Alibaba’s initial public offering is one of the most highly anticipated ones this year, but sentiment surrounding the company wasn’t always so high. In fact, 40 different venture capital firms in Silicon Valley rejected the Chinese online retailer, according to Gloglou, a company which says it “provides ‘reverse Alibaba’ services” designed to help companies market their products and services to China.
Alibaba rejected… again and again
Ben Lee of Silicon Valley startup Glogou Inc. told ValueWalk that he has spent a lot of time studying Alibaba as his firm aims to do the opposite of what Alibaba does by enabling international companies to sell in China. Of course Alibaba sells Chinese products to those both inside and outside of China.
According to Lee, Softbank Corp (OTCMKTS:SFTBF) (TYO:9984) is now Alibaba’s biggest shareholder, with a 35% stake in the Chinese ecommerce giant. Softbank invested in Alibaba Group Holding when 40 venture capital firms rejected it in the early days. Yahoo Inc. (NASDAQ:YHOO)’s stake is closer to 20% now after Alibaba repurchased some of the search giant’s initial stake in 2012, and the stake will shrink further after Alibaba’s IPO.
Alibaba’s management less than inspiring—at first
Perhaps one of the reasons venture capital firms were skeptical about Alibaba in the early days was because the company was Executive Chairman Jack Ma’s third attempt at creating an Internet startup. His first two failed. In fact, Lee told ValueWalk that Ma also failed twice in trying to get into college. On his third try, he was able to get into a third-tier college in China, which is seen by most in China as being only slightly better than a U.S. community college.
Alibaba’s current CEO, Jonathan Lu, actually majored in hotel management and then worked as a waiter at a hotel for four years. Then he switched tracks to get into the Internet business. Those jobs are certainly not what you would expect to see on the resume of one of China’s top and most influential executives. In spite of what many saw as an inexperienced management team that might not be successful, they have clearly been steering Alibaba in the right direction.
“The huge success of Alibaba can be attributed to the combination of the growth of China, the growth of Internet and Alibaba founding team,” Lee told ValueWalk. “Jack Ma and his founding team has [sic] created a unique corporate culture for Alibaba. This corporate culture is very important for the success of Alibaba.”
Alibaba, from rags to riches
Alibaba Group Holding actually has 18 different cofounders, which is significantly more than most companies. The company has ballooned in size from where it started in 1999. Lee said Alibaba had trouble even getting people to work there in the early days. He quoted Jack Ma as saying at one time, “Hire anyone on the street who are [sic] not crippled too much.” The Chinese marketplace operator now has almost 20,000 employees.
During the first couple years of its existence, Alibaba Group even ran its keywords campaigns on Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s platform because its own platform did not have enough visibility or traffic to service its clients well. The company also didn’t start with much technology, as its first platform was based on an offshore bulletin board system, according to Lee.
Alibaba versus Amazon, eBay
That’s changed significantly in only five years, however, as Alibaba now runs the biggest ecommerce platform in the world. The amount of the transactions on its Taobao platform is now more than those of Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) combined. In the first 18 months of its existence, Alibaba had no revenue, but today, it’s the world’s most profitable ecommerce business and has a hefty profit margin that Amazon and eBay envy, according to Lee. Some analysts have suggested that Alibaba has the potential to crush Amazon in the future.
So will Alibaba Group be able to keep chugging along at this pace after its initial public offering this year? Lee says there are challenges ahead, just as there are for any company.
“Alibaba is already a very large company and dominates its market,” Lee said. “Can it continue its fast growing path in coming years? That will be a challenge for Alibaba management team.”
