I feel like in a decade us Europeans will be sitting around wondering why we sold off promising startups to China like we did US tech companies the previous decade.
Not disagreeing or trying to get capital P political, just giggled a bit at "not profit" being the ominous factor. "Only in it for the profit" is now, perhaps, the devil we know.
More seriously, I get the point you are making. I don't know what I think of it all, honestly. There could be arguments in both directions. Maybe I'm overly considering the current crisis in Ukraine, but doesn't having holdings in the west disincentivize conflict and rifts? At some point along a conflict ladder, foreign assets get seized.
Maybe it's good to be exchanging hostages. I suppose it's just ambiguous/arguable what counts as who's hostage.
WWI and China’s accession to the WTO say no.
Buying something to own/control it and investing in something for an expected future return are very, very, extremely different things and even more so in this context.
Both formally (terms and conditions signed by all the parties involved, and there are many here and it's Series B, the clauses regarding equity, control, debt, exits and so forth) and practically.
The distinction is that "acquire" means controlling interest. Investing $497 million when the valuation is over $1 billion means... (doing the math) ... Tencent has less than 50% ownership. At this point, Tencent only has an investment and not a controlling interest. Therefore, Tencent did not acquire Scalapay (yet).
This isn't being pedantic about semantics. Instead, it's being very clear about who controls Scalapay based on how much ownership percentage was purchased.
Another example of the difference... in 1997 when Microsoft invested $150 million in Apple, it did not purchase enough ownership % to consider it an acquisition. The $150m is a lot of money but MS didn't acquire Apple with that transaction. (https://www.google.com/search?q=microsoft+invests+%24150+mil...)
EDIT reply to: >Valuation has nothing to do with controlling interest. They are unrelated.
Setting aside a multi-class stock arrangement with 10x voting rights which would be unusual for non-public company at this early stage because it requires approval by the previous investors & founders, the post-money valuation is mathematically related to the ownership percentage purchased -- and therefore determines if there's a controlling interest.
> This isn't being pedantic about semantics.
You are quite simply wrong. Valuation has nothing to do with controlling interest. They are unrelated. A company can have 100 shares, each worth $1, and be valued at $2,000,000,000.
Not OP. But that company is worth $100.
“Worth” is an ambiguous term, however, as it encompasses value in both par and market. One case makes you right. The other, the other.
If you say a company’s shares are “worth” $1 per share, you imply that’s what people are willing to pay for it. If you’re playing with the word “worth,” it’s your incumbency to explain that deviance from the common use.
Par value is a legal term. Book value is an (increasingly anachronistic) accounting term; actually, several terms, since GAAP book is separate from IASB or Chinese book, but I digress. Each of which are separate from market value, which is also various; consider a public stock: does one take the bid or the offer or the mid market tick? At Noon or the closing or a VWAP?
Companies play with their headline valuation. In this you are correct. But they’re playing with the ambiguity that stumbles you.
> Technically, no. You can acquire control of a $100bn company for $1 if the shareholder agreement says so. Votes and dollars don’t have to correlate, particularly in Italy. [1]
In the case of pre-public companies, where there is not a robust, liquid market in shares of the company, it can be difficult to figure out what the valuation of the company is. In that case, we often revert to the most recent time when lots of shares were sold, and what they were sold for. In the hypothetical scenario you refer to, this is a bad approximation.
If a company has, for example, liquid assets worth several million dollars, no liabilities that need to be paid off, but someone is willing to sell the company for $100, then that's a dumb valuation, but it's still the valuation.
Technically, no. You can acquire control of a $100bn company for $1 if the shareholder agreement says so. Votes and dollars don’t have to correlate, particularly in Italy.
Practically speaking, you’re probably right.
For all consequential purposes, their huge preference means they already do. You can bet there is strong language where Tencent (China) can veto big decisions, and hold that over the teams head for smaller ones.
Lol. You think it would be so simple for Italy to take control of a Chinese owned company? You think they could just do that at the snap of their fingers, with no repercussions?
yes, because the profit in the future would be priced into this sale today - presumably owned by italian.
This means the funds could be reinvested in a different company today - a new start up perhaps - which creates more profit in the future.
The problem with buying control for more than just profit (or regardless of profit) is that those who are buying control is seeking to control more than just commercial interest. If an unfriendly gov't were to instruct such holders to perform certain tasks, they would comply.
So it’s usually safer to have a Korean, Japanese, W European or Anglophone company take a stake. Obviously, all companies have some ties with their governments but the difference is degree and independence as well as a non-rubber stamping judiciary. Revolving doors can be an issue but it’s much less an issue than actual gov officials embedded in companies.
Not when said asset is a movable one.
If you tax away capital formation (or vote for people who do it) it's useless to wonder why European entrepreneurs take foreign capital. Most of them outright emigrate anyway so you don't even get to notice it.
While what you're saying is true, might it be a brilliant time to sell a chunk to Tencent? If you believe that China is likely to invade Taiwan soon, and western countries will respond by freezing any Chinese assets overseas (see: Russia/Ukraine), might this be a great way to pocket cash and then have the equity revert back to you in a few months?
That said, Tencent seems to own a chunk of most important private tech companies and most mid-level game companies.
Chinese companies are a bit nationalist, and they definitely have some internal actors from the CCP there for purposes of oversight, and in a pinch can very easily have their arms twisted - but - they are just companies wanting to make money really.
Tencent is just Tencent. They will follow internal censorship laws, but it's likely just a matter of moderation much the way FB does it, but with different parameters, and taking some direction from the state. My guess is that for the most part Chinese companies are fine with it. For products they control outside the country my estimation is that it's censored in a completely different way, much more liberally, but some things might get scrubbed.
Of course investing in a company is different than owning it (i.e. >50%) and it's very different if it's based in China vs. a European company.
China has huge trade surplus. What this means, is that we send them USD/EUR for 'stuff'.
Eventually, they have to use those USD/EUR for 'something'. What are they going to buy? Well - stocks, real estate, companies etc..
It's actually rational for EU/USD to sell them things at hugely inflated price tags, it's a nice way to bring the cash back in on good terms.
If they are cash-flush, then they might just be looking to protect their money as much as anything.
In most cases, it's unlikely that having a Chinese investor will make a huge difference in terms of anything happening out of China. It's unlikely the could or would make censorship demands on anything happening outside of China, that said, if they gain control, it's a bit of a different story.