Entertainment mogul: Starting his business with the internet

Chapter 164 Initial Funding
In the bright and modern conference room of Tengda Group, a business negotiation of great significance to Song Ci (a type of classical Chinese poetry) is about to begin.

The electronic display screen in the conference room showed a prominent welcome banner: "Warmly welcome Leader XX to visit Tengda Group and guide our work!"

Song Ci, along with Zhang Yong and Wang Jing, led several executives from ICBC Capital, BOC Capital, and Peking University Investment Fund on a tour of the company, giving them a detailed introduction to Tengda Group's development history, core businesses, and achievements.

The spacious and clean office area, advanced electronic equipment, and energetic staff of Tengda Group left a deep impression on the investment representatives, who nodded slightly from time to time, expressing their appreciation.

After the tour, which gave the representatives of the three organizations a basic understanding of the company, Song Ci invited everyone into the conference room to formally begin discussions on the three organizations' strategic investment in Tengda Group.

"Chairman Song is truly young and promising. I believe that with your leadership, Tengda Company will have an even brighter future. I am very optimistic about the prospects of this cooperation."

Mr. Li, the representative of ICBC Capital, burst into hearty laughter and immediately showered Song Ci with praise.

He had worked with Song Ci's uncle, Liu Xiaochen, and the two had a good relationship. It was this old colleague who facilitated ICBC's plan to invest in Tengda.

This investment was a private placement of shares by Tengda Group to three institutions, and the true underlying motives were well known to the executives present.

They are optimistic about the future development of Tenda, China's largest internet company, and hope to get a share of the profits after the company goes public.

The other party also valued the state-owned background of the three institutions, and may need to step in to "take responsibility" and resolve any potential problems in the future.

Song Ci quickly replied modestly, "I'm just a little clever, and I've also caught a good time. The country's strong support for the internet industry has given Tengda the opportunity for rapid development."

He's keeping a very low profile. The more arrogant he is now, the more he might be beaten down in the future. It's better to keep a low profile from the beginning.

Furthermore, Tenda's current small size is completely insignificant compared to behemoths like ICBC, BOC, and Peking University.

"Mr. Song, you are too modest. President Zhou has always praised you, saying that you are one of the most outstanding students at Peking University in recent years. Meeting you today, I can see that you are indeed a dragon among men. I now know that your reputation is well-deserved."

Mr. Jiang, the head of Peking University Investment Fund, also praised them repeatedly, trying to build rapport among everyone. Regardless of whether the cooperation could be achieved today, it was worthwhile to make friends with such young top ten richest people.

After a few pleasantries, the representative from BOC Capital smiled and said, "Chairman Song, we're old acquaintances. Let's begin. Tell us in detail about your company's products."

Although BOC Capital does not have a special relationship with Song Ci like the other two companies, BOC has always been an important business partner of Tengda Group, offering the most favorable interest rates on various corporate loans and Song Ci's personal loans, which is why this opportunity was obtained.

Song Ci nodded, signaling Zhang Yong to turn on the projector and display the PowerPoint presentation that had been revised countless times, officially commencing today's negotiations.

Clearing his throat, he introduced himself in a clear voice: "Tengda Technology Group, founded in July 2004, currently has more than 5600 employees. It is a large-scale comprehensive emerging technology group company with internet portals and online games as its core businesses..."

Song Ci recounted the company's development from its founding to the present day, and then went on to introduce its core business modules.

The heads of the three organizations knew that the main event was about to begin. All the previous remarks were meaningless; the core business was the most important thing. They all sat up straight, focused their attention, and stared intently at the PowerPoint presentation.

"The company is currently number one in the domestic industry in multiple business segments such as portal websites, email, game platforms, video, online music, and instant voice. I can say without exaggeration that any Chinese internet user has used Tenda's products."

In addition, the company owns four wholly-owned subsidiaries: Tengda Culture, Southern Cinemas, Tiangong Special Effects, and Yifutong platform, all of which are industry leaders in their respective fields.

"To be able to become an industry leader in every business segment—what excellent strategic vision and accurate market grasp that is!"

At this point, Mr. Li from ICBC Capital couldn't help but exclaim that his old colleague's nephew was truly a genius.

After a brief interlude, Song Ci continued her report, providing a detailed explanation of the data and operating conditions of the company's various business segments. These were Tengda's most core data and information. Fortunately, everyone had signed confidentiality agreements, so there was no need to worry about leaks.

As the PowerPoint slides were turned, the investors gained a clearer and more intuitive understanding of Tenda Group's operations. They all felt that the trip was worthwhile, as Tenda Group truly lived up to its reputation as the largest internet company in China, with the actual situation even better than predicted.

"Chairman Song, through your introduction just now, we have a good understanding of your company's strength. Tengda Group is indeed doing very well. Now let's talk about the valuation."

Mr. Li, the representative of ICBC Capital, spoke first, being straightforward and direct.

The other two investment firm executives also set their sights on Song Ci. Investment is a consensus, but the most crucial question is how much Tengda Group will be valued.

With a calm gaze and clear, articulate voice, Song Ci said steadily, "Tengda's pre-investment valuation is 90 billion US dollars!"

"How much? 90 billion US dollars! Chairman Song, that's an outrageous price!"

The offer from Song Ci surprised Mr. Jiang of Peking University Investment Fund. He was not as wealthy as the two banks, and the valuation seemed outrageously high to him!
Mr. Li, standing to the side, also shook his head: "Chairman Song, your valuation is too outrageous! A company that has only been established for three years can be valued at 90 billion US dollars, close to 700 billion yuan. It's all a bubble. The profound lessons of the US internet bubble a few years ago, which led to the Nasdaq crisis, are still fresh in our minds."

The representative from BOC Capital nodded in agreement, saying, "Chairman Song, our bank manages assets on behalf of the people. We can't explain this valuation to our superiors."

Song Ci smiled slightly at the protests from the three representatives, confident and unhurried, and said, "Gentlemen, my offer of 90 billion US dollars is not just empty talk. Everything must be based on data and facts."

Netizens generally consider Tencent, Baidu, Alibaba, and Tenda to be the four giants of the Chinese internet, with Tenda ranking first. Leaving Alibaba aside as it's not publicly listed, Baidu's current market capitalization exceeds 60 billion yuan, while Tencent is even more impressive, nearing the 100 billion yuan mark. If Tenda were to go public, would its market capitalization be lower than the other two?

Jiang Zong from Peking University hurriedly shouted, "Chairman Song, valuation and market value cannot be generalized. Stock prices can rise and fall and are subject to external factors at any time."

"President Jiang, please don't be impatient. I won't use the stock prices of peer companies to extrapolate Tenda's valuation. I'm just using Baidu and Tencent as examples to tell you leaders that the valuation of 90 billion US dollars is not something I made up on a whim."

After calming down a bit, President Jiang glanced at the two bank representatives beside him. Seeing their composed demeanor, he realized that his composure was still lacking compared to that of the bank tycoons.

"Chairman Song, please continue. I was a little too excited just now."

"Ultimately, it all comes down to the operating data!" With that, Song Ci turned to a new page in the PowerPoint presentation, which displayed Tengda Group's revenue for the first half of 2007. He confidently stated, "Tengda expects its total revenue for 07 to exceed 55 billion yuan, with a profit of 26.4 billion yuan. Generally, the PE ratio for internet companies fluctuates between 30 and 40. Using a PE ratio of 30, Tengda's valuation should be 792 billion yuan, equivalent to 104 billion US dollars."

With utmost sincerity, I've offered you a 9% discount on the valuation. Besides Tenda's core business, the company also owns 22% of JD.com, 30% of Donghai Shentong Express, and has a presence in the e-commerce sector.

Song Ci's reasoned and well-founded statement caused the three investors opposite him to frown. According to his calculations, the valuation of Tengda Group at 90 billion US dollars was indeed not much.

After exchanging subtle glances with the representative from ICBC Capital, Mr. Li, the general manager of ICBC Capital, the representative from BOC Capital then argued, "Mr. Song, a P/E ratio of 30 is a bit high. The average P/E ratio for A-shares is around 10, and better companies can reach 15."

Even if internet companies are high-tech companies, and everyone is optimistic about their future, a P/E ratio of 20 is about right. We can barely accept a P/E ratio of 20; let's go back and report to our superiors, and there's still hope the project will be approved.

BOC Capital took the lead, followed by ICBC Capital and Peking University Investment Fund, all urging Song Ci to calculate a price-to-earnings ratio of 20.

Even Wang Jing, who was attending the meeting as an observer, couldn't help but try to persuade the chairman to accept the three institutions' offer. Based on a PE ratio of 20, Tengda Group would be a giant with a valuation of over 500 billion yuan, and her 2% stake would be worth 10 billion yuan. However, seeing that Zhang Yong remained unmoved, she held back and didn't speak.

Song Ci shook his head, insisting on calculating the price-to-earnings ratio at 30. He wanted to bring in the national team, but he wouldn't excessively sacrifice his own profits. He had already made significant concessions on valuation. Tengda's future cannot be measured by current profits alone.

Both sides argued back and forth, each insisting on their own reasoning and refusing to yield an inch, leading to a temporary stalemate in the negotiations.

Song Ci sighed helplessly. These officials were really difficult to deal with. It seemed that he had to reveal a few more cards to his deck, otherwise he would not be able to convince these old foxes at all.

"Distinguished leaders, Tenda's future is definitely not limited to billions or tens of billions of US dollars."

On April 20, 1994, China gained full access to the Internet, becoming the 77th member of a fully functional Internet.

Thirteen years have passed since then. Some names are still in their prime, while others have been submerged in the tides of time. But the real era has only just begun.

From the day I founded the company, I firmly believed that Tenda would inevitably become a leader in the new era, and that once it goes public, a market capitalization of hundreds of billions of dollars would be a given. Please listen to my plan before making your final decision.

Song Ci spoke with great spirit and enthusiasm, and his impassioned words aroused great interest among everyone, even Zhang Yong and Wang Jing standing to the side.

"Appreciate further details!"

"Tengda is positioned as a pan-entertainment media group based on the new era of Internet technology, and one of the company's core strategies is the big entertainment strategy."

What is the broader entertainment industry?

The unusual opening of the Song Dynasty poem aroused strong curiosity among the audience.

"Have you ever wondered why Tenda, an internet company, has subsidiaries in film and cinema?"

I can tell you all that this is part of the broader entertainment industry.

Tengda is the company with the largest reserves of film, animation, and game copyrights in China. From upstream content IP reserves to midstream development and production, the company can quickly develop games and films, and even create film and game interactions.

The final step involves leveraging the traffic from internet products like Toutiao for downstream platforms and promotion. This includes comprehensive dissemination and coverage across the television, film, gaming, and music industries.

This fosters diversified development and collaboration, maximizing the utilization of any single project and creating an ecological industrial chain. Furthermore, Tengda has already achieved a preliminary ecological closed loop!

"Brilliant!" Mr. Li, CEO of ICBC Capital, clapped and exclaimed, "With such lofty ambitions, Chairman Song, your explanation has enlightened me. I never imagined your strategy was so far-reaching!"

"In addition, Tenda also has cutting-edge big data technology that leads the global internet industry." The PPT was flipped through, and Song Ci went on to introduce Tenda's trump card: its big data technology, which has already begun to show results.

After the introductions, seeing that the representatives were softening and no longer as insistent as before, Song Ci added fuel to the fire:

"Gentlemen, I know you all have to report back to the organization. How about this, let's sign a performance-based agreement. We'll bet on the valuation of Tengda Group in the next round of financing. If the valuation in the next round is lower than 180 billion US dollars, I will compensate you with shares."

After thinking for a moment, Mr. Li agreed, saying that betting was a common practice in the capital market: "I agree to your proposal in principle, but there has to be a time limit for the next round of financing for Tengda Group. It can't be delayed for seven or eight years, otherwise such a betting would be meaningless."

The head of BOC Capital chimed in, "We also need to draft a compensation law and clarify it."

"The next round of financing is limited to within three years. If Tenda Group's valuation does not reach 180 billion US dollars, then today's investment will be considered 500 billion yuan, and I will personally compensate you for any shortfall."

"If the valuation of $180 billion is not achieved in three years, the losses of all the executives will be made up by the entire management team of Tenda Group."

Zhang Yong, who had been silent all along, suddenly spoke up, demonstrating his commitment to standing with his leader. As a shareholder of the company and one of Tengda's leaders, he naturally wouldn't stand idly by while the chairman was at the forefront, fighting for the company's interests.

The meeting room fell silent as the representatives silently weighed the pros and cons.

If the valuation can double within three years, that's an annual return on investment of around 25%, which is far higher than typical investment returns. Even if it doesn't reach the compensation for the shortfall from Song Ci's work, it seems like a sure thing no matter how you calculate it.

The three parties exchanged glances, whispered a few words, and finally nodded to each other, seemingly reaching an agreement.

"Chairman Song, your proposal is very sincere. I, BOC Capital, Peking University Investment Fund and I agree in principle. We will send investigators to your company. As long as your company's operating data is correct and the profits are real, we will invest in your company at a valuation of 90 billion US dollars."

With that, the matter was considered settled. Song Ci said happily, "Great! Thank you all for your trust in Tengda. I will arrange for someone to prepare the materials, and we welcome the audit and investigation from the three companies at any time."

(End of this chapter)