GE is currently one of the most famous companies in the world, and what many people don't know is that its predecessor can be traced back to the Edison Electric Light Company founded by Edison in 1989.
So why doesn't General Electric have Edison's shadow now?
This begins more than 100 years ago with the war between capital and entrepreneurs.
In 1876, Edison made the first simple incandescent light bulb. In 1878, it was announced that a system would be built in a few weeks that could illuminate Manhattan. You know, the price of electric lighting was much cheaper than the gas at that time, so as soon as the news came out, the gas stock fell by 50%.
But by 1882, Edison's power supply system had not been established. We know that in any era, research and invention always require a lot of investment, the cycle is long, and there is a lot of uncertainty, so many banks are reluctant to lend to startups.
So Edison thought of the famous Morgan Company. Morgan was a giant in the financial industry at the time, controlling about 40 percent of the country's industrial value at the time.
Morgan was also attracted by Edison's invention, and he not only believed that the project had investment potential, but also would change the world, so he defied his father's objections and decided to provide Edison with continuous financial support.
Edison's career was far more difficult than he had imagined, and it was far more distant and costly to turn some laboratory ideas into practical applications.
Many investors have lost confidence in Edison, but only Morgan has maintained continued patience, confidence and support for him. In 1884, Morgan also helped Edison reorganize the company's board of directors, kicking out many investors who were dissatisfied with Edison. It can be said that Edison can surpass all competitors, which is inseparable from Morgan's support.
Good days are always short-lived, on the mall, with no eternal friends, only eternal interests. Morgan and Edison were the golden duo, and their honeymoon period ended in 1892.
In 1989, in response to market competition, several companies, including the Electric Light Company founded by Edison, were merged into a new company, Edison General Electric, whose name appeared for the first time in history.
At that time, Edison General Electric's main competitors included Westinghouse, where the famous inventor Tesla worked. Another company is the Thomson Houston Company.
Thomson Huster proposed to Morgan that Edison General Electric and Thomson Huster merge to form a large company that could reduce vicious competition and improve the company's competitiveness.
This proposal is very much in line with morgan's usual style, Morgan himself is very fond of controlling companies in an industry through mergers, holdings, agreements, etc., so as to establish order and avoid excessive competition, and he has similar operations in the railway, shipping, steel and other industries.
Morgan looked at the financial statements of Thomson Houston and found that the profit margin of Thomson Houston was more than twice that of Edison, and Morgan decided to support the merger of the two companies.
The new company name also became General Electric, Edison's name was completely erased, and the new company occupied 3/4 of the electricity market in the United States, almost monopolizing the entire market.
It is sad that such a major decision took place without Edison's knowledge.
In the process of corporate development, in order to raise funds, Edison constantly sold the equity of his own company. His stake had been diluted to just 10 percent, and while Edison was furious and annoyed by Morgan's move, there was nothing he could do about it.
Edison sold all of his shares in a huff and completely exited the company he founded.
A similar thing happened to Jobs 100 years later, and after he was kicked out of the company, he, like Edison, sold almost all of Apple's stock.
From this story, we can see that the game between entrepreneurs and capital is not only now, but began as early as a hundred years ago.
Financing is essential in the development of the company, but each financing dilutes the founder's equity, and the founder risks losing control of the company.
Generally speaking, angel investment may take away 10% to 20% of your equity, A round B round and take away 20% to 30% of your equity, to the CD round, and about 10% of the equity will be diluted, when it comes to listing, the founder's shares are 10-15%, such as when Meituan is listed, the founder Wang Xing's shares account for only about 11% of the company.
At that time, Jobs was forced to leave the Apple company he founded, essentially because of equity dilution, his shares were too low, did not have enough right to speak, lost the right to speak in the board of directors, and was forced to leave the company.
There are many similar examples, Uber founder Kalanick was also kicked out of the company by the board, and it is said that when he went public, he wanted to participate in the bell-ringing ceremony, but the board refused.
There are many examples like this in China, in 2005 Li wanted to create "Autohome", and later, Ping An Trust acquired 47.7% of the company's shares, becoming the largest shareholder of Autohome. On October 3 of that year, founder Li Xiang and former CEO Qin Zhi withdrew from the board.
Yu Gang, founder of No. 1 Store, Wu Ying, founder of UTStarcom, Zhang Lan of Pretty Jiangnan, Wu Changjiang of NVC Lighting, etc. have had similar encounters in the game with capital.
Capital is profit-seeking, so it is ruthless, but the development of the company is inseparable from the help of capital, so founders often face a dilemma.
Is there any good solution to this problem?
In fact, there are many ways to solve this problem satisfactorily.
At present, the more popular method is called the AB share system.
AB shares is a common equity incentive system in the US market, it is different from the traditional one share, one right principle, in fact, it is two types of stocks, these two types of stocks are the same in terms of income, but their voting rights for the company's operational decisions are completely different, A shares have one vote per share, and B stocks have multiple votes per share. Class B stocks are generally held by the founder and his team, and the founder still has more voting rights even when the stock is relatively small, maintaining actual control of the company.
The earliest company to use the AB double-tier structure is Google, when Google went public in 2004, the founder only had 20% of the shares, but had 60% control of the company, and later Facebook went public in 2012, also adopted the form of AB shares, founder Zuckerberg owned 60% of the company's voting rights.
Companies like JD.com, Xiaomi, Baidu, Meituan, etc. have also adopted a two-tier equity design structure.
According to the annual report data of the year before the listing of JD.com, Liu Qiangdong held class B stocks, each share has 20 votes of voting rights, Jingdong after multiple rounds of financing, Liu Qiangdong's stock shares are only 15.8%, he owns 80% of the company's voting rights, holding the absolute control of JD.
Previously, the Hong Kong Stock Exchange did not allow AB-share companies to be listed, and Alibaba was subject to this restriction, so it went overseas to list, making the Hong Kong market lose the important company of Alibaba.
Li Xiaojia, then president of the Hong Kong Stock Exchange, reflected on this and amended the rules of the exchange at the end of 2017 to allow companies with different rights such as AB shares to be listed.
Of course, in addition to the mechanisms of this two-tier equity design, there are many mechanisms that can help founders control company ownership.
For example, agreement control is to ensure the control of the company by signing an agreement.
For example, through the company's articles of association. Like an LLC. Dividend rights and voting rights can be distributed without proportional to the capital contribution, which is to separate the control and claim in the equity, for example, everyone can agree that you have 40% of the money, but you can have 80% of the voting rights, have 60% of the dividend rights, as long as both parties agree, it will take effect.
Alibaba agreed that the amendment to the company's articles of association must be voted by more than 95% of the shareholders, so that Ma Yun and his team can firmly hold the control of Ali as long as they own more than 5% of the shares. Some Western family businesses have also adopted this approach, passed down for generations, and the proportion of family shares has been very small, and they can still firmly control the company.
In addition, there is a common practice of adopting concerted actor agreements and voting delegates.
The concerted action agreement is mainly aimed at listed companies, that is, when several shareholders disagree, it is agreed that everyone will listen to the opinions of a certain shareholder and advance and retreat, and the control of this shareholder will naturally increase. Tencent's founding team signed a concerted action agreement with another major shareholder, South Africa's MIH Company, to ensure their control.
In short, there are many ways to control the company, and the key is that the founder must have such a consciousness and cannot wait until the problem arises to think of a way.
For entrepreneurs, at the beginning of entrepreneurship, when designing the company's relevant systems, it is necessary to consider the control of the company, so as to prevent problems before they occur.