Tiger, Tesla, Trillions And Tantrums

Something has changed. Elon Musk’s personal wealth of $250 billion just surpassed the market value of the 130 year old Coca-Cola Company. Think Coke is a bit retro? How about Covid vaccine discovery hero, Pfizer? Yep, Elon beats saving humanity too. Welcome to the trillion dollar world of Tesla where manufacturing 2% of the world’s cars generates a higher market valuation than all the other auto companies and their 98% market share combined. For those who have spent considerable parts of their careers looking at equity valuation models, fundamentals and competition, a few Tesla tantrums in recent months would be understandable. Staggeringly, Tesla has added $900 billion to its valuation since April 2020 which also equates to a 900% return through the entire 18 months of Covid-19. Crazy, maybe. However, today we are going to focus on transition rather than tantrums.

Change has been the critical prompt for almost everything I write so why introduce the concept of transition? I think the short answer, without the mindfulness, is that there is a psychological element to what is going on right now in financial markets, venture capital and business itself. The world has experienced a traumatic pandemic event where no country, class or age group was spared daily living impacts. Pandemic vaccines and recovery have been a catalyst for more optimistic behaviour or possibly more than that…. Some might sneer at the YOLO (you-only-live-once) creed in the crypto trading world but explain the following in many developed economies:

  • Stock markets at all-time highs
  • Home prices at all-time highs
  • Salaries at all-time highs
  • Quit rates/resignations at record highs
  • Price expectations/inflation at all-time highs
  • Digital assets at all-time highs
  • Job vacancies at all-time highs

The mood music is clearly not subdued. Moving away from buoyant mainstream financial assets, it is not just options trading in Tesla( $16 billion of option premia paid in one day this week!) which are signalling confidence. Real world behaviours are telling the same story. Check out the explosion of funding for fintech companies and then look at the real hot spot in the sector. Have you seen the ‘BNPL’ acronym yet? That’s ‘buy now, pay later’ for those still bemoaning the loss of a local bank branch presence. Klarna is Europe’s most valuable private tech company and is one of many BNPL platforms extending short term credit to consumers. Now Stripe has entered into a strategic partnership with Klarna to accelerate ‘finance-as-a-service’ in the retail sector and get this, PayPal took a serious look at buying Pinterest! Things are moving so fast the option of employing a ‘wait and see’ strategy may not be open to companies in certain financial sectors.

Consider the world of venture capital(VC) and its traditional model of deploying a fund’s capital over a period of years. Now think again. I have referenced the www.notboring.co newsletter previously on crypto themes but they recently raised a small fund of circa $8 million to invest in start ups. That was in Q2 when they did 20 investments. In Q3 they trebled the pace and did 60 investments! So, the original $8 million fund has, in effect, been deployed in just 2 quarters with the average investment being in the region of $100,000. Tiger Global is doing 3 deals every two days(yes!) and has just raised another $8.8 billion. The Tiger “edge” is sheer speed, and they are prepared to accept a higher price/lower return from start-up founders to speed up execution. Clearly, this gives Tiger access to the hottest deals and poses a major problem for your average VC fund who has relatively little to offer on brand/influence, price or ticket size. Think Tesla tantrums and mutiply lots to get a sense of current VC angst!

The speed of psychological shift in the consumer credit and venture capital worlds might surprise but this writer senses the biggest surprise is to come. Facebook will be in the headlines this week for lots of reasons but there is a far bigger existential crisis brewing for Web 2.0 tech giants like Google, Twitter and Facebook. Only a tiny portion of creators and content generators earned incomes on Web 2.0 social media platforms. The centralised nature of the technology gave the power to big tech platforms. Not so Web3. Blockchain technology, digital currencies and decentralised finance(DeFi) are shifting the balance of power towards creators. One can’t help noticing the velocity of deal-making picking up rapidly in recent weeks with the following developments, in particular, catching the eye…

  • BlockFi to launch new product suite with $420 billion private wealth firm, Neuberger Berman.
  • Facebook to invest $10 billion in metaverse.
  • Citi announces crypto infrastructure plans.
  • Bakkt share price trebles after Mastercard announces partnership to support crypto payments for merchants.
  • Favoured NFT blockchain, Solana, market cap has increased 6-fold in 6 months to $65 billion.

The Web3 ecosystem is building rapidly and Elon Musk might be the ‘transition’ clue – a creator of rockets, cars, batteries and internet satellites who used his own manufacturing platforms and built a $250 billion fortune from the industrial economy. Now think of the combined $5 trillion market value of Apple, Facebook and Google and a potential wealth shift to creators. Could 20% go to just one individual and create a trillionaire? Who knows, but we do know Coca-Cola delivers 2 billion physical servings of its iconic drink every single day. Now think of the profit margins on 2 billion daily digital servings. We are not there yet but Web3 will ultimately grow into a once famous slogan– “It’s the Real Thing”.

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