2003: Starting with Foreign Trade

Chapter 720 Making Technology More Accessible
The small houses in Zhongguan Village were illuminated by bright lights, creating a very warm and inviting atmosphere.

Tan Jincheng usually stays here whenever he comes to the capital. It's not as comfortable as a hotel, but it makes him feel very safe.

In the past, Tan Jincheng would usually hire a housekeeper to clean the place before he arrived, so it would be empty and there wouldn't be much stuff. It was really inconvenient for him to have to buy some household items himself after he arrived.

But ever since Lao Lü brought Tan Jincheng here, he has taken the initiative to take care of the house.

In his words, his work is not usually busy, so it's good to have a place to go. Every week, Lao Lü would bring his wife to tidy up the house. Although no one lives there most of the time, it already feels like home.

Before Tan Jincheng arrived this time, Lao Lü tidied up again and even filled the refrigerator.

"Mr. Lei, let's not go out for dinner tonight. I'll just stir-fry a couple of dishes and boil some dumplings. How about we just have something simple to eat?"

Lei Jun leaned closer to the refrigerator and exclaimed, "Hey, these are still handmade dumplings. Where did they come from?"

"My company driver prepared this for me. It must have been his wife who made it. Hey, I don't usually eat this kind of thing."

Handmade dumplings and frozen dumplings are completely different concepts. Southerners who haven't eaten homemade dumplings don't understand this concept. Tan Jincheng only realized this in his previous life.

Tonight, Tan Jincheng invited Lei Jun to sit down and have a chat.

Tan Jincheng wanted to finalize the investment before Xiaomi officially opened on April 6.

The returns from investing in Xiaomi were one factor, but the bigger reason was the desire to collaborate with Xiaomi to accelerate the development of W3D AI.

It seems that the MIUI system only took four months to develop an internal beta version.

This shows that Xiaomi has a very high level of technical expertise and work enthusiasm. Tan Jincheng doesn't know how long it would take to develop a system, but developing it in four months is definitely considered fast.

Furthermore, Xiaomi went from having nothing to creating three major products in just over a year: Xiaomi 1, Mi Talk, and MIUI.

MiTalk is such a pity; that thing really gave Pony Ma (Ma Huateng, founder of Tencent) a real scare.

"It's rumored that President Tan treats the company's employees very well, and you can tell from this plate of dumplings. I just didn't expect that President Tan's cooking skills are quite good."

Honestly, Lei Jun didn't care what he ate, but when Tan Jincheng said he wanted to cook two dishes, he reluctantly agreed. He wasn't familiar with Tan Jincheng, and before that, he was even a little afraid that this guy couldn't even cook dumplings properly.

However, after seeing Tan Jincheng skillfully wielding the spatula, he felt relieved.

Stir-fried eggs with toon leaves, braised crucian carp, stir-fried pork, stir-fried greens, and a plate of dumplings for each person.

Would you like some wine?

"Forget about the alcohol. Mr. Tan must have something to talk about if he invited me to his home. I've heard that Mr. Tan's alcohol tolerance is not very high."

"Huh? Haha, is it that widely known that I have a low alcohol tolerance? Okay, then I won't drink anymore. Let's eat, it won't taste as good when it gets cold."

Tan Jincheng did not deny that his alcohol tolerance had improved a lot since he first started doing business, but it was only a little bit better. Compared with these old hands, he was still no match at all.

"I've been used to eating rich and heavy meals, and it's been a long time since I've had this kind of home-style cooking. Today, I'm so glad to have this meal, thanks to Mr. Tan."

Lei Jun picked up a piece of braised crucian carp. He is from Hubei Province and eats a lot of river fish. This braised crucian carp was cooked well and suited his taste.

"Hasn't Mr. Lei's family arrived yet?"

"Yes, I'm still in my hometown. I've been resting for two years and have been living a pretty carefree life. However, I haven't spent many days with my family, and I haven't had a home-cooked meal in a long time."

Lei Jun sighed.

"Indeed, I've heard it said that when you have 1 million, you live a comfortable life; when you have 10 million, you don't have to worry about money anymore; when you have 100 million, that's the peak of your life; but if you have more than 1000 billion, you have no say in the matter."

Tan Jincheng also sighed. In his previous life, he didn't have as much money as he does now. Although he was quite successful in business in the early days, he lived a very tough life and often had to worry about money turnover.

But after selling the business in 2019, I had a house, a car, savings, and time, so I was living a pretty comfortable life.

People in the world are often powerless to control their own destiny. If you want that kind of leisurely life, you'll probably have to wait until you're very old.

Thinking about it, Tan Jincheng chuckled: "But I'm better off than President Lei. My child is due this year. When he (or she) turns 20, I'll only be in my 40s. At worst, I can just hand the company over to him."

Lei Jun paused, his chopsticks stopping: "Uh, that makes sense. So that's why you said on CCTV that you should get married early. So that's what you were waiting for."

"Hehe, but I'm not bad either. I got married at 23, and my daughter is already a teenager."

"Ah, haha, that's true."

Tan Jincheng laughed, but his laughter was somewhat strange, leaving Lei Busi puzzled.

We ate and chatted, and finished off several side dishes and a plate of dumplings. There was nothing left, and we were all quite full.

Tan Jincheng brewed a pot of tea, and the two of them sat in the living room lying down.

Patting his belly, Lei Jun looked around the small house and asked, "Why would President Tan buy such a small house in the capital?"

"When I first came to the capital, I was looking for a place to settle down. There weren't any good houses near Zhongguancun. This apartment in the complex was just barely acceptable, so I bought one."

Speaking of the early internet giants, many of them lived in rented apartments for a long time. For example, Dr. Zhang from Sohu lived in an apartment for a long period during the early stages of his business.

It's not because we don't have money, but because there aren't many good houses available these days. After 2010, first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen have improved, while second- and third-tier cities are still not much different from a few years ago.

When Tan Jincheng first visited Guangzhou, Zhujiang New Town was still a vegetable garden.

Big shots have high standards for their quality of life. They don't even look at ordinary houses. Renting is the best option for them, since they can always buy a house later. It also allows them to portray themselves as hardworking entrepreneurs.

Lei Jun is currently renting an apartment.

Tan Jincheng's behavior of living in such a small house is considered rather unconventional by these internet moguls.

In terms of identity, Tan Jincheng is quite unconventional. He is the founder and angel investor of Orange Technology, which is the fastest listed internet company in China and has well-known internet investment institutions such as Tencent and Sequoia Capital.

Social networking sites, games, online shopping—all of these are essential elements of the internet DNA. People in the internet industry genuinely consider him one of their own, as a rising star in the internet world.

Lei Jun was the same way. Although Tan Jincheng's behavior was out of step with the internet community, he still regarded him as someone in the same circle.

He could roughly guess why Tan Jincheng had invited him.

ByteDance's investments over the past few years have been comparable to those of its parent company, Shunwei Capital. Although their investment focuses differ, both have invested in many successful companies. However, ByteDance has an even more significant advantage over Shunwei Capital.

That's the secondary market. Lei Jun doesn't know why, but ByteDance's massive engine, which clearly has little foundation, has been so successful in the secondary market in recent years.

He had investigated ByteDance's marketing platform, ByteDance Engine. Cheng Linfeng, the operator in the secondary market, was just a fund manager before joining ByteDance Engine. The returns of his products were mediocre, with no particularly outstanding achievements.

After a comprehensive assessment, Lei Jun abandoned his plan to poach Cheng Linfeng.

Tan Jincheng naturally didn't know these things, but even if he did, it wouldn't matter. Cheng Linfeng had shares in ByteDance, and his annual dividends were astronomical. He didn't believe that Cheng Linfeng could be easily poached.

Mr. Tan doesn't mind his employees leaving the company for better development, whether to go to a bigger platform or start their own business. Over the years, from Flash Technology to ByteDance, every company has seen such outstanding talents leave.

The company also maintains a friendly attitude towards parting ways. If a project is good, the company may invest, such as He Jia's Orange Live.

However, this does not mean that Tan Jincheng will give his core team members complete freedom. Tan Jincheng looks for capable people with little ambition to form the core team members of each company.

By using shared interests as a binding force, it becomes much more difficult for other companies to poach the core team.

"Mr. Tan, you didn't just invite me over for a meal, did you?"

Lei Jun was a straightforward person. After lying down for a while to digest his food, he got straight to the point.

"Indeed, I am very optimistic about Xiaomi's future. I wonder if Mr. Lei needs investment? And I wonder if ByteDance's advertising platform has the honor of becoming Xiaomi's first VC?"

Lei Buss looked somewhat surprised; he hadn't expected Tan Jincheng to be so direct.

Lei Jun faced a lot of skepticism during his second venture. Could a software developer really adapt to the market when he went into hardware with a bunch of overseas returnees and junior engineers?
Liu De, who works in the supply chain, has been running into obstacles everywhere these past few days. Large supply chain companies are unwilling to supply them, while smaller ones don't meet their quality control standards.

Take mobile phone screens for example. They wanted to use Sharp, but Sharp wouldn't even bother to meet with them.

The only good news so far is that Tan Jincheng's Dexian Electronics has expressed its willingness to supply them with batteries.

"Does Mr. Tan think so highly of us? To be honest, we are under a lot of pressure right now. We haven't developed the software yet, and we don't have any hardware suppliers besides Mr. Tan."

"It's very simple. I trust Mr. Lei. Mr. Lei should know about Sequoia Capital, the shareholder of Orange Technology. Their style is to invest in people."

As a renowned venture capital firm on Wall Street, Sequoia Capital has a rather unconventional investment style. It focuses on both industry and individual investors, and once it identifies a promising candidate, it quickly finalizes the deal, without bothering with background checks or PowerPoint presentations.

Yes, but that's not important. What matters most is recognizing the capabilities of a particular founder; if that's the case, then they'll invest.

Just like Shen Nanpeng thought Tan Jincheng would succeed back then.

Tan Jincheng used Sequoia Capital's investment style to deceive Lei Jun, which Lei Jun found very appealing.

"Thank you for your trust, Mr. Tan. I had a general idea of ​​what you meant before I came, but I didn't expect you to be so direct." "Then, I wonder if Mr. Lei is willing to reach this investment agreement?"

Lei Jun smiled without saying a word. He certainly had no objection to Tan Jincheng's ability to invest in Xiaomi. In fact, he and his partners had even conducted a series of assessments on resources other than funding.

Having a mobile phone battery manufacturer can solve the supply chain problem of the most core component of smartphones. Orange Products can provide Xiaomi with a distribution channel, giving Xiaomi, which currently has no distribution channel, a good option.

In addition, the pre-installed app feature proposed by Tan Jincheng a few days ago has opened up a new marketing avenue for Xiaomi. By installing more apps, the cost of the phone can be reduced.

With funding, supply chain, and distribution channels, Xiaomi is a perfect VC partner right now, not to mention its marketing capabilities and the vast product line behind it.

For example, could Xiaomi phones and Weilai cars form a joint promotion, offering a free phone with the purchase of a car?
Offering discounts on electric scooters and clothing with a mobile phone receipt provides ample room for maneuver in promotional activities.

"Of course, if I didn't have this intention, I wouldn't have come. I just wonder how much money Mr. Tan is willing to offer and how many shares he wants?"

He has high ambitions for Xiaomi's future, but the initial difficulties are there, and whether it can succeed is unknown. This is also the reason why Xiaomi Technology's current registered capital is only 10 yuan.

The introduction of investors is a necessary step in Xiaomi Technology's development process.

If the price is right, why not let ByteDance be the first VC? Boss Tan is a prominent figure right now, so it wouldn't hurt to ride on his fame.

"Haha, since Mr. Lei is willing to accept the investment from ByteDance, the valuation is easy to discuss. Just name your price."

Tan Jincheng was very excited inside, but his face remained calm.

This is the benefit of information asymmetry, isn't it? He knows Xiaomi's future, but right now, Xiaomi only has one office. Do you think it will become a Fortune 500 company in the next few years? Its peak market value was nearly 700 billion US dollars.

In 2009, the world's most valuable IT company was Microsoft, and the most valuable mobile phone company was Apple, with market capitalizations of US$2706 billion and US$1698 billion respectively.

Xiaomi's former employer, Kingsoft, is currently trading at around HK$6, with a market capitalization of approximately HK$40 billion. Even if Lei Jun had ten times the courage, he wouldn't dare dream of Xiaomi's market capitalization exceeding US$700 billion.

Unless he was also reborn.

"Mr. Tan, you tell me, how much do you want me to price this shell company with a registered capital of only 10 RMB?"

Xiaomi Technology is indeed unable to make a proper valuation at present. The office is rented, and apart from some basic office equipment and 14 employees including himself, there is nothing else.

If they say it's only worth 100,000 yuan, then it's only worth 100,000 yuan; if they say it's worth 100 million yuan, then it's worth 1 billion yuan—it all depends on the investor's mood.

If you ask him to say how much it's worth, he really doesn't know how to answer. So he might as well stay single.

He does have a complete plan to attract investment, but he doesn't know how to bring it up. The venture capital valuation given by Tan Jincheng is not a bad reference.

"500 million US dollars, 20% equity, what do you think, Mr. Lei?"

After going through multiple rounds of financing negotiations, Tan Jincheng has gained a considerable understanding of how internet companies are valued.

Venture capital rounds typically involve investing in people, usually in the form of several million yuan, which can be in RMB or USD. Subsequent rounds (A, B, C, D) depend on the company's development and business prospects.

Before Series B funding, there is usually no suitable valuation system, and the amount that can be negotiated depends on the founder's own ability.

Upon hearing the offer of $500 million and a 20% share, Lei Jun smiled helplessly and said, "Mr. Tan, this amount and the share you're offering really show your sincerity."

He is also an investor himself, and he is very particular about how much money he invests in the angel round and how many shares he takes.

They're all in the millions of yuan, and they're playing with the currency unit. Those using RMB either don't have much faith in the project, but they do have a lot of faith in the founder or founding team.

With the intention of taking a chance, whether there's a chance or not, and also to build a closer relationship and seek future cooperation opportunities, I made that bet.

Venture capital rounds are priced in US dollars, which is a very formal investment and basically indicates that investors are very optimistic about the founding team and the project.

Regarding the shares, Tan Jincheng's demand for 20% of the shares was also quite particular.

When encountering inexperienced entrepreneurs, venture capital firms prefer to take 30% of the shares so that they can obtain more profits in subsequent financing rounds. However, this also creates a problem: the founders' shares become smaller and smaller.

The result is that founders can easily be ousted.

A 30% stake is a sensitive number, and also a number that is not very friendly to founders.

However, from an investor's perspective, it's naturally better to have as many shares as possible; too few shares don't offer much investment value.

Tan Jincheng's offer of 20% is a middle ground acceptable to both parties, ensuring the interests of investors without threatening the founder's control.

That's brilliant!

"What does Mr. Lei think?"

"No problem, Mr. Tan is very sincere, so I won't be pretentious. I'll have someone prepare the contract right away, and we'll send over a preliminary investment agreement. We can discuss the specific contract details tomorrow."

It's not even eight o'clock yet, and Xiaomi isn't far from here, so we can just have someone deliver it.

A shell company that invests $500 million has a total valuation of 1.7 million yuan.

Tan Jincheng single-handedly raised Xiaomi Technology's valuation to the 100 million yuan level, which played a significant role in Xiaomi's future financing. Lei Jun was all smiles and applauded.

Having reached a verbal agreement, Tan Jincheng breathed a sigh of relief.

In the venture capital round, one can obtain 20% of the shares. Even after multiple rounds of financing, ByteDance can at least guarantee itself to be among the second or third largest shareholders.

Barring any unforeseen circumstances, even if the company is listed with dual-class shares (A and B shares) and different voting rights, ByteDance's advertising platform will still wield considerable influence within Xiaomi.

If Xiaomi can provide some assistance to Weilai Intelligent Driving in terms of system technology in the future, it will be much more convenient.

Tan Jincheng's biggest motivation for investing in Xiaomi was to leverage their technological capabilities to train Weilai Zhijia.

Both parties are very satisfied with this cooperation. Although Lei Jun is not short of money, it is naturally the best to use investors' money to expand the business. 500 million US dollars is a very large sum of money for Xiaomi at this stage.

More than 3000 million yuan is enough for Xiaomi to complete a round of capital increase and early-stage development and research.

After the verbal agreement was made, Lei Jun didn't leave. Instead, he chatted with Tan Jincheng, who seemed to have a better understanding of smartphones than Lei Jun himself.

When we first met, he seemed unwilling to say much.

But things are different now. The other party is now Xiaomi's second-largest shareholder, so there's no need to be polite anymore.

"Mr. Lei has used the iPhone 3GS, right? In my opinion, the most important thing for a smartphone system is its smoothness. I think the iOS system is much better than Android, but it's a pity that it's a closed system."

"If Xiaomi can optimize the Android system better, making the phone run more smoothly, and also solve the overheating problem better, then it can solidify its brand advantage."

Lei Jun nodded repeatedly. He knew all of this, and his team had also analyzed it. To gain a certain share in the smartphone market, one must have their own advantages.

"Furthermore, smartphones from top-tier brands like Samsung often cost four or five thousand yuan, while domestic brands like Huawei, ZTE, Coolpad, and Lenovo all cost over three thousand yuan. These prices are still a bit high, which is not conducive to market promotion."

"From Mr. Tan's perspective, what should Xiaomi do?"

Now that he's become the second-largest shareholder, Tan Jincheng has no reason to be stingy. If he can improve the quality of Xiaomi products, he'll get less criticism.

"This involves Xiaomi's brand positioning. Do you want to make a quick buck and run away, or do you want to run a good business? If you want to run a good business, then my opinion is to offer the ultimate cost-performance ratio."

"Just like FlashDrive Technology's first two-wheeled electric vehicle?"

"Yes, that's right. Any marketing or advertising is trash in the face of ultimate cost-effectiveness. As long as you are the cheapest in the same category, consumers will naturally know how to choose."

"Making technology more accessible and unattainable – I think this phrase can serve as Xiaomi's corporate culture."

Lei Jun remained silent. They already had specific plans for Xiaomi 1, which were roughly the same as what Tan Jincheng had said.

He genuinely hadn't expected Tan Jincheng to be such a perfect fit for his business plan; he'd really found the right investor.

"Making technology more accessible? That's a great idea, Mr. Tan is awesome!"

After a long silence, Lei Jun sighed.

"Haha, but in that case, Xiaomi's public relations expenses will increase exponentially in the future. Mr. Lei, please don't blame me for giving some bad advice."

The mobile phone industry is different from the two-wheeled electric vehicle industry. In the two-wheeled electric vehicle industry, where the focus is on extreme cost-effectiveness, everyone can compete on the supply chain and price. Traditional entrepreneurs can persevere as long as they still have profits.

The mobile phone industry chain is a highly capitalized industry. If you try to achieve extreme cost-effectiveness in this industry, you are essentially offending the capitalists to death.

If Tan Jincheng had dared to come up with such an idea 20 years ago, his grave would be overgrown with weeds by now.

Xiaomi's first-generation phones were indeed made to a terrible standard, but does that mean that phones from ZTE, Huawei, Coolpad, and Lenovo were of better quality than Xiaomi's? That's pure nonsense. The early smartphones from these companies were just as terrible.

It's no wonder that Xiaomi only sells for 1999 yuan, causing the prices of all smartphones on the market to be almost halved. If we don't criticize Xiaomi, are we supposed to criticize ZTE, Huawei, Coolpad, and Lenovo?

"What's your opinion on mobile phone distribution channels, Mr. Tan? Xiaomi currently has no advantage over traditional mobile phone manufacturers in terms of distribution channels."

(End of this chapter)