Inside the Deal: The largest tech IPO in history
For this week's Inside the Deal series, we're taking a look at the largest tech IPO in history - Alibaba. In 2014, Alibaba went public at a valuation of $167 billion, and it was one of the most hyped IPOs ever, with the stock finishing a full 38% above its initial listing price at the end of its first day.
The company was founded by Jack Ma in 1999 and is now the world's largest online retailer, with a valuation of $272 billion in 2023. Alibaba's success is due to its innovative business model and ability to connect Chinese consumers with businesses worldwide.
Here's an overview of how Alibaba was founded and the investor that won big time.
1. Founding of Alibaba
Alibaba was founded in 1999 by Jack Ma and his team of co-founders, including Jerry Yang, a former Yahoo! executive. The company's primary goal was to create an online marketplace to connect Chinese manufacturers with international buyers.
2. Initial investment by SoftBank
In 2000, Japanese telecom giant SoftBank, led by Masayoshi Son, invested $20 million for a 34% stake in Alibaba. At that time, Alibaba was pre-revenue and didn't have a well-defined business model.
3. Vision and shared belief
Masayoshi Son made the decision to invest in Alibaba based on his belief that the internet was about to transform China, just as it had transformed Japan and the United States. When Son and Jack Ma met, they shared a vision for the potential of e-commerce and the Internet in China.
Notably, the initial investment wasn't based on discussions of revenue or a business model. It was driven by their shared belief and trust in each other's entrepreneurial vision.
4. Early days of Alibaba
Alibaba's early days were focused on building the foundation of an e-commerce platform for China. Jack Ma and his team worked on creating a web portal tailored to the Chinese market, with the goal of connecting Chinese businesses with global buyers.
5. Internet growth in China
During the late 1990s and early 2000s, China's internet user population was growing rapidly. From 1999 to 2000, the number of internet users in China more than doubled, creating a vast market potential for e-commerce.
6. Birth of Ant Financial Services
In 2010, Alibaba used transaction data to launch a microloan venture for SMEs. Over 7 years, it extended 87 billion RMB in loans to nearly 3 million SMEs, with an average loan size of 8,000 RMB. In 2012, the venture merged with Alipay to create Ant Financial Services.
7. Alibaba's IPO and valuation
In 2014, Alibaba had its Initial Public Offering (IPO) on the New York Stock Exchange (NYSE). The IPO raised a record-breaking $22 billion, making it the largest IPO in history at the time.
Alibaba's IPO was initially valued at $167.6 billion, but its public market debut gave the company a market capitalization of $231 billion. This also significantly increased the value of SoftBank's stake in Alibaba to well over $60 billion.
8. Impact on SoftBank and Masayoshi Son
Masayoshi Son's early investment in Alibaba turned out to be incredibly successful. Today, he is Japan's richest man, with a net worth of $21.6 billion, largely due to his stake in Alibaba.
9. Post-Dot-Com crash success
The dot-com crash in 2000 had a significant impact on many tech companies and investors, including SoftBank, which lost a substantial portion of its market capitalization.
However, SoftBank's stake in Alibaba proved to be a valuable asset, helping to recover some of the losses.
10. Alibaba's role in Chinese e-commerce
Alibaba played a pivotal role in pioneering the growth of the Chinese e-commerce market. Its success served as a signal of the enormous market potential, attracting other entrepreneurs and investors to the sector.
11. Emergence of competitors
Alibaba's success inspired other e-commerce ventures in China, including JD.com, which received support from venture firm Capital Today.
Alibaba's journey from a pre-revenue startup to becoming a global e-commerce giant with a massive IPO demonstrated the incredible potential of the Chinese internet market and the foresight of early investors like Masayoshi Son and SoftBank.
12. The future
Alibaba's revenue grew 14% year-over-year in Q2 2023, with operating income up 70%. Highlights include: Local Services Group revenue up 30%, International Digital Commerce Group up 41%, and International commerce retail business up 60%.
Consolidated revenues for the fiscal year were $126.49 billion, with the China commerce segment experiencing steady growth.
How to start angel investing?
Masayoshi Son made the decision to invest in Alibaba based on his belief that the internet was about to transform China and it paid off big time.
There are many examples of early investors who made millions by angel investing in companies and people they believed in.
Use PIN to empower your network to invest together in the best startups. Learn more here.
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