to discover something? Is your life ultimately for money, to become its slave, or to realize your own value?
Don't you think you've already gone astray?" After He Zhengcheng spoke these righteous words, he turned and left.
Crushing these financial sharks on a moral level had always been his wish, especially with such formidable figures; he felt a great sense of accomplishment.
"It would be best if all formidable figures left the financial market, then a half-baked person like me could do whatever I want!" He Zhengcheng mused with a touch of malice.
Huang Qifu was stunned for a long time after hearing He Zhengcheng's high-flown remarks. He had originally wanted to meet this person to see if he had profound professional expertise or if someone was using him, but he didn't expect this person to be so "interesting!"
The interesting He Zhengcheng returned to the company to continue his engagement with KPCB. John Doerr also joined in, as he was equally optimistic about Google.
"I can't make decisions about Google. We'll only discuss Overture," He Zhengcheng said.
These people are indeed all bad, always trying to do things that benefit themselves at others' expense, often inadvertently. If they could undermine the trust between He Zhengcheng and Google Duo, it would greatly benefit their investments.
"Alright then, we'll only discuss Overture," Khosla said.
"You should have seen that Overture's development prospects are not just as a digital music store. We can also release physical discs, and we can use technical means to offer video rental and sales services—a film and TV series rental service with no shipping costs and no physical store overhead.
This is a market with immense imagination. If KPCB doesn't have enough strength and confidence, I think it's necessary to bring in another strong partner. It's not that I'm demanding a high valuation, but only a high valuation and large investment can make Overture successful," He Zhengcheng explained.
"I admit what you said makes a lot of sense, but who can say what the future holds? Our risk is too great," Khosla replied.
"Who doesn't have risks? The question is whether it's worth it. I believe that given the current market frenzy, this price is still very rational. After all, we have a clear profit model and a sufficient number of users. Unlike most internet companies that are still exploring, we are very different," He Zhengcheng stated.
"I certainly know all of that, but you're asking for more than just capital," Khosla said.
"Therefore, I think it might be better to let Sequoia Capital also join. Perhaps they will recognize our growth potential. As one of the founders of this company, what you've said cannot convince me, but perhaps they can," He Zhengcheng suggested.
"Never mind, let's not trouble them. We'll invest in this project, and we'll do it your way," Khosla conceded.
"Thank you for your trust. I believe that with everyone's efforts, Overture will definitely succeed," He Zhengcheng said.
"I believe you will definitely succeed!" Khosla affirmed.
He Zhengcheng made significant concessions for this investment, such as not cashing out before the IPO, and he would co-invest this time. KPCB invested 20 million, and He Zhengcheng invested 4 million, acquiring 25% and 5% of Overture's shares, respectively.
After the official signing of the financing documents, Overture's shares were roughly as follows: He Zhengcheng's private offshore fund held 33%, KPCB held 25%, and Shi Hongwen and two others each held 14%. No equity incentive plan had been implemented yet.
Only when the next round of financing began could team members cash out to improve their lives. If there was no next round of financing, or if the founding team left midway, or if they wanted to cash out early, their equity could be acquired at a discount.
He Zhengcheng, full of confidence in the future, agreed to these terms. Unfortunately, the others did not share such confidence. Yul Smith and Shi Hongwen each transferred about 1.5% of their shares.
He Zhengcheng acquired 2%, and KPCB acquired 1%. Patriarch George did not cash out, perhaps trusting He Zhengcheng, or perhaps trusting himself. Correspondingly, he would bear more responsibility in the company moving forward.
After this round of financing, a startup company valued at 80 million US dollars was thus established. He Zhengcheng successively invested 7.16 million US dollars, holding 35% of the shares, while KPCB invested 20.33 million, holding 26% of the shares.
Apart from the 500,000 US dollars for the founders to cash out, the rest of these funds would, of course, be disbursed in batches: an initial amount, an amount after finding a suitable CEO, and an amount after assembling a complete team.
He Zhengcheng also witnessed how a professional venture capital firm operates. The small-workshop-style Shanhai Capital was merely a junior compared to them.