Go Where You're Needed: How Joe Tsai Made Himself Indispensable & Incredibly Wealthy Along The Way
Go Where You're Needed: How Joe Tsai Made Himself Indispensable & Incredibly Wealthy Along The Way
How leaving Biglaw to go to a failing investment fund helped Tsai become a billionaire cofounder of Alibaba & the owner of the Brooklyn Nets
I’m a huge fan of stories like these. When I was growing up, I couldn’t imagine why you’d quit your job working as a lawyer at an elite law firm. But as I got older, I found that the most interesting jobs, some of which could be incredibly rewarding (not to mention lucrative) can be attained only if you walk away from that fancy firm job.
One of the themes I keep hammering away at in this Substack is the importance of going off the beaten path. This story, which took place in the 1990s and early 2000s, is no different. I know what you’re thinking though: It does seem kinda cliche these days to leave Biglaw to do a tech startup since by now, so many others have done something similar.
So let’s go back to before the Internet was a thing, to 1993. Before the dot com boom, and before leaving Biglaw to do tech was cool.
In 1993, Joe Tsai was a third year tax associate at Sullivan & Cromwell when he was asked to join a client meeting. The meeting was with the firm’s most important client, Goldman Sachs, and the topic was how to set up an offshore partnership in the Cayman Islands. As Tsai recounts:
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.
The most striking thing about that conversation, Tsai would later say, was how young The Guy In The Corner was. In fact, one of the senior partners in the meeting said that Goldman would need to send someone else to the Caymans, because The Guy was too young and likely too junior. As Tsai continued:
The lead lawyer, he said, told [The Guy], “We need to have some more senior people.” . . . “The guy is like, ‘I’m a partner.’ It’s the 27-year-old guy. That kind of struck me.”
The article doesn’t elaborate what Tsai meant by “struck me” meant exactly. I think it was something along the lines of: How was it possible for someone the same age as me to become a partner at his Goldman F***ing Sachs? This wasn’t some random shop. He was a partner at Wall Street’s leading investment bank, the gold standard of banks.
Reflecting on his own career trajectory, Tsai did the math and came to the same conclusion as thousands of associates do every single year. It would take way too many years to make equity partner.
I should pause right here to share why this part of the story resonates with me. I too, once worked at Sullivan & Cromwell as a third year associate. I had a very similar experience during a client call once, except the facts were slightly different. In my scenario, the lead lawyer, who was a highly experienced, well-credentialed partner with decades of experience, was leading a conversation about, get this, the formatting of an Excel spreadsheet. That was the moment I realized that if I stayed at the firm, it would a very f***ing long time before I’d ever get to do the fun stuff myself.
Tsai had the same visceral reaction. He immediately realized that he could never move up as fast at his firm than others, like The Guy In The Corner, would in the business world. So in 1993, he quit his prestigious and high paying job to go in-house.
Now you might assume, like I did, before I did the background research for that Twitter thread, that his next stop would be Alibaba. You know, the startup that ended up going public in the largest IPO in the New York Stock Exchange’s history in 2014. But that’s not it. That Alibaba startup opportunity didn’t come across his desk until six whole years after he left Sullivan & Cromwell. Instead, the next chapter of Tsai’s journey involved working as an in-house lawyer at a relatively unknown investment fund.
The fund’s name was Rosecliff Inc., and it was involved in management buyouts. These types of funds bought & sold companies, investing millions of dollars to “buy out” middle-market companies, and then sell them at a profit. There’s not a ton of information out there on what exactly Tsai spent his time doing at Rosecliff but we know he had the General Counsel title. The fund appeared to be small in headcount, which meant that it was very likely Tsai was doing a bunch of different things, not just lawyering.
Less than two years into the new job, the founder and chairman of Rosecliff was diagnosed with cancer. Again, there’s not a lot of information out there about what happened, but from my Internet sleuthing,
it appears there was a mass exodus at Rosecliff in 1995. Its former president was later quoted saying that the cancer diagnosis marked “the beginning of the end” of the firm.I want to put these facts into context. When you look at Tsai’s career arc from 10,000 feet, it’s easy to assume that his success came easily. But if you dig into the details, you see a different picture. In 1995, Tsai had just quit his high paying, prestigious law firm job to join a small fund that was on the verge of decline and all but disappeared from relevance. Less than two years after Tsai started the job!
I can’t imagine what was going through his head at the time. Did he have any regrets? I remember when, within two years of me leaving Sullivan & Cromwell, I’d been fired from my job, and had to close down a failing business. Let me tell you, some regret creeps into your mind. It’s much easier to talk about in hindsight, than to live through it.
In the end though, it didn’t matter for Tsai. Because that Rosecliff job set him up for his next opportunity, which was notably not a legal role, at another fund called Investor AB.
Investor AB was the main investment fund for Sweden’s Wallenberg family. In the late 1990s, the fund made a lot of freakin money by investing in lots of different things. It’s not clear from my research how exactly Tsai made the jump but it’s interesting to note that at his new job, he was no longer an in-house lawyer. Instead he became an investment manager who led the fund’s Asian private equity investments.
Once again, from what I was able to find on the Internet, it’s not clear exactly what Tsai spent the next four years doing. But I can tell you what he wasn’t doing. He wasn’t taking it easy, coasting along on a cushy job. Because what you see later, during his time at Alibaba, is Tsai leveraging everything he learned at that Investor AB job.
So we know Tsai was grinding it out. I’ll come back to this later, but whatever work he was doing, helped him gain the experience he needed to lead the finance function at Alibaba years later, when it was a bona fide tech unicorn. From a 2014 article:
Until earlier this year I had been CFO of the company . . . basically responsible for raising the capital and structuring investments coming into the company.
Those finance skills were critical in helping him bring value to Alibaba. Let me say this in another way to since I feel like I’m not being clear. It wasn’t his legal skills, and certainly NOT his prestige credentials that set him up for success. It was everything else. Which is what he spent his time doing at Investor AB. I bet very little of it had to do with the law.
But of course, in the end the most valuable part of working at Investor AB was how it helped him catch the biggest break of his career: The opportunity to meet Jack Ma, the founder of Alibaba.
In May of 1999, Tsai flew to Hangzhou, China, on a business trip to scout out a potentially promising Internet company to invest in. The word company is probably too generous. Because there was no entity, no corporation. Or any revenue for that matter. The only thing they had was a website.
But Tsai was excited. As someone who had been investing for several years, Tsai saw a huge market opportunity in the Chinese market for an Internet-based marketplace. The key factor in all this was the founder himself, Jack Ma. As Tsai later recounted:
This was right before (China’s ascension to) the WTO . . . So all these small guys had to go export through state entities. They had no other way to market themselves to the rest of the world. They didn't have that skill set . . .
I thought Jack had a great idea, but I didn't think it was earth-shattering, putting all these company online. I was fascinated with Jack. What really, really struck me, was that it wasn't just Jack himself, or it was himself with another one or two guys . It was Jack already was with a group of followers . . . I thought to myself, “ Wow, this is a guy who can really get people together. He's a great leader. He can really build something.” That's what ultimately convinced me.
Ma famously offered Tsai $50/month in salary, which was the same amount the other cofounders were offered. According to several reports, Tsai was earning $700,000 per year at Investor AB at the time. Not a small amount of money to leave on the table! Yet despite this dramatic pay cut, Tsai said yes and joined Alibaba as a cofounder in 1999.
There was still one more piece to the puzzle though. Because when we look at why Tsai decided to take the plunge, there was one reason that doesn’t get talked about often that I personally believe played a huge role in why he was recruited, why he did well with Alibaba over time, and why Tsai himself decided to say yes to such a risky venture.
Alibaba desperately needed someone like Joseph Tsai.
Let me back up for a second. Right around the time Tsai was invited to join Alibaba, Jack Ma took him along on a trip to Silicon Valley to raise venture funding for the company. Tsai agreed and tagged along. There aren’t many details out there of what happened during that trip, but we do know that Alibaba came up empty. In Ma’s own words:
“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?’ ”
I highlighted that quote because, I mean, it’s pretty extraordinary. I mean this was 1999, right at the height of the dot com frenzy. So it’s not like it was impossible to raise money for a startup with no revenue. I think what this showed Tsai was that Alibaba—this small Internet company on the verge of doing big things, as long as it could raise capital—couldn’t figure raise money. Even in that kind of environment!
Tsai recognized that he was the missing piece. All of the other Alibaba cofounders were from mainland China, and didn’t have the law or finance expertise Tsai had. If he joined the company he would bring immediate value. And that value would likely remain for a long time if only because, I mean, how many Chinese people with high end law and investing experience were available to Jack Ma?
So yes, Joseph Tsai needed Jack Ma. But Jack Ma also needed Joseph Tsai.
Shortly after that failed fundraising trip, Tsai rolled up his sleeves and helped Alibaba raise its first round of funding. Within months the company had successfully raised $3.3 million from Goldman Sachs,
and $20 million from Softbank the following year.Not bad for a FTE that cost $50/month.
When we look at all of the stories of lawyers who earned a massive amount of wealth from working for a startup, you see the pattern. It’s not a lottery ticket. It’s the result of many, many years of hard work and building up valuable skills that get leveraged in some unique way. Like how Belinda Johnson acquired extraordinary legal & regulatory skills & judgment and leveraged that into a COO role at Airbnb in the early days.
The same thing happened to Joseph Tsai. He didn’t walk way from his private equity job at Investor AB on a whim. He saw that Alibaba would need him. For years. The founders were all mainland Chinese, and Tsai was the first “outsider” to join the team.
As Tsai recounted years later:I knew I was in an environment to learn, so I didn't want to stick out. I knew I had knowledge that nobody else had, so people could trust that aspect to me. So I felt very confident of that and very comfortable in my world. I don't pretend to do everything. I knew what my role was. (emphasis mine)
When you look even further back, to Rosecliff, to his Sullivan & Cromwell days, I gotta imagine it wasn’t clear where he’d eventually fit in. Why leave a sure thing? I’d bet that if you told the 27-year old Joseph Tsai that he’d one day join a startup that would IPO and give him enough money to buy a NBA team, he wouldn’t have believed it.
He wanted more, so he went off the beaten path.
It’s a good lesson for those of us who want more from work too. I mean if you want a steady and comfortable living, you don’t need to do anything crazy or do anything different than you’re told in law school. On the other hand, if you want to do something extraordinary you will have to inevitably do something uncomfortable and scary. And how that plays into the rest of your story won’t be clear to you at the time.
But eventually, you’ll get there.
By the time Tsai joined Alibaba, he was nine years out of Yale Law School, and knew how to raise money, manage a company’s finances, organize the legal structure of a company, and probably a lot of other things too. For example:
We didn't have an incorporated entity. It was June of 1999, a month after I met Jack, and he said, "Joe, please help me incorporate the company." I said okay. By the way, I went to study the prospectuses of Sina, Sohu and Netease which all went public that year. All of them were set up as Cayman Islands holding companies with subsidiaries in China.
So they set up Alibaba as, well, a Cayman Island holding company. With subsidiaries in China. Here’s another example:
When we decided to do Taobao, for example, we structured Taobao as a joint venture with Softbank so we didn't have to consolidate that business. We knew it was going to spin off a lot of losses, and we didn't want that to drag down the rest of the business.
There are reports that Goldman Sachs originally wanted to invest $5 million for 50% of the company but decided not to because that was too large of a round for a seed investment. In 2021 that’s just … hilarious.
Over time, Tsai continued to provide value. He later served as its CFO and COO. Alibaba grew like a rocketship and in 2014, went public on the New York Stock Exchange. Tsai earned $2 billion from the IPO. Which gave him enough money to buy the Brooklyn Nets.
This is also a critical part of the story I’m skimming over today, due to wordcount constraints. But if you do want to go where your unique skills are valued, you will need to go into rooms where you’re kind of unique or unusual. Which means very often, you’ll experience some amount of stereotyping and disrespect. That was also my experience when I was one of the first few lawyers to join Logikcull’s sales team, my first legal tech startup. You can read more about why I joined the company here.
This deserves a reread plug in light of AI.