Elon Musk’s tweet on Friday that he was putting his Twitter bid “on hold” highlighted the wild ride his proposed buyout has become, raising questions about whether it will go ahead. Either way, one striking feature has been Musk’s ability to tempt backers to step aboard — often with little due diligence. Just a week earlier he had secured $7bn-odd of new funding from assorted multibillionaires, venture capital funds, Saudi princes, crypto kings and sovereign wealth funds. He was able to halve the planned margin loan secured against his Tesla stake to $6.25bn — easing pressure on the car maker’s shares. Some involved in the process talk of text messages asking who was “in” for multimillion dollar sums, rather like parents holding a whipround for a school fete.
Musk’s record in ventures such as electric vehicles and commercial space flight has enabled him to pull in billionaire friends and new investors alike, largely on trust that he knows what he is doing in his foray into social media. But his fundraising illustrates, too, the power of private capital — and in particular of the riches unleashed by the technology boom. A new generation of superwealthy has emerged in Silicon Valley. It is from here, rather than London or Tokyo, that much of the real competition to Wall Street now comes.
Indeed, a segment of the Valley elite share libertarian leanings — scornful of public equity markets and driven by a belief in unfettered capitalism, preferably run by themselves. They believe Wall Street institutional investors and Washington regulators tend to stifle innovation, and dislike box-ticking around environmental, social, and corporate governance considerations.
Putting together multibillion-dollar funding with little due diligence might seem the height of tech-bro hubris. When investors include the likes of Oracle’s Larry Ellison, whose 1.5 per cent stake in Tesla has made him $10bn, a sense of obligation to answer Musk’s call is understandable. The presence of such co-investors, and the need to service the sizeable debt he is taking on, will at least press Musk to make Twitter profitable and not run it as a lossmaking plaything or tool of influence.
The Tesla chief’s claim that he intends eventually to take Twitter public again makes his proposed buyout look more like what Michael Dell and his backers did with his eponymous computer business: radically reshaping it away from the pressures and scrutiny of the public markets, and reaping the rewards when it refloated. This, indeed, is the private equity model — though many of the large private equity groups that usually fund such buyouts have so far stayed away. But while private equity investments may ultimately benefit members of the public through the pension funds that back PE, if the Twitter deal succeeds a good chunk of any gains will go to Musk and his wealthy allies.
Torrents of money are being released as Silicon Valley founders sell up, or borrow against their stakes, and early investors, large and small, cash out. Those funds could be extraordinarily powerful — if deployed, for example, in well-targeted angel investing rather than pet projects designed primarily to magnify wealth or clout. But depending on how it is used, the superabundance of private capital threatens to put further pressure on public equity markets, where the number of listed companies has been falling. That can lead to less efficient capital allocation, and shrink retail investors’ ability to share in wealth creation, eroding the participatory “democracy” of the stock markets.
Capitalism needs figures such as the tech titans who make money through vision, dynamism and risk-taking. They have a right to employ it as they see fit. But capitalism will suffer if it becomes a semi-closed club of the super-rich.