Around the control of NVC lighting control, NVC lighting founder Wu Changjiang, financial investor Saifu's embarrassment and strategic investor Schneider publicly staged a Romance of the Three Kingdoms. The strikes of stakeholders, NVC suppliers, distributors and internal employees, as well as the participation of the founders of the two major e-commerce companies, Vanke Eslite Chen Yan and Jingdong Mall Liu Qiangdong, eventually escalated the three kingdoms into intricate multi-party melee. .
There are a lot of things that can be reflected in the NVC case. In the process of introducing external capital, how to regulate corporate governance, especially how to deal with the company's control rights, is a problem that entrepreneurs should pay attention to.
When people are four or five years old, they wear trousers, which is very common.
When people have passed adolescence, they also wear trousers, which is a hooligan.
In the case of NVC, one party is Wu Changjiang, an unruly entrepreneur, and one party is a strong board of directors led by investors. Safran accused Wu Changjiang of not complying with the resolutions of the board of directors and engaging in related party transactions. In an interview with Caixin, Wu Changjiang admits, "If the board of directors is a fund, they are all people who don't know how to do it. Should I listen? This is a very uncomfortable place for me."
Similar to Wu Changjiang, grassroots entrepreneurs are mostly killed in the market environment where the millet and rifle are brutally growing. The style of acting naturally has the habit of a grasshopper hero. Entrepreneur's arbitrariness, the company's shareholder meeting and the board of directors become a common phenomenon of entrepreneurs. These behavioral decision-making styles have their rationality in the grass-roots period in which enterprises rush to survive. However, when the company introduced venture capital in the early stage, private equity fund investment was introduced in the middle and late period. Especially after the company's public offering, the company has gradually changed from the founder's individual enterprise to the public company. Entrepreneurs must clearly define the transformation of the identity role of the entrepreneurial enterprise and abide by the corresponding game rules.
The rose is beautiful but thorny.
In the NVC case, NVC's development is inseparable from a series of external resource support, including the huge “break-up fee†and other capital needs, supply and marketing channels, international market and employee incentives for exiting entrepreneurial partners. In order to use these external resources for docking, NVC has financed Safran, Goldman Sachs and Schneider, allowing suppliers to participate in shares, and implemented the "Share Option Program" to motivate company executives and employees. But at the same time, the contradiction between Wu Changjiang and external investors is also intensifying.
The capital market can provide convenient support for the development of entrepreneurial enterprises. However, while providing convenient support, the capital market also requires entrepreneurs to regulate their behavior, with a series of rights restrictions, including: the dilution of entrepreneurial equity and the corresponding voting rights and dividends reduction; investors One-vote veto of major events of the company; the company must fulfill its information disclosure obligations.
To be, or not to be?
Why does Wu Changjiang need to launch a strike strike from suppliers, distributors and internal employees to fight against investors?
Judging from the shareholding ratio of NVC shareholders, according to the brokerage report on May 27 and the annual report of NVC, NVC’s largest shareholder Wu Changjiang holds 19.53%, and the second largest shareholder, SAIF, holds 18.33%. The three major shareholders, Schneider, held 9.13%. The shareholding ratio of Wu Changjiang and Saifu is almost the same. From the perspective of the composition of the board of directors, after Wu Changjiang was out, the number of directors appointed by the entrepreneurs was one, and the number of directors appointed by external investors was four. Wu Changjiang lost control at the shareholders' meeting and the board of directors.
Start-ups need to leverage the various external resources needed for their use. When the equity of an entrepreneur becomes smaller, it is not necessarily the stupidity of the entrepreneur. It is probably the ability of his mind to connect with resources. If Wu Changjiang’s shareholding in NVC is 90% instead of 19.53%, NVC is probably not a listed company, and it may have died long ago. The cost of docking to use external resources is to sell the company's equity, even the entrepreneurs out of control of the company. In this case, NVC is not the first one, and certainly not the last one. Sina founder Wang Zhidong was out of the game with investors Walden Capital and Stone Group; Red Kid founder Li Yang was out of the game with investor Kaipeng Huaying; eLong Tang Yue was in the game with investor Expedia Out of the game.
When entrepreneurs succumb to equity, the choice of docking to use external resources is limited. Opening an equity to an external investor may cause the company to lose control. While achieving the use of external resources while not relying on the company's control, this is a dilemma. There may be no best answer to this or even a standard answer. The following suggestions are available for entrepreneurs to learn from:
Cattle card plan
When Google went public, its stock implemented a “dual-class structureâ€, the “Cow Cat Planâ€. The main institutional design of the cattle card program includes:
(1) Google's stock is divided into Class A common stock and Class B common stock;
(2) The A-sequence common stock is consistent with the basic rights of the B-sequence common stock, but differs in the following three aspects:
(i) Holder: A sequence of common shares is held by public shareholders. B-sequence common stock is held by entrepreneurs, executives, company employees and early investors;
(ii) Voting rights: There is only one voting right per A-sequence common stock and 10 voting rights per B-sequence common stock;
(iii) Conversion rights: A-sequence common stock cannot be converted into B-sequence common stock. With a few exceptions, B-sequence common stock is automatically converted into A-sequence common stock upon transfer.
The institutional arrangement of the cattle card plan, on the one hand, the entrepreneurial enterprise can use external resources through the transfer of equity, and on the other hand, it can ensure that the entrepreneur does not lose control of the company. Berkshire Hathaway, Facebook, and many media industry giants, including the New York Times, the Washington Post and Dow Jones, are similar to Google’s. Chinese companies can adopt the cattle card program for financing in the US securities market. Baidu adopted the cattle card program.
2. Voting rights or concerted action arrangements
Under the premise that the shares are diluted, the entrepreneurs can also choose the options to have the voting rights of the shareholders or the concerted action arrangements. Through these institutional arrangements, the voting rights of other shareholders will be transferred to the founders. According to reports, although Jingdong Mall has experienced multiple rounds of financing, its founder Liu Qiangdong's shares have been continuously diluted, but it still controls more than 50% of the company's voting rights. Investors DST and Tiger Fund have entrusted Liu Qiangdong with their voting rights.
3. Board control
If control is not possible through the above voting rights arrangement, the entrepreneur can also achieve effective control of the company by appointing most members of the board of directors. It is especially suitable for listed companies with dispersed equity.
The above institutional arrangements require entrepreneurs to be familiar with the rules of the game in the capital market. May NVC smoothly weather the storm, and we hope that our entrepreneurs will be familiar with the rules of the game and use the rules of the game in the capital market, in addition to playing national enterprise cards or violently launching strikes that have damaged the interests of all parties. Protect your own interests.
There are a lot of things that can be reflected in the NVC case. In the process of introducing external capital, how to regulate corporate governance, especially how to deal with the company's control rights, is a problem that entrepreneurs should pay attention to.
When people are four or five years old, they wear trousers, which is very common.
When people have passed adolescence, they also wear trousers, which is a hooligan.
In the case of NVC, one party is Wu Changjiang, an unruly entrepreneur, and one party is a strong board of directors led by investors. Safran accused Wu Changjiang of not complying with the resolutions of the board of directors and engaging in related party transactions. In an interview with Caixin, Wu Changjiang admits, "If the board of directors is a fund, they are all people who don't know how to do it. Should I listen? This is a very uncomfortable place for me."
Similar to Wu Changjiang, grassroots entrepreneurs are mostly killed in the market environment where the millet and rifle are brutally growing. The style of acting naturally has the habit of a grasshopper hero. Entrepreneur's arbitrariness, the company's shareholder meeting and the board of directors become a common phenomenon of entrepreneurs. These behavioral decision-making styles have their rationality in the grass-roots period in which enterprises rush to survive. However, when the company introduced venture capital in the early stage, private equity fund investment was introduced in the middle and late period. Especially after the company's public offering, the company has gradually changed from the founder's individual enterprise to the public company. Entrepreneurs must clearly define the transformation of the identity role of the entrepreneurial enterprise and abide by the corresponding game rules.
The rose is beautiful but thorny.
In the NVC case, NVC's development is inseparable from a series of external resource support, including the huge “break-up fee†and other capital needs, supply and marketing channels, international market and employee incentives for exiting entrepreneurial partners. In order to use these external resources for docking, NVC has financed Safran, Goldman Sachs and Schneider, allowing suppliers to participate in shares, and implemented the "Share Option Program" to motivate company executives and employees. But at the same time, the contradiction between Wu Changjiang and external investors is also intensifying.
The capital market can provide convenient support for the development of entrepreneurial enterprises. However, while providing convenient support, the capital market also requires entrepreneurs to regulate their behavior, with a series of rights restrictions, including: the dilution of entrepreneurial equity and the corresponding voting rights and dividends reduction; investors One-vote veto of major events of the company; the company must fulfill its information disclosure obligations.
To be, or not to be?
Why does Wu Changjiang need to launch a strike strike from suppliers, distributors and internal employees to fight against investors?
Judging from the shareholding ratio of NVC shareholders, according to the brokerage report on May 27 and the annual report of NVC, NVC’s largest shareholder Wu Changjiang holds 19.53%, and the second largest shareholder, SAIF, holds 18.33%. The three major shareholders, Schneider, held 9.13%. The shareholding ratio of Wu Changjiang and Saifu is almost the same. From the perspective of the composition of the board of directors, after Wu Changjiang was out, the number of directors appointed by the entrepreneurs was one, and the number of directors appointed by external investors was four. Wu Changjiang lost control at the shareholders' meeting and the board of directors.
Start-ups need to leverage the various external resources needed for their use. When the equity of an entrepreneur becomes smaller, it is not necessarily the stupidity of the entrepreneur. It is probably the ability of his mind to connect with resources. If Wu Changjiang’s shareholding in NVC is 90% instead of 19.53%, NVC is probably not a listed company, and it may have died long ago. The cost of docking to use external resources is to sell the company's equity, even the entrepreneurs out of control of the company. In this case, NVC is not the first one, and certainly not the last one. Sina founder Wang Zhidong was out of the game with investors Walden Capital and Stone Group; Red Kid founder Li Yang was out of the game with investor Kaipeng Huaying; eLong Tang Yue was in the game with investor Expedia Out of the game.
When entrepreneurs succumb to equity, the choice of docking to use external resources is limited. Opening an equity to an external investor may cause the company to lose control. While achieving the use of external resources while not relying on the company's control, this is a dilemma. There may be no best answer to this or even a standard answer. The following suggestions are available for entrepreneurs to learn from:
Cattle card plan
When Google went public, its stock implemented a “dual-class structureâ€, the “Cow Cat Planâ€. The main institutional design of the cattle card program includes:
(1) Google's stock is divided into Class A common stock and Class B common stock;
(2) The A-sequence common stock is consistent with the basic rights of the B-sequence common stock, but differs in the following three aspects:
(i) Holder: A sequence of common shares is held by public shareholders. B-sequence common stock is held by entrepreneurs, executives, company employees and early investors;
(ii) Voting rights: There is only one voting right per A-sequence common stock and 10 voting rights per B-sequence common stock;
(iii) Conversion rights: A-sequence common stock cannot be converted into B-sequence common stock. With a few exceptions, B-sequence common stock is automatically converted into A-sequence common stock upon transfer.
The institutional arrangement of the cattle card plan, on the one hand, the entrepreneurial enterprise can use external resources through the transfer of equity, and on the other hand, it can ensure that the entrepreneur does not lose control of the company. Berkshire Hathaway, Facebook, and many media industry giants, including the New York Times, the Washington Post and Dow Jones, are similar to Google’s. Chinese companies can adopt the cattle card program for financing in the US securities market. Baidu adopted the cattle card program.
2. Voting rights or concerted action arrangements
Under the premise that the shares are diluted, the entrepreneurs can also choose the options to have the voting rights of the shareholders or the concerted action arrangements. Through these institutional arrangements, the voting rights of other shareholders will be transferred to the founders. According to reports, although Jingdong Mall has experienced multiple rounds of financing, its founder Liu Qiangdong's shares have been continuously diluted, but it still controls more than 50% of the company's voting rights. Investors DST and Tiger Fund have entrusted Liu Qiangdong with their voting rights.
3. Board control
If control is not possible through the above voting rights arrangement, the entrepreneur can also achieve effective control of the company by appointing most members of the board of directors. It is especially suitable for listed companies with dispersed equity.
The above institutional arrangements require entrepreneurs to be familiar with the rules of the game in the capital market. May NVC smoothly weather the storm, and we hope that our entrepreneurs will be familiar with the rules of the game and use the rules of the game in the capital market, in addition to playing national enterprise cards or violently launching strikes that have damaged the interests of all parties. Protect your own interests.
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