Ye Shengde introduced both parties and then made an excuse to leave, since it wouldn’t be appropriate for an outsider like him to be present during investment discussions.
Zhou You took Zhang Yiming to a small coffee shop on the first floor, found a private spot, and sat down to chat.
“I heard you’re working on an interesting piece of software, Mr. Zhang. I happened to have dinner with Ye yesterday and asked him to help set up this introduction.”
Zhang Yiming sat across from Zhou You, pondering how to explain things in a way an outsider could understand. He’d met many investors before, but they often couldn’t grasp his ideas, losing interest in further investment.
“I won’t dwell on my past entrepreneurial failures. This time, I’m mainly developing an AI algorithm that can infer user preferences based on their clicks and browsing habits. This way, we can continuously push content users like, boosting user engagement.”
He paused, seeing Zhou You listening intently, and continued: “This is completely different from traditional portal sites. Back then, you could only see what the site offered—whatever was on the homepage was all you got. You couldn’t tailor it to your preferences, or users had to put in a lot of effort to find content they liked.”
Zhou You was genuinely captivated. Even though others had described this concept before, hearing it directly from the founder was a delight: “This idea is creative and really interesting. But is it technically feasible? Can it be done?”
“Right now, we have a preliminary framework. But as a new technology, it’ll inevitably face various challenges during operation. From a technical standpoint, we’ll need constant updates and patches.”
Zhou You raised a question that would later become common: “Won’t that create an information cocoon? Users would only see content they like, but we all know the world is complex. If they don’t keep their horizons broad, they could easily get trapped by information.”
Zhang Yiming was stunned by Zhou You’s insight. He set down his coffee, straightened up, and said with shock: “Mr. Zhou, you’re thinking far ahead. I hadn’t considered that. But if it ever reaches that point, it would only mean my technology is incredibly advanced. To be honest, I’m not even confident I can take it that far.”
“What are your funding requirements now, Mr. Zhang?” After satisfying his curiosity, Zhou You didn’t want to dig deeper. After all, the real takeoff would come much later, with the development of short videos.
They had reached the crux of the matter. Zhang Yiming had revised his funding needs many times, starting high and gradually lowering them.
“For now, my team is mostly assembled. In this early stage, we don’t plan to rent an expensive place. I’m thinking of finding a larger space in the suburbs,” he said, noticing Zhou You nodding along.
No investor likes founders who spend lavishly from the start.
“As for me, I’ve failed in multiple ventures and don’t have much capital left, but I’ll still invest some myself. My ideal target is 5 million yuan in funding, with a maximum of 20% equity.” Zhang Yiming gritted his teeth as he said it. He was confident in his prospects, but others weren’t.
Zhou You smiled: “It seems you’re very confident in your product, Mr. Zhang. You don’t even have a finished product, yet you’re valuing the company at 25 million.”
Zhang Yiming’s face flushed slightly. He knew his valuation was high—it had been even higher before, which was why he couldn’t find investors.
In this era, the internet bubble had burst, and a new one hadn’t yet formed.
But well, you ask for the sky, and I’ll haggle down to earth.
“Mr. Zhou, this is a new direction, a new technology. I believe it has great potential,” Zhang Yiming held his ground. He was prepared for another failure.
“The amount isn’t much. 5 million is fine—I’ll cover it.” Zhou You saw Zhang Yiming’s disappointment looming.
“But the equity is a bit low. You know, Mr. Zhang, this kind of investment carries the highest risk. I won’t ask for much—25%, leaving room for your future funding rounds.”
Seeing Zhang Yiming about to speak, Zhou You quickly added: “This is just an initial investment. If you run into funding trouble later, you can come back to me. And I want a right of first refusal—it’s a requirement for most of my investments.”
Zhang Yiming’s emotions swung like a roller coaster—up, down, calm, then thrilling—as Zhou You toyed with him.
A 25% stake for just 5 million brought the company’s valuation down to 20 million, which was within his acceptable range. After all, it was just an app, and deep down, he didn’t think it was worth that much.
Zhou You’s right of first refusal didn’t feel like a condition to him—it was more like a benefit.
“Mr. Zhou, you’re very straightforward. Would you like to visit our startup team?” Zhang Yiming’s heart pounded, but he kept his cool, having been through big moments before.
“No need. There’s nothing interesting about watching software development. I’m mainly intrigued by your concept. I hope we can stay in touch and collaborate further. If you have no objections, draft an agreement and send it to my legal advisor. If it checks out, I’ll invest.”
“I have no issues. Thank you for your trust, Mr. Zhou. I never expected to succeed in funding today—it’s an honor.” Zhang Yiming truly hadn’t anticipated closing the deal.
Zhou You thought for a moment and said: “As the first-round investor, I think you know the risks are high. So, 15% of the equity can be diluted through normal market practices for future rounds, but I want the remaining 10% to enjoy the same terms and conditions as you, Mr. Zhang. This needs to be written into the investment agreement.”
“That’s only fair—to protect the rights of investors, especially initial ones.” Zhang Yiming had started businesses many times and knew the hardships and risks. He’d seen countless investments go down the drain, so he readily agreed.
After reaching a preliminary agreement, they chatted for a while. Zhang Yiming shared his past entrepreneurial struggles and failures.
Zhou You talked about his own investment wins and losses, including his latest film investment success, which made Zhang Yiming envious.
After all, the returns were incredibly high. But if you asked Zhang Yiming to switch fields, he couldn’t—he lacked the capital.
Later, when his company grew big and he had seed money, Zhang Yiming inevitably ventured into investment and expansion himself.
Zhou You originally planned to treat Zhang Yiming to lunch, but Zhang Yiming was eager to return and share the good news with his team to boost morale.
He was even more eager to draft the investment agreement and deliver it the next day!