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With Alibaba IPO Filing Set to Arrive Tomorrow, Here's Why It Does Matter to Silicon Valley

The real impact of the e-commerce giant -- already a behemoth in China -- has yet to be felt here. But it's coming.


As Re/code has reported several times, the sure-to-be-blockbuster IPO filing for China’s mega-Internet giant Alibaba Group is now set to drop this week. Sources said that the documents could be at the Securities and Exchange Commission as early as tomorrow after markets close.

I noted this timing on CNBC on Friday (you can see me talking about it below) and so did John Paczkowski several times in our new Code/red daily column of sass and scoops. There is, of course, always a caveat that there could be a delay, but sources said that tomorrow seems to be when the much-anticipated filing will finally drop for the e-commerce giant.

Previous reports that it was coming two weeks ago were obviously not accurate. But this is the way these things tend to go — a whole lot of relatively meaningless heat around the timing of the dropping of the filing, followed by a whole lot of similar chatter around every tiny bit of the process until the actual public offering itself.

What will be interesting, of course, is what will be in the Alibaba prospectus, as well as what it will mean for the overall tech IPO market. That’s because public tech stocks have seen a lot of pullback in the early spring, and a series of offerings on deck have been delayed due to less-than-ideal market conditions.

That includes Box, a cloud company that had hoped to move forward into the public markets by now. As Box CEO Aaron Levie wittily noted on Twitter: “‘Quiet periods are so much fun,’ said no one ever.”

Funny — but not really so much for Levie and Box, which is, well, boxed out for now.

But once Alibaba files, it will be anything but quiet, given the expected size of the IPO and the potential impact on the power dynamics across the tech landscape. If it is as successful as it is hoped, that is — with a raise possibly above Facebook’s $16 billion offering and, even at $15 billion, surely one of tech’s largest ever. That would value Alibaba at above $150 billion.

While there has been a lot of talk about what this will mean on a lot of different levels, one meme about the IPO that is entirely incorrect is that the upcoming Alibaba IPO has had little resonance in Silicon Valley. That could not be further from the truth.

Of course, there is the obvious reason: The big money for investors, many of which are here in Silicon Valley. That includes private equity powerhouse Silver Lake (well done, Ken Hao!), which has a big presence in tech. It invested about $500 million in Alibaba in 2011 and then in 2012, leading a tranche of investment from a number of players that totaled $3.9 billion for about five percent of the company at a then-$32 billion valuation.

That group included DST Global, whose main man is Yuri Milner, another prominent figure in Silicon Valley, despite the group’s Russian roots.

There are also a myriad of private investors from local Silicon Valley techies — some via Iconiq Capital, which invested in 2006 and whose clients include Facebook founder and CEO Mark Zuckerberg and high-profile entrepreneur Reid Hoffman — as well as big hedge funds and institutional investors Fidelity.

Most of those lucky investors will not be selling into the IPO, said sources. In fact, besides some stock that Alibaba or its employees may sell, a large slug of the liquidity is likely to be from Yahoo. That is because it is required, unless Alibaba elects to let it keep the stake, to sell nearly half of its 24 percent stake as part of a previous agreement.

That’s a hefty bit of money for the Silicon Valley Internet giant — even if the shares of Alibaba do pop and make that haul look much smaller in comparison. But it will still be a big pile of cash for Yahoo — after it pays taxes, of course — to use for whatever purposes CEO Marissa Mayer finds worthy. She’s developed a pattern of paying up for companies, as well as people, but now the sky is presumably the limit. At least, if Google and Facebook don’t compete with her (anything she can pay, they can pay bigger).

Thus the big question: What will Mayer buy? Or will the money go to buying back shares? Or what? As many have correctly noted, the Alibaba stake has had a significant halo effect on Yahoo’s stock and, once public, the company will have a definite value that can be counted.

And, more to the point, once the Alibaba impact is felt, it will become completely clear how the core Yahoo business is valued by Wall Street — right now, hardly at all — and whether the company is a good deal or not.

That clarity means a lot of things for Mayer and Yahoo, including whether it could ever be a takeover target itself — a strange but not implausible scenario that has been brought up to me recently by many players who could pull off such a deal.

Interestingly, Alibaba — which has been dipping its toes in the U.S. market via a series of investments (ShopRunner, Lyft, 1stdibs) — is one of the obvious buyers on such a list. While making a play for Yahoo — Alibaba has threatened it before — is possible, that’s unlikely in the short term, as it first seeks to solidify its China base and then grow outward here.

That recently included two of its subsidiaries creating a new U.S. e-commerce site called 11 Main, a marketplace for local merchants to sell their goods online. While U.S. companies still have a hard time operating in China, it is likely Chinese giants like Alibaba will have less of one coming here.

To help it figure it all out, Alibaba hired former Liberty Media exec Michael Zeisser last year to run its San Francisco office, helped by former Credit Suisse banker Peter Stern.

While they will be busier than ever throwing Alibaba’s new money around, another impact on Silicon Valley will be investor money thrown at it. With the ability to use U.S. markets to buy one of the biggest players in China, investable dollars that might have gone to Apple, Google and others can now flow to Alibaba more easily.

The same goes for Alibaba’s ability to attract U.S. engineering talent. When Google exec Hugo Barra left for Chinese telecom innovator Xiaomi, that was only the beginning.

In other words, the real impact of Alibaba — already a behemoth in China — has yet to be felt here. But it’s coming.

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