Web Excursions 2021-08-02

How Tesla enforced the delivery of cars during its 2018 crisis; giant funds compete with VCs in investing tech, rewriting rules along the way.

Elon Musk’s Trip Through Hell: Inside the 2018 Scramble to Avoid the Collapse of Tesla

[Excerpts from “Power Play: Tesla, Elon Musk, and the Bet of the Century,” by Wall Street Journal reporter Tim Higgins]

  • [In September 2018, when trying to deliver 100,000 vehicles in the third quarter, ] Tesla's sales organization didn’t have hundreds of company cellphones that [Cayle] Hunter’s sales team could use to send text messages, as Mr. Musk demanded, and they didn’t want their employees using their own personal phones.

    • Overnight, Mr. Hunter and other managers pieced together a solution, employing software that allowed his team to text from their computers.

    • They stopped the practice of walking customers through the reams of sales paperwork that would eventually need to be completed and signed.

      • They’d just start assigning pickup times for customers: Can you come in at 4 p.m. on Friday to get your new Model 3?

    • Often, Mr. Hunter didn’t even wait for any response before putting a customer on the list for pickup.

      • If the customer couldn’t make it, she might be told she would lose her spot in line for a car that quarter.

      • Customers became more motivated to complete the tedious paperwork needed to complete a sale when there was a Model 3 dangled in front of them.

      • Mr. Hunter’s team began telling customers to have it all completed 48 hours before delivery.

    • The team raced through their list of customers, assigning times at pickup centers around the U.S.

    • By 6 p.m. the next day, they had reached 5,000 appointments.

    • [When] that night on the call, Mr. Hunter reported the results to Mr. Musk. “Wow,” Mr. Musk said.

  • As the clock ticked down to the end of September and Tesla’s outrageous sales goal seemed out of reach, Mr. Musk turned to Twitter to make an unusual request to his loyal customers: Help us deliver vehicles.

    • Longtime owners showed up at stores around the country.

      • They focused on showing customers how to operate their new cars, and explained life with an electric vehicle, freeing up paid staff to handle the overflow of paperwork.

      • Mr. Musk and his new girlfriend, pop musician Grimes, worked at the Fremont delivery center, joined by board member Antonio Gracias.

      • Mr. Musk’s brother, Kimbal, also a member of the board, showed up at a store in Colorado.

    • Surrounded by friends and kin, Musk seemed at his happiest,

      • one manager recalled: “It was like a big family event…. He likes that—he likes loyalty.”

Tech Startup Financing Hits Records as Giant Funds Dwarf Venture Capitalists

  • Hedge funds, mutual funds, pensions, sovereign-wealth groups and other so-called nontraditional venture investors were more active in the second quarter than in any previous period

  • These firms participated in 42% of startup financing deals, and those deals accounted for more than three-quarters of the invested capital

  • Investment in U.S. startups for the first half of 2021 hit $150 billion, eclipsing full-year funding every year before 2020

  • Reason

    • The large asset firms have massive pools of capital, move quickly

    • and are less likely to ask for board seats or involvement in company decisions, often making them more appealing to founders

  • Today, among the top 10 investors in startups by dollar amount, half are nontraditional venture investors, including Fidelity Investments Inc. and Tiger Global Management.

  • Some traditional venture firms are scrapping old practices to keep pace.

    • cutting back on audits and customer checks,

    • and taking a startup’s word on profit and loss.

  • The shift to high-velocity investing has given founders more leverage.

    • Some have scrapped pitch decks

    • Others are asking investors for freebies upfront—such as the names and numbers of prospective customers—before agreeing to let them join a funding round

    • More founders are asking for, and getting, so-called refreshes of their equity,

      • when their ownership stake goes up a couple percentage points after a funding round, instead of down

  • Nontraditional investors

    • tend to have larger capital supplies and lower return thresholds than traditional venture firms,

      • which gives them more wiggle room on valuations.

      • Deals led by nontraditional investors have valuations that are on average five times the valuations in deals led by traditional venture capitalists

    • are often amenable to nontraditional deal terms.

      • Mutual-fund manager Fidelity agreed to an unusual condition when it invested Beta Technologies Inc.: More than 70 employees could invest in the round and receive the same class of stock at the same price as Fidelity.

  • headwinds

    • Inflation and a possible interest-rate increase are likely to reduce the amount of available cheap cash

    • Biden’s proposed tax increases would raise capital-gains taxes and corporate taxes