Tongcheng’s 10-year equity history and lessons learned

In the third section of "11 Selected Lessons, Limited Time 119 Yuan", we learned 4 stories about equity design together, and understood that equity design must follow the principle of "there are people walking with you, and there are trees to plant." , There’s Fruit to Be Divided,” learn how to find equity partners and how to maintain control of your company through equity structuring. Let’s continue sharing below

As you know in the previous course, Tongcheng was founded in 2004, and the equity was equally divided at the time of its establishment. It received its first financing in 2008. In 2011, four employees increased their capital to the company by 16 million through shareholding. In 2012, it received its first investment from Tencent.

In the second half of 2013, China's online travel market took a sharp turn. At the same time, Dr. Liang Jianzhang, co-founder of Ctrip Group, returned to Ctrip from the United States, ushering in the industry's famous "two-way war." During this process, Tongcheng faced a big problem: We originally planned to be listed on the China Growth Enterprise Market at the end of 2013, but due to Ctrip’s pursuit of Tongcheng during the “two-way war”, 10 core employees left Company.

Share this with your classmates. Employee stock ownership can definitely play a very good role in retaining core employees, but it is not 100%.

Later, more than 20 core management members and I climbed Mount Huangshan. When we arrived at Mount Huangshan, I gave everyone a multiple-choice question: Ctrip is currently engaged in a life-and-death struggle with us. Should we continue to bite the bullet? Teeth, retain profits, and strive to go public? Or is it financing a war? In the end, 24 of the 25 people chose to finance the war.

So in January 2014, we persuaded Tencent to join forces with Boyu to invest RMB 500 million in Tongcheng.

This involves another piece of equity knowledge: Why did Tencent invest 26 million in Tongcheng in 2012 and 500 million two years later? Because in 2012, Tongcheng was ready to be listed on the GEM. It was a profitable company and did not require a large amount of capital.

At that time, Tongcheng was valued at 500 million, and we gave Tencent a quota of 26 million, so the shareholding ratio was about 4.9%. Why only 4.9% of the shares are given? Because once it exceeds 5%, under the framework of the China Securities Regulatory Commission, we and Tencent will form related transactions, which will affect Tongcheng's listing on the domestic GEM.

After receiving an investment of 500 million from Tencent and Boyu in 2014, Tongcheng launched a counterattack against Ctrip. The "two-way war" continued for another two months until April, when Dr. Liang Jianzhang took Ctrip The founding team came to Suzhou and talked with us in the hotel for a full 4 hours. The result of this conversation was that Ctrip invested 1.4 billion in Tongcheng and became Tongcheng's second largest shareholder. So far, Tongcheng’s valuation has increased from 500 million in 2012 to 3.3 billion. At this time, the Tongcheng team still maintained its status as the largest shareholder and continued to maintain control of the company.

By July 2015, Wanda and Tencent led an investment of approximately 6 billion yuan in Tongcheng, and Tongcheng’s post-investment valuation was approximately 13.319 billion yuan. However, in this round, Tongcheng lost its position as the largest shareholder. Transferred to Wanda.

In the nearly eight years from April 2008 to July 2015, Tongcheng’s total financing exceeded 8 billion yuan. In this process, I think there are many experiences and lessons worth discussing. Let's share, for example, how to increase financing while maximizing control over the company during the financing process. We will share these knowledge points with you in the next new financing lesson.

In October 2016, Tongcheng management increased its capital as GP by 900 million yuan, with a post-investment valuation of 15.9 billion yuan; in December 2017, Tongcheng was split into Tongcheng Network and Tongcheng Holdings. Cheng Network and eLong merged to form Tongcheng-Elong; in November 2018, Tongcheng-Elong was listed in Hong Kong; in January 2020, Tongcheng Group officially launched its new decade with two RMB 100 billion.

Q: When financing in the early stage, should you raise money or financing sources?

A: In terms of seed round and angel round financing, it is necessary to not only raise funds but also integrate people. Find the people in China who understand you best, can help you the most, and can open your eyes the most. Convince him to become your angel investor, providing both money and effort. Not only will he provide you with money and become your shareholder, but he will also become your quasi-partner, helping you to get the most from the beginning on your entrepreneurial journey. Sufficient information and awareness, I think this is very important.

Q: When shareholders come in, how to avoid risks in company information disclosure?

A: In fact, when each of our companies introduces external shareholders, they must sign a partnership agreement and an investment agreement. When signing the agreement, they should clearly explain to the shareholders the obligations and obligations they should bear. The regulations to be followed, and the consequences for violating these regulations. In this way, after your shareholders come in, they will know very clearly the responsibilities they should bear, and they can avoid these risks to a certain extent.

Q: How to solve the problem of spending money but not effort, and efforts but not money?

A: In the first question, I have already answered that for every core partner in the start-up period, both efforts and money must be contributed.

For early investors, he not only has to contribute, but he may also use his strong connections to help you introduce resources. Your co-founders and your core employees must play a very important role in the development of the company.

Q: In equity design, is it necessary to accurately calculate the equity ratio? What is most critical?

A: In the second lesson, I told you about several core data of partnership entrepreneurship, 67%, 51%, and 34%. These three data are relatively important. If you combine these three Think about it, as for whether it is 20%, 21% or 21.5%, I don’t think it is the most critical. The most critical thing is the life and death line of our three equity interests.

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