Three counterintuitive 2023 predictions about Musk, SFB and even Kraft

Bradley Tusk, who started his career in Democratic politics but later became a lobbyist and consultant for private companies fighting regulators, now spends a lot of his time as a venture capitalist. Although Tusk is a generalist in his approach, he insists that he isn’t interested in any one startup. His expertise is at the intersection between tech and regulation and his firm adds most value to startups in areas where changing regulations will alter the size of the opportunity.

As a service to Tusk Ventures’s current portfolio — and a kind of calling card for potential founders — Tusk every year puts together some thoughts about the changes he sees coming over the next 12-month period. Because he’s often proven right in retrospect, we hopped on a call with him late last week to discuss some of his many 2023 predictions, and these three stood out to us in particular, so we thought we’d share them here.

1) Major CPG companies start selling cannabis products, erasing many cannabis startups that had been operating in the relative shadows. Here Tusk explains why:

Big brands sell alcohol all the time, and many would argue that cannabis is less harmful than alcohol. There is a real disconnect between nearly two-thirds (or more) of the states and federal governments, where cannabis can be legally used medicinally or recreationally. It’s still on Schedule1 at DEA [alongside] heroin, meth and cocaine . . This doesn’t make much sense, especially since states continue to legalize it.

President Biden has stated , “Let’s take this from Schedule 1”. Once that happens, all sorts of interstate commerce that has been prohibited will be allowed. You’ll be able have real banking, trucking [plants] across state borders, and advertising. . . All the activities that a normal, big company like Kraft, Unilever, Anheuser-Busch, or Philip Morris might engage in, they are not allowed to do under the current system. However, once the federal restrictions have been removed, it becomes possible for them to do so.

One question I’ve asked cannabis entrepreneurs over the years is: How are they going to compete against Unilever? Why would Unilever want to buy them instead of just burying them. They can’t compete, most of the times. They are really racing against time, hoping that the federal government won’t do the right thing. But I believe that once cannabis is removed from Schedule 1, which I don’t know if it happens within six months or two year, large companies will be able to get in the game [because] there’s a lot of money to make. Many cannabis startups that were high-valued, overvalued, or traded at very high multiples on Canada’s stock exchange will feel a lot more pain.

2) Instead of drive further crypto regulation, Sam Bankman-Fried and the abrupt implosion of FTX actually winds up playing a minor role in any new regulations that get enacted (though Tusk does think we’ll see more regulation at the state and federal level in the next 12 months). Here’s Tusk:

When the FTX explosion started, my reaction was, ‘Okay. This is going to cause a lot very harsh crypto regulation which will be bad for sector because SEC chief Gary Gensler had been pushing for it for a long while and it hasn’t happened yet because cryptocurrency is very popular among a large number of actual real people.’ I believed FTX would give him the opportunity to move very aggressively towards the industry as a whole.

In a strange way, the story has become more and more like Sam Bankman Fried was just a criminal mastermind who defrauded people out of tens and billions of dollars. This debacle is not related to crypto per se but it shifts the argument. It shifts from ‘This entire industry is out of Control’ to “This person was out of Control.” It’s almost helping [tamper down talk about overregulation].

3) Twitter ends up costing Musk far more than the $44 billion he and his investors paid for it . . .

What Musk did is consistent with things that we’re seeing across the cultural zeitgeist right now, which is in this world with 24/7 media coverage and social media activity, the people who really need attention and can’t get enough of it just have to keep doing more and more outrageous things to try to get it right. That was what we saw with Donald Trump. That was what we saw with Kanye West. Musk bought Twitter so people would talk about him as much as we do right now. I think he has achieved his goal.

What worries me about him is that the market cap for Tesla is significantly higher than Toyota and General Motors, which are companies that sell more cars. Tesla makes a great vehicle and they are growing so it is okay for them to look into the future. The difference between what Tesla should be valued at and where it currently is is due to Elon Musk hype and pixie dust. Musk created a perception of himself as being far ahead of the rest that drives retail investment in the stock. SpaceX is the same. While that’s still a private company, I saw a piece yesterday saying that it’s now valued at $140 billion, [yet] there’s no way SpaceX could be [worth] $140 billion given its revenue. His genius is in that he creates the perception that his work is innovative and unique. This perception drives enormous amounts of value and investment towards his companies.

The biggest risk with Twitter is his reputation. He has now taken control of Twitter, which has never been a profitable business. The ideas he has put forth so far don’t seem that innovative or interesting to me. They feel like variations on things people have done before in different ways. If he fails to succeed with Twitter, the question becomes, “Does it puncture the balloon” for Tesla, SpaceX, and all his other projects? He may have paid $44 billion for Twitter, but ultimately, this could cost him $100 billion or more if there’s a risk that Tesla and SpaceX and other companies that he owns lose value because he’s exposed as being a mere mortal.

. . . Tusk says that it doesn’t offer great opportunities for startups to capitalize on the chaos of Twitter. More information here:

There isn’t a great revenue model to support all of this. To make matters worse for them, I still think that there’s a risk eventually that Section 230 of the Telecommunications Decency Act does get changed or repealed. It exempts platforms from liability for content posted by users. I can defame someone on Twitter. You could sue me personally, but you couldn’t sue Twitter. Twitter, Facebook, and all other platforms have an economic incentive to promote toxic and negative content. This is because, as much as we love it, it drives clicks and advertising rates, and revenue. The lack of liability on the platforms is creating an environment where the internet can be as harmful and as horrible as possible.

But if [we repeal] Section 230, it’ll be a lot like what happened with the tobacco companies beginning in the 1980s, where all of a sudden they were vulnerable to litigation and started receiving these multibillion-dollar judgments, and as a result, they felt real economic pain and had to finally get a hold of their [marketing practices] because it was costing them more money than otherwise. Facebook will currently pay the FCC the smallest fines because they make so much money from negative content. Repealing Section 230 would change that.