On August 7, 2018 at 9:48 AM, Elon Musk released a tweet stating that that he was considering taking Tesla private. Musk’s decision to potentially take the company private is indeed a strategic move to make Tesla’s Vision and promise a reality. Rather, some might be surprised that this transition hasn’t occurred sooner. The pressures of a public company and intense scrutiny make it a monumental feat for any business to revolutionize industries. Moreover, the attention to public investors draws away the focus from the development of the company’s vision. Additionally, most companies that have succeeded in such industry shakeups did so when they were private.

Nevertheless, transitioning back into a private company is not so simple and requires massive amounts of capital. This is where the value of funds play a critical role and allow companies to remain immune from the scrutiny of public markets. While larger funds substituting the capital required to develop a company is a viable alternative, it is worth highlighting that the transition doesn’t necessarily alter the equity of the CEO. Instead, there is a tradeoff which restores the CEO’s control over the company’s operations and trajectory.

This is a critical period in the growth of the company, that requires a carefully curated strategy and execution to turn things around for the best. In few years we will all look back the success of Tesla, and people will stop posing such questions – just like how things unfolded when Steve Jobs launched iPhone and the rest is history. While this may come at the expense of missing out on some juicy tales and shenanigans in public that Musk has to resort to for tackling the naysayers. Going private may finally provide the freedom to opportunity for Tesla to focus and execute rather than trying to please the public. 

The interview with Matt on Bloomberg Radio:

Rishaad Salaamat: [00:00:00] We’ll be hearing about Elon Musk saying that he is considering taking Tesla private. We’re joined now by Matt Swanson, Managing Partner at Silicon Valley Software Group. Matt thanks for joining us. Well you know he has used Twitter to troll some of his critics before. I mean this better not be a joke because he could be in serious trouble with the SEC.

Matt Swanson: [00:00:22] Yeah this would be quite an exceptional prank. But I doubt that is the case. I think what this move is all about is the change in dynamics in the private markets. You know ever since Softbank’s vision fund kind of set the precedent of these massive sort of fundraisers, we’ve seen the rest of Silicon Valley VC’s follow suit. And I think Elon Musk sees that and says ‘hey, if I wouldn’t have taken my company public before this happened I would have stayed private.’ And he sees that opportunity to reverse that.

Bryan Curtis: [00:00:57] Matt, what’s interesting is he says that through this process he doesn’t expect to actually add to his roughly 20 percent ownership of the shares. Is that possible?

[00:01:08] Well it’s interesting. I think he’s being truthful partially, and that I don’t think it will change his equity position but that’s  different than control. And I think this move will certainly help consolidate some of that decision making and give him a lot more flexibility to navigate and make more more directed decisions.

Rishaad Salaamat: [00:01:35] At the end of the day though it’s a lot of money to go private here and some have said that is also way way overvalued as it is. You know the thing is who would actually fund it ultimately?

[00:01:49] Again I think we’ve seen a lot of funds pop up, there’s a lot of liquidity, new VC’s, a lot of LP’s. There was a reference to sovereign wealth fund. I think the sovereign wealth funds are trying to be competitive in the age of the SoftBank vision fund. So I wouldn’t be surprised if there is a giant oil sovereign wealth fund backing this decision.

Bryan Curtis: [00:02:13] So if we look at it I mean it provides less scrutiny. That’s one thing he wants. Easier to make long term decisions. It gets rid of a lot of distractions for a company that’s trying to look at the very long run. And it eliminates incentives for people to actually attack the company. So in a sense does he have a point that at this stage of Tesla’s life this is the right thing to do?

Matt Swanson: [00:02:37] I think this is a brilliant move. I think that what happened in the past two quarters is Musk has seen the effects of meeting these quarterly targets at the expense of building out long term capabilities. I think that they’ve really cut corners in a lot of ways on meeting some of the goals and seeing that he’s been very creative in how to build his long term vision which is this move ahead.

Rishaad Salaamat: [00:03:07] 420 is the share price that is being touted and that would be the highest it’s ever reached. It probably would give quite a lot of people who have bought Tesla shares an exit and maybe a sigh of relief.

Matt Swanson: [00:03:23] I think it would give them and Elon a sigh of relief. I think that this premium you know to a billionaire, what is money worth? So some piece of mind not having to face the daily scrutiny and that leads to the public blowups that we’ve seen. I think is worth more than any premium on the stock price.

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