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By Paul Carsten
BEIJING (Reuters) - Masayoshi Son's nose for an investment has turned a $20 million (12.06 million pounds) start-up punt on Alibaba into a stake worth maybe $50 billion or more as the Chinese e-commerce giant co-founded and led by Jack Ma heads to what could be the biggest U.S. tech IPO of all time.
Son, CEO of Japanese telecoms firm SoftBank Corp (T:9984), also put money into a young Yahoo Inc (O:YHOO), co-founded by Jerry Yang, in 1995, and Yahoo's subsequent investment in Alibaba saw Ma, Son and Yang build Alibaba Group Holding Ltd [IPO-BABA.N] into one of world's biggest internet companies as China's e-commerce market took off.
"It was the look in his eye, it was an 'animal smell'," said Son of his decision to back Ma when they first met in 2000. "It was the same when we invested in Yahoo ... when they were still only 5-6 people. I invested based on my sense of smell," he quipped in a group media interview in May.
Under pressure from investors, Yang quit Yahoo in early 2012 and gave up his seat on Alibaba's board. He is now a founding partner of AME Cloud Ventures, a San Francisco venture fund.
But next month, the three poster boys for Asian technology entrepreneurship, bound by a shared ambition and a taste for sushi and golf, are set to be reunited on Alibaba's board following the firm's long-awaited New York IPO.
For potential IPO investors, the reunion - Yang will be an independent director, while Son will be a director and Ma the executive chairman - is likely to further tighten Ma's control over the company as Son and Yang tend to follow his direction, former Alibaba, SoftBank and Yahoo insiders said.
SoftBank has a 34 percent stake in Alibaba, and Yahoo owns 23 percent. Son has said SoftBank doesn't plan to sell down its Alibaba stake in the IPO, while Yahoo may sell up to about 16.5 percent of Alibaba.
Alibaba, SoftBank and a spokesman for Yang declined to make Ma, Son and Yang available for interview for this article.
"MR. TEN TIMES"
The son of a pachinko parlour operator, Son has risen to the top of Forbes' Japan rich-list, forging SoftBank into a tech titan worth $84 billion, making it Japan's second-most valuable listed company behind Toyota Motor Corp.
SoftBank increased its stake in Yahoo in 1996, buying into the U.S. firm's IPO to become its primary shareholder. The stake has since been whittled down to almost nothing, but the two remain Yahoo Japan Corp's (T:4689) biggest investors, each holding more than a third of the Japanese firm.
In 2000, Son met Ma, an elfin and outspoken former English teacher from China's eastern city of Hangzhou. The two, who often joke about being both short and smart, according to a person close to Son, saw each other as kindred spirits. Their shared drive helped Alibaba grow from just 18 people working out of an apartment to a company with more than 22,000 employees and global ambitions.
David Wei, a former CEO of Alibaba.com and co-founder of Vision Knight Capital, recalled how he nicknamed Son "Mr. Ten Times". "Every time I explained any business plan or model, Masa's first reaction was to say, 'David, can this be ten times bigger?'" said Wei. "In the cases I managed to answer, he would ask again, 'What about ten times more?'"
"CRAZY" MEN
When Ma first heard that Son was in China sniffing out potential investments, he emailed him and snagged some brief 'face time'. After just five minutes of listening to Ma riffing on his vision from a scrap of paper, Son extended the meeting and ended up investing 2 billion yen (12.06 million pounds at the time) in Ma's company.
"Ma is a 'never-say-die' kind of person, but really there was only one person who understood him, and look how much money it's earned Masayoshi Son," said Shou Yuan, a former Alibaba employee acquainted with Ma and Son.
"Son has a lot of self-confidence, he's even conceited, but his appearance is always one of modesty. He's crazy, but Ma's also crazy. It's very common for crazy people to like each other."
When Alibaba launched its Taobao consumer-to-consumer marketplace in 2003, Son donated his wristwatch to be sold on the new site and, as the pair met more frequently, Ma developed a love for Japanese food. "Jack always loved the best Japanese food ... and the best Japanese food in Japan can always be generated by Masa," said Wei, the former Alibaba.com chief.
Yang, who like Son has a Japanese wife, shares the taste for good Japanese cuisine, and is a frequent diner at a small sushi bar in Los Altos, California, a popular hangout for Silicon Valley heavyweights including Google's (O:GOOGL) Sergey Brin.
A PHILOSOPHICAL PAIRING
Ma first met Yang in the late 1990s, when he was working for the government and acted as Yang's official guide to the Great Wall. By 2005, their friendship had developed and the idea of Yahoo investing in Alibaba came up.
Yang contacted Ma at the prompting of senior Yahoo executives who were trying to figure out how best to get a foothold in the China market, said a former Yahoo executive familiar with the Alibaba transaction.
"Jerry was reluctant at first because it was very difficult to do business with Chinese entrepreneurs," he said. "(Yang and Ma) spent a lot of time together, they had to get to know each other, build a relationship ... Almost all were quiet, deep discussions, philosophical, full of Chinese proverbs – particularly from Jack."
Ma kept Son in the loop in the months running up to Yahoo's investment, and even took up golf so he could bond with Yang. "Jack committed a lot of effort to learning golf, I think because Jerry invited him, and he couldn't play," Wei said.
The final decision - with Yahoo buying a 40 percent stake in Alibaba for more than $1 billion - was made at a Pebble Beach golfing retreat exclusively for Chinese professionals. "Jack really liked Jerry's personality," said a person whose firm invested in Alibaba. "Jerry really solidified that deal."
Son, who can also show a domineering streak, was reluctant to reduce the size of his valuable Alibaba 'insider' stake by selling to Yahoo, but Ma eventually won him over.
"The only place where there was challenge (to Ma) was about taking the initial investment from Yahoo. Son's biggest point was that he didn't want to sell anything to Yahoo," said another person whose firm invested in Alibaba. "As part of that deal insiders had to sell 40 percent of their stake, and Masa fought that tooth and nail."
With Yahoo on the board and its money and China operations in Alibaba's hands, the Ma, Son and Yang triumvirate envisioned an alliance between their three companies that could one day knock Google out of China, said people close to them.
On the board, the three always acted in harmony in meetings with Alibaba executives, said former executive Wei. But their management styles were very different.
"When Masa talks, nobody else talks," Wei said, but Yang's style was more American, more inclusive. "When other Yahoo representatives were there he'd always talk last. He'd encourage others to share their ideas, thoughts, challenges."
EXISTENTIAL THREAT
However, while Yang's investment in Alibaba was lauded as one of his best decisions at Yahoo, the stake was big enough to rankle Beijing, which feared the U.S. firm held too much sway over Alibaba, people familiar with the matter said.
"Yahoo essentially became a liability – their investment in Alibaba posed an existential threat to the company," said a person involved in the partnership at the time.
Yahoo China's search engine was subject to local censorship in line with the government's control of the Chinese internet, and Yahoo's reputation back home was dented when the China business handed over a local dissident's e-mails to Beijing, resulting in his imprisonment.
Ma and Yang, however, remained close even after Ma split Alipay, an online payment subsidiary, from Alibaba in 2011 without the board's approval, said people who know the two men. Yang was reluctant to challenge Ma over the move, sitting on his hands rather than addressing the issue, the people said.
More recently, Yang has been instrumental in helping Alibaba get a foothold in Silicon Valley as the Chinese group increases its overseas investments. He introduced Alibaba to Tango, a mobile messaging app-maker in which he was already invested. Alibaba later paid $215 million for a minority stake.
Son, too, has supported Ma - who sits on SoftBank's board - particularly when Alibaba last year traded blows with the Hong Kong Stock Exchange over a controversial proposed listing structure.
"Son's involvement and advice regarding Alibaba's business have been huge," said a SoftBank executive who didn't want to be named because of the personal nature of his comments.
Having his two key allies back on Alibaba's board will further cement Ma's grip on the company even as the IPO opens Alibaba up for outside investors.
"(Ma) doesn't have much patience for people who get in the way of the ideals he's pursuing," said the person involved in the Yahoo-Alibaba partnership.
(Additional reporting by Norihiko Shirouzu in BEIJING, Yoshiyasu Shida in TOKYO and Alexei Oreskovic and Gerry Shih in SAN FRANCISCO; Editing by Ian Geoghegan)