Could Elon Musk Become Twitter’s CEO?

What's up, everyone. This is Alex Lieberman, co-founder and Executive Chairman of Morning Brew. Welcome back to Founder’s Journal, my personal audio diary, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. Today, I am talking about Elon Musk and Twitter. This is going to be a fun one regardless, but especially fun if you haven't heard the news yet. Let's hop into it. 

Elon Musk bought 9.2% of Twitter

So Elon Musk is making moves. If you didn't see in the last few days, Elon officially bought 9.2% of Twitter stock, I believe it was 73 million shares, making him the largest shareholder in the company. For reference Jack Dorsey, co-founder, former CEO of Twitter, oftentimes considered the face of Twitter. He's also, you know, the co-founder of Square, he has 2.3% of the business. Now, before we get into the meat of this, it's important for you to know that Elon is technically a passive investor in Twitter because he owns less than 10% of the business. 10% is generally considered the threshold at which someone is either an active or quote unquote activist investor. 

He’s a passive investor…for now 

And to get into a few of the specifics there are basically two forms that an investor fills out when they buy a big stake in a public company. There's the 13D and there's the 13G. 13D is for people who take active investments. Generally you have to fill out more paperwork, give more rationale around the investment. 13G is for passive investments. Guess which one Elon filled out? He filled out the 13G. Now there is obviously speculation that Elon is not going to be a passive investor, but he has gone about all of the motions as if he is. So put a pin in that. Elon filled out the 13G, quote unquote passive investor in the business. On the news that Elon bought 9.2% of Twitter, shares in the company went up as much as 29%. And for reference, Ben Thompson, who writes the newsletter Stratechery, he has this great basically mental model that he's come up with, which is the Elon Musk Effect. Basically you can look at a company's stock performance based on how close Elon's gravitational pull is to that company. So now, because Elon took a massive stake in Twitter, the markets are pricing in the fact that they think Elon is going to, in fact, not be a passive investor, but very active, very much active. And it's going to show in the company's performance moving forward. I'll talk in a second about what my thoughts are on this. Also for reference, like I said, he bought around 73 million shares of the company, 9.2%. That means his shares are worth $3.5 billion. The even crazier part about it is that it's just 1.3% of his net worth. I had put this out on Twitter, but basically Elon Musk's purchase of Twitter stock to become the largest shareholder in the company is the equivalent of the average American family spending $1,200 on rent for a month, obviously a huge purchase, but relatively speaking, this is just a drop in the bucket for one of the most wealthy people in the world.

Elon’s relationship with Twitter

I want to talk in a second about why this is so important, but I want to talk about a few other specifics here. One specific is that, if you are not yet aware of it, Elon obviously has spent a ton of time on Twitter. He is the eighth most followed account on the social media platform behind people like Obama, Trump, Taylor Swift, and Bieber. He is super active on the platform about everything from SpaceX, to him tweeting while taking a dump. But in addition to that, after he took his stake, so he took his stake on April 4th, today, Elon was officially named to Twitter's board. He's going to hold that board position until 2024. What's also interesting about this is Jack Dorsey, co-founder, former CEO of Twitter, is rolling off of the board in May. And with having this board seat, there's also the stipulation that Elon cannot accumulate more than 14.9% of the business while he's on the board and for 90 days after. So that's what happened. That is what happened between Elon Musk and Twitter, the company that he has a very long history with. Let's talk about why it's important. And then I'm going to tell you what I think is going to happen out of this entire ordeal. I just mentioned it, but Elon and Twitter have history. Let's go back a little bit. In 2018, Elon tweeted that he would be taking Tesla private at $420 a share, which obviously he was just shitposting on the internet and he had mentioned that funding was secured, basically that the amount of capital that was needed to take Tesla private had been found. He had the investors. And what ended up happening was the SEC looked into it and basically said that Elon had misled investors because funding was in fact not secured. He did not have the money to take Tesla private, $420 a share. And basically in settling that suit Elon relinquished his position as chairman of Tesla and he had to pay $40 million in fines. Take that, add on top of it that for Elon, Twitter is his greatest megaphone. It's actually in a way how Elon Musk acts as chief marketing officer for SpaceX, for Tesla, and for any other projects he's involved in, even if it's Dogecoin or Shiba Inu coin, but it's also become a place where he just likes f-ing around. He is tweeting memes all the time. He's tweeting weed jokes. He's tweeting 420,  tweeting the number 69. So he has this kind of weird interplay between serious shit that's going on with SpaceX and the future of space exploration outside of this country, and Tesla, and the future of electric and autonomous vehicles. But on the other side, he basically just uses this as his kind of outlet when he's bored and just wants to shitpost on the internet.

Elon’s Twitter poll

 Now, most recently, Elon ran a poll on March 25th, where he asked his followers if Twitter adheres to free speech on the platform. Of Elon's 80 million followers, 1 million people responded, 70% said no, Twitter does not adhere to free speech. And by the way, the reason, the context of why he asked this, is because Elon believes that Twitter as a platform does far too much to inhibit free speech.

That there's far too much censorship. And that if Twitter wants to be the quote unquote town square of the internet and promote democracy, it has to be a hundred percent free speech.

This is where things start getting interesting because Parag Agrawal, who is the new CEO of Twitter, he has a very different perspective of how Twitter should serve or not serve democracy. When it comes to content and censorship, again, and Elon entirely believes that free speech is the only way to go. There should be no censorship on the platform. Parag on the other hand believes in moving towards a place where Twitter is becoming the recommender of content and directing people's attention in a smart and intelligent way, i.e., guiding people towards certain content or away from certain content. And I'm just so fascinated by this dynamic right now, because as of recording this today on April 5th, Parag just welcomed Elon to the board of directors. Jack Dorsey also endorsed that tweet. He quote retweeted, basically saying I'm so excited for Elon to be a critical thinker and to push the company forward. You're talking about a guy Parag, who most recently on December 1st, 2021 was featured in an Elon tweet where Elon portrayed Parag Agrawal as Joseph Stalin and Dorsey as a secret police official who was standing next to him. And so I just have to wonder how much of this is performative and how much Parag actually likes Elon, but it's going to be very interesting to see how Parag Agrawal, who became CEO of Twitter in November when Dorsey gave up the seat and he became the youngest CEO in the S&P 500 at 37 years old, how he and Elon are going to play.

Where I think this is going

So let's just talk about what I think happened from here. Well, I think in order to think about where we go from here, it's important to understand why is Elon doing any of this? What are his incentives? I personally do not think Elon is at all incentivized by money. He has a shit ton of it, and he hasn't been guided by money in the past, which means there are two other options of why Elon is doing what he's doing. A, he wants to change Twitter for personal gain, meaning his ability to act as a better and better marketing engine for SpaceX, Tesla, and any of his other ventures like Neuralink or B, he wants to change Twitter for society's gain. I believe it is both. I think Elon really does care about free speech as a pillar of democracy. And he really, he, you know, his whole M.O. is focusing on the biggest problems in humanity. One is the overcrowding of Earth or the extinction of Earth, which means the extinction of humans, which is why space flight to Mars is so important. Tesla so important because autonomous and electric vehicles combat global warming. And I think he truly believes that a big pillar of democracy is free speech, and it is his responsibility to do everything possible to make Twitter a town square that has complete and utter free speech. And I believe how he accomplishes this is going to be based on how the rest of the board at Twitter, he's the 12th member of the board, there were 11 before, how they all react to what he wants to see happen and I believe he's going to level up his intensity as needed if he doesn't see changes from the board or from Parag. So again, I think he's going to be pushing free speech on the platform. Step one, in his goal to do that was to accumulate enough shares in Twitter to have a seat at the table. He did that by becoming the largest shareholder with 9.3% of the company. And I think that he is hoping by having a seat at the table while also leveraging his huge audience and the sway that he has on Twitter, as well as polls that he runs like the most recent poll of should Twitter allow for your tweets to be edited. And he had millions of votes on that. His hope is I think that he can sway the board's decision-making, even though he personally doesn't have any decision-making power with 9.2% of the vote. That all being said, if board members do disagree and Elon can’t enact change, I think he steps it up to step two, basically a little bit more aggressive. I could see Elon more actively speaking out against Twitter on the platform. Yes, it would be self-harming to him since he has a lot of money pent up in the company, but again, this is 1% of his net net worth, but I think you could see Elon take this to an extreme. If at first he presents ideas for how the company should evolve and welcome free speech. If the company and Parag don't make changes to have that happen, I could see him stepping this up all the way to where he ends up raising outside capital. He goes and buys Twitter and he can't buy it with his own cash. I don't believe because so much of his wealth is tied up in stock with SpaceX and Tesla, so he'd have to sell stock in the company and also pay a ton of taxes, but I could see him raising a ton of capital, buying Twitter, and putting in place a board that is more aligned with his views of free speech on the platform, truly what he would consider a hub for democracy, and even going as far as to make himself CEO or chairman of the business. Will it get to that point? I'm not sure, but what I do know is that Elon does care a shit ton about Twitter as a marketing channel for all that he does. And he cares about it as a vehicle for democracy. I truly believe that. And so I think he's going to go to ultimate lengths to protect his voice on the platform and protect what he believes is a super important platform for democracy. So I don't know how it'll play out, but I think it could get to these extremes depending on how the board reacts. But I would love to hear from you.

I want to hear from you

First, what do you think Elon is going to do now, as you know, the board member of Twitter with the most shareholder voting rights? And two, this is a kind of new episode we're doing with Founder’s Journal, taking a big business  new story, breaking down the facts, breaking down why it's important and also what my point of view is. And so I'd love to hear what you think about this type of episode. Shoot me an email to alex@morningbrew.com. And I'd love to hear what you think. Maybe we'll do more of these. Thanks so much for listening and I'll catch you next episode.