ab investments refer to a company issuing different classes of stocks with different voting rights, usually class A and class B. This allows founders and executives to maintain control over the company even with minority shareholding. Many Chinese tech firms like Alibaba, Pinduoduo and Didi have adopted ab investments structure. The partnership system further consolidates management control. However, there are also risks like APP suspension if companies are seen evading foreign investment restrictions through variable interest entities (VIE).
Alibaba’s partnership system inspiration for ab investments
Alibaba pioneered the partnership system in 2010 after its agreement with Yahoo expired, in order to maintain control. Pinduoduo and Didi later also set up partnership systems, appointing partners to nominate board directors. But unlike Alibaba, they don’t give partners control over the board. Alibaba’s partnership system has four interlocking elements for control – AB stocks, partner nomination of directors, partner control over compensation, and high vote requirements for amending the partnership provisions.
Pinduoduo and Didi’s AB stocks and partnership
Pinduoduo adopted AB stocks and partnership shortly before listing. This allowed founder Colin Huang to have over 50% voting rights with only 30% ownership. However, after Huang stepped down in 2021, his 10x voting rights were removed. Didi also has AB stocks, giving founders like Will Cheng outsized voting power. But its partnership structure is weaker than Alibaba’s and doesn’t confer absolute control.
APP suspension risks of VIE structure
Alibaba, Pinduoduo, Didi use VIEs to get foreign funding while bypassing restrictions on foreign investment in sensitive sectors. But VIEs have always had legal risks. After listing in the US, Didi’s app was suspended over data security concerns. Tighter regulations like the US Holding Foreign Companies Accountable Act also pressure VIE-structured firms. However, companies can still list successfully at home like WuXi AppTec after leaving US markets.
Control options better than ab investments
For most companies, AB stocks and partnership systems are overly complex just for control. Our 999 RMB super voting rights template confers stronger control than even Alibaba’s partnership model. Companies should also consider direct domestic listings, which avoid VIE risks. Histories like Lars Wingefors’ Embracer Group show entrepreneurs can still build global tech firms from local markets.
ab investments like dual-class stocks and partnership can help founders of tech firms retain control during rapid growth. However, structures like VIEs carry legal risks, while better options exist for maintaining control. Entrepreneurs should focus on business fundamentals rather than complex mechanisms aimed at control alone.