The Man Behind Alibaba’s Eventual I.P.O.

JPMorgan Chase has called. So has Goldman Sachs and Morgan Stanley. Joe Tsai’s phone is ringing off the hook these days, and you would be forgiven if you have never heard of him.

Mr. Tsai is not even a chief executive, but he has become arguably the most sought-after executive in the world by Wall Street for one reason: He holds the keys to what will most likely be the largest initial public offering of this generation â€" Alibaba, the Chinese e-commerce giant.

Alibaba dwarfs Amazon.com by sales volume â€" $160 billion in 2012 compared with $86 billion for Amazon, according to RetailNet Group. Its I.P.O. could value the company at more than $150 billion, more than the I.P.O. value of either Facebook or Google. Along with that â€" and this is where Wall Street comes in â€" will come billions of dollars in fees for the lucky underwriters.

It is Mr. Tsai, a Taiwanese-born former lawyer who was educated at Yale, and not Alibaba’s more famous founder, Jack Ma, who is making the big decisions on the I.P.O. And that has made him Mr. Popularity among the investment banking elite.

“Well, it always feels very good when people say that they love you and they want to talk to you,” Mr. Tsai, who is executive vice chairman, said in a rare interview. Still, he tried to play down the offering. “The I.P.O. is just one milestone and the company continues. There’s a lot of life after an I.P.O.”

Alibaba’s I.P.O. is seen as a crucial inflection point for homegrown innovation in China and could presage a wave of new attention on China’s other technology companies, like Tencent.

To put Alibaba’s size in perspective, consider a huge shopping day in November: More than 300 million people visited Alibaba’s websites, and 50 million of them made a purchase. When all was said and done, that day generated 158 million packages to be delivered.

Strangely enough, the I.P.O. is critical to the future success or failure of Yahoo and its chief executive, Marissa Mayer. Yahoo owns 24 percent of Alibaba, a stake it bought in 2005 under Jerry Yang, the company’s founder. Yahoo’s shares have risen 107 percent over the last year in large part because Alibaba’s valuation has skyrocketed.

The I.P.O. is also important to Mr. Tsai personally; his shares in the company make him worth nearly $2 billion on paper.

It is a long way from when Mr. Ma first offered him the job in 1999. “I can only pay you $50 a month. Will you still join me?” Mr. Ma recalled about that meeting. “When he said he wanted to join us, I was very surprised.”

Mr. Tsai, who turns 50 this month, had worked as an associate at Sullivan & Cromwell in the early 1990s and then became a private-equity investor at the Swedish investment company Investor. Mr. Ma told him to think the job over and invited him on a trip.

“We went to Silicon Valley for a week. We were rejected by all of the venture capitalists,” Mr. Ma said. “I asked, ‘You still want to join?’ ”

Mr. Ma said Mr. Tsai’s wife, Clara, who was pregnant at the time, asked to visit the company in Hangzhou before her husband committed. Mr. Ma said she told him: “I want to see it because my husband is crazy. If I agree with him, then I am crazy. But if I don’t agree, he will hate me his whole life.”

It was the lottery ticket of a lifetime. Mr. Tsai, who is the detail man to Mr. Ma’s vision, helped broker a series of transactions that turned the company into a juggernaut. Mr. Ma explained their partnership: “We are very different people. I am a grass-roots person, and he’s well-trained, disciplined and very smart.”

Mr. Tsai said he was inspired to leave the staid legal world and pursue investing and entrepreneurship after a meeting with some Goldman Sachs bankers when he was a lawyer at Sullivan & Cromwell.

“I went to a meeting â€" this is during a time when a Goldman partnership still meant something real before the I.P.O. â€" and Goldman was setting up an offshore partnership,” he explained. “For tax reasons, it had to be set up in the Cayman Islands,” he continued.

The Goldman bankers were instructed that they needed to have a real operation in the Caymans to make the deal work, he said. There was “this young guy in the corner, he’s kind of slouched over in his chair. He’s like, ‘Yeah, I guess I’ll be moving to the Caymans to run this thing.’ He’s like a 27-year-old, and I was 27 or 28 at the time.” The lead lawyer, he said, told them, “We need to have some more senior people.” Mr. Tsai continued with the punch line, “The guy is like, ‘I’m a partner.’ It’s the 27-year-old guy. That kind of struck me.”

Now, of course, Goldman is calling him. But part of Mr. Tsai’s job is to keep the hype of an I.P.O. from warping the company’s culture.

“Everybody’s personal financial economics are tied up in the company, so obviously everybody will do the math in their head and say, ‘I own this many shares,’ ” he said. “Nothing makes me more happy than seeing our employees improving their own personal situation, because that’s why you come to work every day. The negative part of it is people become a little bit complacent.”

He is also trying to keep all the bankers in check. When he helped take a subsidiary public a couple of years ago, “I said to the bankers, ‘You all have to cooperate and work with each other.’ I don’t want to have an I.P.O. where bankers are trying to stab each other in the back, which they tend to do. And the second thing is no disruption to the business because we don’t want people to obsess over an I.P.O.”

At the moment, it is unclear when Alibaba’s offering may come. Mr. Tsai said that while he worked on it for much of 2013, the company had hit the pause button, and the I.P.O. might not happen as quickly as some might expect this year. “We didn’t formally kick off any process,” he said, continuing the speculation that the banks and exchanges are playing.

One reason for the delay is that last fall, the Hong Kong Stock Exchange turned down Alibaba’s plan to list the company there. Its rules prohibit corporate structures that let minority shareholders preserve control of companies, and Alibaba’s founders want to remain in control of the company. Their proposed structure, while unusual in Hong Kong, was an effort to model the company after rivals like Google and Facebook, which remain tightly controlled by their founders.

The deal’s rejection has become a flash point for a global competition among stock exchanges and countries.

Mr. Tsai believes that the board of the Hong Kong exchange turned down the offering with a “moral” argument that Alibaba’s structure wasn’t democratic enough.

“Nothing can be more commercial than an I.P.O. This is not a time or a place to really talk about morality,” he said. “We simply asked for a structure where a group of management that we call the partners have a high degree of influence over the board, and that’s not unusual in other places.”

Indeed, in the United States, such structures have become the norm, though some investors have criticized the practice of special shares.

Mr. Tsai said he was worried that Hong Kong was falling behind the rest of the world and what it might mean for its future.

“I think for the whole Hong Kong economy to kind of reshape itself, they really need to refocus on technology, on what’s new,” he said.

For now, however, Mr. Tsai dismisses all the hype around the potential offering with a telling smile. “Nobody really is obsessed with an I.P.O.”

But that’s not going to stop the parlor game.

Andrew Ross Sorkin is the editor at large of DealBook. Twitter: @andrewrsorkin

This post has been revised to reflect the following correction:

Correction: January 14, 2014

An earlier version of this article misstated the name of the wife of Joe Tsai, the executive vice chairman of Alibaba. It is Clara, not Clare.