Three counterintuitive 2023 predictions about Musk, SFB and even Kraft • businessroundups.org

Bradley Tusk — who spent his early career in Democratic politics and later became a consultant and lobbyist for private companies battling regulators — today spends much of his time as a venture capitalist. But while Tusk is a generalist, he insists he’s not interested in just any startup; his expertise, he says, is at the intersection of technology and regulation, and his company adds the most value to startups in industries where changing regulations will undoubtedly change the scale of the opportunities they pursue.

As a service to Tusk Ventures’ current portfolio — and a sort of calling card for potential founders — Tusk each year lists some thoughts on the changes he sees coming over the next 12 months. Because in hindsight he was often right, we hopped for a call with him late last week to discuss some of his many predictions for 2023, and these three in particular caught our eye, so we thought we’d share them here.

1) Big CPG brands start selling cannabis products, wiping out many cannabis startups that have been operating in the relative shadows. Here’s Tusk discussing why:

Big brands [sell] all the time alcohol and cannabis, many people would argue, is a less harmful substance than alcohol. We have a real divide between almost two-thirds of the states and the federal government where cannabis is legal recreationally and medicinally. Still, it’s on scheduling 1 at the DEA [along with] heroin and meth and cocaine. . . which really makes no sense, especially as states continue to fully legalize it.

President Biden said, “Let’s remove this from Schedule 1.” Once that happens, all kinds of interstate commerce will suddenly arise that have not been allowed until now. So you’ll be able to have real banking, trucking van [plants] across state lines, advertising. . . All the things that a normal, really big company — a Kraft or Unilever and Anheuser-Busch or Philip Morris — might be doing, they can’t really do under the current system, but once federal restrictions are loosened, suddenly it’s going open to them.

A [question I’ve asked cannabis founders over the years is] how are they going to compete with Unilever? Why would Unilever choose to buy them instead of just burying them? And usually the answer is that they can’t [compete]. They’re really just racing against time, hoping that the federal government isn’t really doing the right thing. But I think once cannabis goes off schedule 1, and I don’t know if it happens in six months or two years, big companies will come into play [because] there is money to be made. And many cannabis startups that were highly valued or overvalued or traded at very high multiples on the Canadian stock exchange will feel a lot of pain.

2) Instead of driving further crypto regulation, Sam Bankman-Fried and the abrupt implosion of FTX ultimately play a minor role in new regulations being passed (although Tusk is doing think we will see more regulation at the state and federal level in the next 12 months). Here’s Tusk:

When the detonation of the FTX thing started, my take was, ‘Okay, this is going to lead to some really harsh crypto regulation that’s going to be bad for the industry, because SEC Chief Gary Gensler has been pushing for this for a while. for a long time and it hasn’t happened yet because crypto is very popular with a lot of real people.” I thought FTX would give him the cover to act very aggressively against the industry as a whole.

In a weird way since then, as the story gets crazier and crazier and more and more like Sam Bankman-Fried was just a criminal mastermind who scammed people out of tens of billions of dollars and [that this debacle] is not necessarily something specifically related to crypto, it actually shifts the argument again. It [shifts from], ‘This whole industry is out of control’ to ‘this person was out of control’. It’s gotten almost 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 for it. . .

What Musk did aligns with things we see now in the cultural zeitgeist, which is in this world with 24/7 media attention and social media activity, the people who really need attention and can’t get enough of it. has to keep doing more and more outrageous things to try to get it right. We saw that with Donald Trump. We saw that with Kanye West. And the main reason Musk bought Twitter is so that people would talk about him, just like we do now. From that point of view, I suspect he achieved his goal.

What worries me for him is that if you look at the market cap of, say, Tesla, it’s significantly higher than that of Toyota or General Motors, companies that sell a lot more cars. Tesla makes a great car and they’re growing and it’s fine for them to lean into the future. But the difference between what [Tesla] probably should be appreciated and where it is appreciated is that Elon Musk hype and pixie dust. He managed to create such an image that he’s so far in the future and so much better than everyone else that really drives retail investment into stock. The same goes for SpaceX. While that’s still a private company, I saw a piece yesterday that said it’s now valued at $140 billion, [yet] there’s no way SpaceX could be [worth] $140 billion given the revenue. So his genius in some ways is that he manages to create the perception that what he’s doing is so innovative and so unique, and that only he can do it; it drives massive amounts of value and investment into its businesses.

The really big risk with Twitter is that every time it does something very well-known and public, it puts that reputation on the line. He took over Twitter, which no one ever thought of how to become a successful business, and now it’s in his hands. And so far the ideas he’s put out don’t sound all that new or interesting to me; they feel like variations of things people have done before in different ways. And if he doesn’t succeed with Twitter, the question is will it pop the balloon for Tesla, and SpaceX and all his other projects? He may have paid $44 billion for Twitter, but it could end up costing him $100 billion or more if there’s a risk that Tesla and SpaceX and other companies he owns will lose value because he’s exposed as a mere mortal.

. . . and no, it doesn’t create great opportunities for startups looking to capitalize on the chaos on Twitter, according to Tusk. More here:

There just isn’t a great revenue model for any of this to begin with. To make matters worse, I still think there is ultimately a risk that section 230 of the Telecommunications Decency Act will be amended or repealed. Right now it releases platforms from liability for user posted content, so I can defame you on Twitter, and you could sue me personally, but you can’t sue Twitter. And as a result, Twitter, Facebook, all platforms, their real economic driver is to move into negative and toxic content, because as much as we hate it, it drives eyeballs and clicks thus driving up ad rates and revenue. So the platforms’ lack of accountability is essentially creating a world where the internet should be as toxic and horrific as possible.

But if [we repeal] Section 230 it’s going to be a lot like what happened to the tobacco companies in the 80’s where they suddenly found themselves vulnerable to lawsuits and started receiving them multibillion dollar verdictsand as a result, they felt real economic pain and finally had to get to grips with their [marketing practices] because it cost them more money than usual. Right now, Facebook is paying the small fines it gets from the FCC because they end up making so much money off negative content. Repeal of Article 230 would change that.