Elon Musk, seen as one of the most visionary tech entrepreneurs from the Silicon Valley scene, started his “career” as an entrepreneur at an early age. After selling his first startup, Zip2, in 1999, he made $22 million, which he used to create X.com, which would later become PayPal, and sell for over a billion to eBay (Musk made $180 million from the deal). He founded other companies like Tesla (he didn’t start it but became a leading investor in the early years) and SpaceX. Tesla started as an electric sports car niche player and eventually became a mass-manufacturing electric car maker. In October 2022, Elon Musk finalized the acquisition of Twitter.
- How did Elon Musk become wealthy? The full business story
- Elon Musk takes over Twitter!
- The greatest marketer of our times
- Key takeaways
- Related to Tesla
How did Elon Musk become wealthy? The full business story
Elon Musk’s wealth increased exponentially when one of his major bets, Tesla, became among the most valued companies on earth. Elon Musk started from a very early age building tech startups.
The early years
For instance, as a child, he had a passion for code, so after developing it, he sold the source code for his first video game for $500 at age 12.
With the capital from Zip2, Musk founded X.com in 1999, one of the first FDIC-insured online banks in the world. After seeing promise in its easy payment service.
At the same time, a company named PayPal, as a money-transfer system, had been founded in 1998 by a company called Confinity.
At the time, Confinity had a fierce competitor called X.com. Rather than competing, the two companies merged by bringing them together under the umbrella of PayPal.
The “PayPal Mafia” years
Once the company merged, it could finally focus on the commercial strategy. Rather than boiling the ocean, PayPal started with a small niche at the time until it monopolized it and grew further.
Musk merged his company with Confinity the following year. In 2001, the company became PayPal and Musk became an 11.7% shareholder.
When eBay acquired PayPal for $1.5 billion in 2002, Musk received $180 million, which he would later reinvest into some of his most famous passion projects.
Indeed, it seems that at the time most PayPal users were coming from eBay. As reported by a release on July 2002:
The agreement also should benefit eBay shareholders. The combination of the two networks should expand both platforms while minimizing shared operational costs. Strengthening the marketplace and realizing the efficiencies made possible by the acquisition will increase the value of both businesses.
Read Also: How Does PayPal Make Money?
PayPal would also be an extremely important hotbed for what would be later called the “PayPal Mafia,” a group of smart people that went on to fund many of the companies that created an impact on the Silicon Valley tech ecosystem:
- Jawed Karim (Youniversity Ventures),
- Jeremy Stoppelman (founded Yelp with Russel Simmons),
- Andrew McCormack (partner at venture capital firm Valar Ventures),
- Premal Shah (non-profit organization Kiva),
- Luke Nosek (Founders Firm),
- Ken Howery (VP at Clarium Capital),
- David Sacks (produced “Thank You for Smoking”),
- Peter Thiel (created hedge fund Clarium Capital and Founders Firm),
- Keith Rabois (held senior positions at LinkedIn, Slide),
- Reid Hoffman (LinkedIn),
- Max Levchin (Slide. Google bought it for $182 million in 2010),
- Roelof Botha (Sequoia Capital),
- Russel Simmons (Yelp),
- Elon Musk (Tesla, SpaceX).
After two decades after PayPal’s acquisition from eBay, Elon Musk went on to create some of his most prominent ventures:
When Tesla was a niche electric sports car maker
Tesla is perhaps the biggest accelerator of Elon Musk’s net worth.
The company has become among the most valued tech companies in the last few years.
The electric carmaker company now owned by entrepreneur/visionary Elon Musk was founded by Martin Eberhard and Marc Tarpenning in July 2003.
By 2006 Musk joined, first as an investor and chairman, then he took the role of CEO, which he still holds today. Musk is a major Tesla shareholder:
“In 2006 our plan was to build an electric sports car followed by an affordable electric sedan, and reduce our dependence on oil…delivering Model S is a key part of that plan and represents Tesla’s transition to a mass-production automaker and the most compelling car company of the 21st century.”
By starting with a niche strategy, mainly focused on proving an electric sports car could be delivered in a premium market, Tesla slowly, then quickly ramped up its new models to cover wider and wider sections of the market, and it ramped up its manufacturing capability.
Beyond early adoption, using a transitional business model to scale up
The hardest part for Elon Musk has been the scale-up of Tesla’s manufacturing facilities. In what Elon Musk would later recall as a “logistic hell.”
Going almost bankrupt to pass beyond the “logistic hell.”
Between mid-2017 to mid-2019, Tesla has been very close to bankruptcy for a lack of liquidity.
As Elon Musk explained in a Tweet back in November 2020:
Closest we got was about a month. The Model 3 ramp was extreme stress & pain for a long time — from mid 2017 to mid 2019. Production & logistics hell.
As Elon Musk further explained in that Twitter thread:
I put in my last money, even though I thought we would still fail. But, it was either that or certain death for Tesla. Extremely difficult to raise money for an electric car startup (considered super quirky back then), while stalwarts like GM & Chrysler were going bankrupt.
Indirectly, the Tesla share price appreciation results from a new wave of younger investors and strong demand for electric vehicles – particularly from China.
A Biden election win has also helped Tesla benefit from legislation designed to bring electric vehicles to the mainstream.
Today Tesla is an electric empire whose potential goes way beyond the automotive sector!
Musk has always had a passion for space exploration. Even before the eBay acquisition of PayPal, he conceived of greenhouses to grow food crops on Mars.
Such was his passion that he traveled to Moscow to purchase intercontinental ballistic missiles that could send payloads into space.
In Moscow, however, Musk was seen as an amateur and rejected. Undeterred, he returned to the U.S. and founded SpaceX in 2002 using $100 million of his own capital.
In 2008, SpaceX received a $1.6 billion NASA grant for rockets to resupply the International Space Station.
The company then became the first to berth a private vehicle with the ISS. Reusable rockets with large payloads were also launched into space and successfully returned to Earth using SpaceX autonomous drone ships.
By March 2018, SpaceX had over 100 launches on its manifest worth approximately $12 billion in revenue. SpaceX’s most recent contract is the $2.89 billion NASA program to carry American astronauts to the moon.
Elon Musk takes over Twitter!
In April 2022, Elon Musk almost finalized the acquisition of Twitter in one of the most controversial deals in business history.
Let’s review the timeline.
Musk placed a bet to take over the whole company out of the blue. It was April 14th, 2022:
The public records show the whole conversation of the offer Musk made to take over Twitter.
Below is the main extract, of the conversation, between Musk and Twitter’s board; as per SEC Filings, Musk had sent a message to Bret Taylor, Chairman of Twitter’s board:
I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.
However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company.
As a result, I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced. My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder.
Twitter has extraordinary potential. I will unlock it.
In a follow-up text, Musk highlighted:
As I indicated this weekend, I believe that the company should be private to go through the changes that need to be made.
After the past several days of thinking this over, I have decided I want to acquire the company and take it private.
I am going to send you an offer letter tonight, it will be public in the morning.
Are you available to chat?
As a final message to Twitter’s board, Musk highlighted:
1. Best and final
a. I’m not playing the back-and-forth game.
b. I have moved straight to the end.
c. It’s a high price and your shareholders will love it.
d. If the deal doesn’t work, given that I don’t have confidence in management nor do I believe I can drive the necessary change in the public market, I would need to reconsider my position as a shareholder.
i. This is not a threat, it’s simply not a good investment without the changes that need to be made.
ii. And those changes won’t happen without taking the company private.
2. My advisors and my team are available after you get the letter to answer any questions
a. There will be more detail in our public filings. After you receive the letter and review the public filings, your team can call my family office with any questions.
In short, Musk had offered to purchase Twitter for $54.20 per share, a 54% premium, before Musk had started to buy Twitter shares.
While the offer was good from a valuation standpoint, the board tried to fight it.
Also, influential business commentators were against it.
As Cramer highlighted:
This is one of those where they are literally not doing their job, there’s no fiduciary responsibility if they just say, ‘you know what, we take it, there are times when individual directors are opened up for a level of lack of fiduciary that I think crosses the line. This crosses the line.
Similar comments came from Galloway:
Throughout the deal, none expected it to go through so quickly.
Indeed, given the controversy around Twitter, most business people thought this would have turned into a few months’ fight over Twitter’s ownership.
Yet, things tumbled very quickly. And by April 25th, 2022, the deal was officially announced!
As explained in the official press release:
Under the terms of the agreement, Twitter stockholders will receive $54.20 in cash for each share of Twitter common stock that they own upon closing of the proposed transaction. The purchase price represents a 38% premium to Twitter’s closing stock price on April 1, 2022, which was the last trading day before Mr. Musk disclosed his approximately 9% stake in Twitter.
Bret Taylor, Twitter’s Independent Board Chair, highlighted:
The Twitter Board conducted a thoughtful and comprehensive process to assess Elon’s proposal with a deliberate focus on value, certainty, and financing. The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders.
Parag Agrawal, Twitter’s CEO, highlighted on Twitter
Twitter has a purpose and relevance that impacts the entire world. Deeply proud of our teams and inspired by the work that has never been more important.
The greatest marketer of our times
While for large companies, demand generation can be easily bought. For startups, it’s more complicated because they need to do that with a few resources.
Indeed, spending most of the budget on demand generation is too risky in the short term.
Yet, creating demand for your product is the most important long-term strategy as it will make the difference between selling a commoditized product at no margins instead of a premium-priced product (which gives the business enough resources to keep financing its R&D, marketing, and operations).
However, demand generation can be inexpensive if done correctly. While for massive corporations like Nike, it makes sense to spend all this money on demand generation.
Demand generation can be done at no cost for rising companies and startups. Demand generation can be done cheaply if you think:
- Unconventionally, do things that, for linear thinkers, do not make any sense.
- Obliquely, it doesn’t directly promote your company/product, but the connection there is more subtle. Yet when it gets triggered, it becomes even more powerful than a linear promotion.
- Other-oriented, it’s not about you, your company, or your product. A successful demand generation campaign at no cost is about others. It’s about making them feel special, unique, and part of something.
Let’s use an emphasized example by the master of all PR stunts: Elon Musk (indeed, also the greatest salesman alive).
You need to think obliquely to be good at demand generation at no cost. In short, rather than promoting your product directly, as you would do in a traditional ad, with demand generation, you promote it indirectly through something that is so compelling that will drive attention and money to your main business.
For instance, in 2018, Elon Musk tweeted a video where he handled a flamethrower:
Source: Elon Musk Tweet
Not long after, still in 2018, the company sold 50,000 hats of the boring company:
As of 2021, the Boring company has sold over 20,000 flamethrowers, which as you might imagine, helped finance the core business of Musk’s venture:
At first sight, that doesn’t make any sense. And yet, this unconventional stunt made the company ten million dollars (flamethrowers were selling for $500 each) in revenues that could be reused toward the innovative projects the company is working on.
The flamethrower could be bought for cheaper elsewhere, but those who bought it felt part of something (and indeed could resell it at a much higher price later on, as those were limited pieces).
This, of course, is an extreme example, but you get the idea. Startups can generate demand when they use unconventional marketing tactics (lateral vs. linear thinking), oblique (indirect vs. direct promotion), and centered on making other people feel good about themselves (the iPhone could have never scaled at that premium price if it was only a smartphone).
- Elon Musk has made most of his money by investing in ideas and companies he is passionate about. After PayPal was acquired by eBay, he used his significant stake in the company to fund the creation of SpaceX.
- After initial teething problems, SpaceX grew to become a company with 100 launches on its manifest worth $12 billion. The company has also made Musk money through several multi-billion dollar contracts with NASA.
- Tesla and its rapidly appreciating share price are responsible for a large proportion of Musk’s net worth. A sizeable shareholding combined with an influx of young investors and favorable legislation has seen Musk become one of the richest men on the planet.
Read Also: Tesla Business Model
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