551: Why are founders of companies kicked out?

#Three things a day, day 551#

Many company founders were eventually kicked out by the company's board of directors. Jobs is a typical representative. In 1985, he was voted out of the board of directors of Apple, which he founded. In fact, the same thing has happened to Sina, Vanke, South Beauty, Orange Hotel, and NVC Lighting.

Why are founders kicked out? The most direct reason is of course the loss of control of the company. During the continuous financing process, the equity was diluted, and of course, the company gradually lost control of the company.

After his exit, Wu Hai, the founder of Orange Hotel, said that the founder was just the company’s surrogate mother, while the investors were the company’s real mothers. Jack Ma said that the founders are his biological parents and the investors are uncles of the company. Why are they, both founders, so different in their understanding of the company?

Of course, their methods of controlling company equity are different.

How to keep control of your company?

There is a pecking order financing theory in economics, which means that the first choice for financing is its own funds, seven times external debt financing, and finally external equity financing. If you carry out equity financing under forced circumstances, you must grasp three life and death lines.

The first line is 2/3, which is called absolute control. If you own more than two-thirds of the shares, you can vote on all major matters of the company. For example, modifying the company's articles of association, increasing or decreasing the registered capital, merging, splitting, dissolving or changing the company form are the biggest things for a company. You have the final say.

The second line is 1/2, which is called relative control. If you own more than half of the equity, except for the major matters mentioned above, you can have the final say on all other ordinary matters at the level when voting at the shareholders' meeting.

The third line is 1/3, which has one-vote veto power on major matters.

When good brothers start a business, the shares of the company are equally divided, and most of them end up breaking up.

In 1994, four young people raised 8,000 yuan to open a hot pot restaurant, each holding 25% of the equity. From this point on, the foreshadowing of the crisis has been bought. By 2007, the four people were called two families, each holding 50% of the shares. A couple strongly proposed to let another company transfer 18% of their equity to them. Adding their original shares, it was exactly 68%, giving them absolute control over the company. The key is that at that time, 18 points of equity was worth hundreds of millions. And they have to buy it with the price of less than 2,000 yuan when the company was first registered.

If it were you, would you sell hundreds of millions of shares at a bargain price? Probably not. But in fact, the couple who owned the hot pot restaurant sold their shares. This is the story of Zhang Yong’s iron-fisted multi-shareholding Haidilao Hotpot, and the other couple is Shi Yonghong and his wife. What happened next? Thanks to Zhang Yong's efforts, Haidilao was listed in 2018, with a market value of HK$94.5 billion that day. Even if Shi Yonghong and his wife only hold 32% of the shares, they still have almost 25.5 billion Hong Kong dollars.

Only by mastering the three equity life and death lines can you avoid being kicked out by the board of directors.

Of course, there is another form of control of the company, which is the same type of shares with different voting rights. The same type of stocks can have different voting rights. To have a reasonable proportion of voting rights is to have control.