Three counter-intuitive predictions for 2023 on Musk, SFB and even Kraft • TechCrunch
Bradley Tusk — who spent his early career in Democratic politics and later became a consultant and lobbyist for private companies battling regulators — spends much of his time these days as a venture capitalist. But although Tusk is a generalist, he insists he’s not interested in just any startup; his expertise, he says, lies at the intersection of technology and regulation, and his firm adds the most value to startups in industries where changing regulations are bound to change the scale of opportunity. they are looking for.
As a service to Tusk Ventures’ current portfolio – and a sort of calling card for potential founders – Tusk puts together a few thoughts each year on the changes it sees coming over the next 12-month period. Because he’s often proven himself right in retrospect, we hopped on a call with him late last week to discuss some of his many predictions for 2023, and these three particularly stood out to us, so we thought we’d share them here.
1) Major CPG brands are starting to sell cannabis products, wiping out many cannabis startups that operated in relative obscurity. Here’s Tusk, discussing why:
Major brands [sell] alcohol all the time and cannabis, many people would say, is a less harmful substance than alcohol. We have this real disconnect between almost two-thirds of the states and the federal government, where cannabis is legal for recreational and medical purposes. Yet it’s on appendix 1 to the DEA [along with] heroin and methamphetamine and cocaine. . . which really doesn’t make much sense, especially since states continue to legalize it entirely.
President Biden said, “Let’s take that out of Schedule 1.” Once that happens, all of a sudden, all kinds of interstate commerce that hasn’t been allowed up until now will open up. So you will be able to have real banking, trucking of [plants] across state lines, advertising. . . All the things that a very large normal corporation – a Kraft or Unilever and Anheuser-Busch or Philip Morris – could engage in, they can’t really do under the current system, but once the federal restrictions are relaxed, then all of a sudden it opens up for them.
One [question I’ve asked cannabis founders over the years is] how will they compete with Unilever? Why would Unilever choose to buy them instead of just burying them? And most of the time the answer is that they can’t [compete] . They are really racing against time, hoping that the federal government is not doing the right thing. But I think once cannabis gets out of schedule 1, and I don’t know if that will happen in six months or two years, the big companies will come into the game. [because] there is money to be made. And a lot of cannabis startups that were highly valued or overvalued or trading at very high multiples on the Canadian stock exchange are going to be in a lot of pain.
2) Instead of pushing crypto regulation further, Sam Bankman-Fried and the abrupt implosion of FTX end up playing a minor role in any new regulation that is enacted (although Tusk Is think we will see more regulation at the state and federal level over the next 12 months). Here is Tusk:
When the FTX explosion started happening, my take was, “Okay, this is going to lead to a lot of really tough crypto regulation that’s going to be bad for the industry, because SEC chief Gary Gensler, been pushing for this for a long time and it hasn’t happened yet because crypto is very popular among many real people I thought FTX would give it the cover to act very aggressively against the industry in its whole.
In some weird way since then, as the story gets crazier and crazier and more like Sam Bankman-Fried is just a criminal mastermind scamming tens of billions of dollars and [that this debacle] isn’t something specifically related to cryptography per se, that again shifts the argument. He [shifts from] , ‘This whole industry is out of control’ to ‘This person was out of control.’ It almost got so extreme that it actually helps [tamp down talk of overregulation] .
3) Twitter ends up costing Musk far more than the $44 billion he and his investors paid. . .
What Musk has done is consistent with the things we’re seeing through the cultural zeitgeist right now, which is in this world with 24/7 media coverage and social media activity, people who have really need attention and who just can’t get enough of it just have to keep doing more and more outrageous things to try and get it right. We saw it with Donald Trump. We saw it with Kanye West. And the main reason Musk bought Twitter is to get people talking about him, just like we are right now. From that perspective, I suspect he achieved his goal.
What worries me for him is when you look at the market capitalization of Tesla, for example, it is significantly higher than that of Toyota or General Motors, companies that sell a lot more cars. Tesla makes a great car and they grow up and it’s normal for them to look into the future. But the difference between what [Tesla] should probably be rated at and where it is rated is that Elon Musk hype and pixie dust. He managed to create such an image of being so far in the future and so much better than everyone else that really drives retail investment in the stock. The same goes for SpaceX. Although it’s still a private company, I saw an article yesterday saying it’s now valued at $140 billion, [yet] there’s no way SpaceX can be [worth] $140 billion based on its revenue. So his genius in some ways is that he manages to create this perception that what he does is so innovative and so unique, and that only he can do it; it generates huge amounts of value and investment in its businesses.
The really big risk with Twitter is that every time it does something high profile and public, it puts that reputation on the line. It took over Twitter, which no one really ever figured out how to make a successful business out of it. , and now it’s in his hands. And so far, the ideas he’s put forward don’t seem that new or interesting to me; they look like variations of things people have done before in different ways. And if he doesn’t succeed with Twitter, the question is, does he punch the ball for Tesla, and SpaceX and all his other projects? He may have paid $44 billion for Twitter, but ultimately it could cost him $100 billion or more if there’s a risk that Tesla and SpaceX and other companies he owns will lose. value because he is exposed as a mere mortal.
. . . and no, it doesn’t create great opportunities for startups looking to capitalize on Twitter’s chaos, per Tusk. More here:
There just isn’t a good revenue model for all of this. To make matters worse for them, I still believe there is a risk that Section 230 of the Telecommunications Decency Act will be amended or repealed. Right now, this exempts the platforms from liability for user-posted content, so I can slander you on Twitter, and you could sue me personally but you couldn’t sue Twitter. And therefore, Twitter, Facebook, all the platforms, their real economic incentive is to move towards negative and toxic content, because as much as we hate it, it attracts attention and generates clicks and therefore advertising rates and revenue . So, effectively, the lack of platform accountability creates a world where the internet needs to be as toxic and horrible as possible.
But if [we repeal] Section 230 is going to be kind of like what happened with the tobacco companies starting in the 1980s, where all of a sudden they were vulnerable to litigation and started getting these multi-billion dollar judgments , and as a result, they felt real economic pain and had to finally get their hands on their [marketing practices] because it cost them more money than otherwise. Right now, Facebook will pay the small fines it gets from the FCC because at the end of the day, they make so much money from negative content. The repeal of section 230 would change that.