Chapter 44: Draw the Big Cake First (Plus More)
Cao Chenghui spoke again: "At the angel round financing stage, it's of little significance to do pre-investment or post-investment valuations. The risk is the highest at this point. Since I plan to invest, I'm ready for it to be a loss. Venture capital is risky, but the money of stars doesn't just come from thin air, so let's start by setting a price."
The investor's tone was confident, and Mr. Cao was known for his flair for grandstanding.
When these words were said, Xu Jingren and the others couldn't help but glance at Fang Hong, realizing how difficult it would be to deal with this VC. He had put himself in a dominant position, making it clear he wanted more for less equity, using the potential risk as leverage. If the terms weren't favorable, he would walk away.
On this issue, Xu Jingren and his friends were unsure of how to evaluate Quantum Beat's situation, and they didn't know how much money to ask for or how much equity to offer.
They could only look to the boss for guidance!
After a brief moment, Fang Hong spoke with a calm but firm tone: "5 million for 8% of Class A shares. How does that sound, Mr. Cao?"
The 5 million was the amount the company needed to grow at this stage. The 8% equity was a strategic decision to maintain a higher valuation for the company. The idea was that by the time they raised more funds in later rounds (like Series D and E), new investors would come in at a higher price, improving the company's valuation.
But when Xu Jingren and the others heard Fang Hong's quote, their hearts raced.
Wow!
5 million for just 8% equity?
This implied a company valuation of 62.5 million yuan. That's an astronomical figure for these young college students!
Cao Chenghui immediately responded, "Yes."
Xu Jingren and the others were stunned. Wasn't there supposed to be some bargaining? Why was the deal settled so quickly?
But then, Cao Chenghui added: "However, I have one condition. The equity structure of Quantum Jump includes both Class A and Class B shares. In theory, if I invest this money, I won't have any say in the company's decisions. This creates a huge risk for Qunxing Capital, so I'd like to have veto power over the company's major decisions. Otherwise, I'd rather invest in Fanfou than in Quantum Beat."
Fang Hong responded without hesitation, "Okay!"
It was a smooth negotiation, all part of the act, but necessary for the deal.
Cao Chenghui smiled and stretched out his hand. Fang Hong immediately shook it, sealing the deal.
Fang Hong turned to Xu Jingren and the others: "Brothers, I'm going to sign the contract with Mr. Cao. See you later."
The roommates nodded eagerly, unable to contain their excitement. Fang Hong had trained them well, but it was clear that this deal was a turning point.
Cao Chenghui stood up and walked out with Fang Hong. They got into a BMW and drove off, heading to the next steps.
The roommates rushed to the window, watching as Fang Hong and Cao Chenghui got in the car and drove away. Once the car was out of sight, they couldn't hold back any longer and screamed out in unison.
"Damn! Damn! Damn... 5 million just like that?" Lou Gaoyuan couldn't contain his excitement.
"My brother is now an eight-figure millionaire..." Yuan Jie murmured, overwhelmed by the thought.
"Five million!" Wang Ping roared excitedly. "We're made!"
"Boss!" Sun Xin shouted in awe.
"Calm down, guys. It's not time to celebrate yet," Xu Jingren said, trying to stay composed. Although he was thrilled inside, as Quantum Beat's CEO, he had to remain calm in front of his friends.
After a while, everyone was still in shock, but their faces were beaming, unable to suppress their excitement.
With the 5 million angel round financing secured, they all began to realize that this business had immense potential. At the same time, Fang Hong's reputation and influence grew in their minds, further solidifying his standing as their leader. However, compared to Cao Chenghui's impact, their own influence was still small.
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In the BMW:
"Boss, I didn't screw up, did I?" At that moment, Cao Chenghui, who was driving, asked the question. He had hired a temporary driver earlier, and now he was taking over behind the wheel.
Fang Hong had moved from the co-pilot to the backseat of the car. The contract was settled, and now they were headed to the Binhu community to pick up the required documents.
"You did well. Keep this persona for the future. There will be more rounds of financing ahead, such as Pre-A, A, and B rounds," Fang Hong said, nodding in satisfaction.
Cao Chenghui, pleased by the compliment, smiled widely.
Fang Hong added: "Stay sharp. The position of general manager at Qunxing Capital is just the beginning. Don't think of it as the end point. The real challenge is what you do next to prove yourself worthy of more responsibility."
Cao Chenghui's eyes lit up, understanding what Fang Hong meant. It wasn't enough to just hold the title; he needed to deliver results to earn more trust and eventually be promoted to a higher position, such as a board member.
"Understood, boss!" Cao Chenghui responded eagerly.
"I hope the general manager's role is just your starting point. One day, I want to see you on the board of directors," Fang Hong continued, "but that depends on your performance. Prove to others you deserve it."
Cao Chenghui felt a renewed sense of determination. "I will live up to your expectations, boss!"
Fang Hong then said, "By the way, when do you think we should start expanding the staff?" At this moment, Qunxing Capital only had one official employee: Cao Chenghui. Fang Hong himself wasn't on the official list of employees.
"No rush," Fang Hong replied simply.
Fang Hong knew that although he wanted to expand the company's staff soon, it wasn't quite time yet. The company first needed a strong leader at the helm, and for now, Cao Chenghui wasn't quite ready to take on that responsibility alone. Although Fang Hong himself could easily take on the role, he preferred to stay behind the scenes and manage things from there, without being directly involved in day-to-day operations.
Currently, the company had over 12 million yuan in capital, with the 5 million investment just secured for Quantum Beat. The product would soon be ready to go live, but the company needed to be prepared for the cash burn that would come with it.
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Cao Chenghui drove the boss to the Binhu community, where Fang Hong quickly gathered the necessary contract materials. Afterward, Fang Hong returned to Quantum Beat's studio alone.
"Hey, why are you guys so crazy?"
When Fang Hong entered, his roommates immediately grabbed him, lifting him up and cheering, coaxing him to sit on the sofa.
"Turns out, it was a brilliant move for you to be the brains of the team and our leader," Sun Xin said with a grin. "Tonight, we're all chipping in to celebrate, right?"
As they made a ruckus, Fang Hong waved them off. "Alright, alright, calm down. Let's talk business."
The roommates quickly quieted down. Fang Hong knew their excitement, but it was time to get serious again.
He pulled out the materials and addressed everyone. "After we introduce the capital, the equity of Quantum Beat will be adjusted accordingly. This will dilute everyone's share, but it's important to remember that the overall value of the company has now increased significantly."
Everyone nodded in understanding.
Fang Hong continued: "The new equity structure will be as follows: the option pool will reserve 18.4%, each of you will have 11.96%, I will hold 13.8%, and Qunxing Capital will own 8%. Additionally, Qunxing Capital will have a seat on the board and a veto right, which means the board will now have seven seats."
Though the equity was diluted, the total value had risen significantly, so the roommates were pleased. They had never imagined that their products were worth this much before they even launched.
Fang Hong handed out the documents for them to sign. "Let's sign these now. I'll head to the Industrial and Commercial Bureau later to update the equity changes."
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End of Chapter 44
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