Tesla Will Struggle To Raise Money Without Elon: Kudla (Podcast)

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Tesla definitely on the forefront of people's minds this morning after the SEC sued Elon Musk for misleading the world frankly, but particularly the markets when he said that he was going to take Tesla private for four d and twenty dollars share, saying that funding was secured when in reality it wasn't. Shares now of Tesla down by eleven percent,

so definitely seeing a big fall there. David Cutla is founder and chief executive officer and chief investment strategist of Mainstay Capital. David, you're joining us now, you've embarished on Tesla all along. What's your take on this? What are the declines really stemming from here? Well, the declines today

or something from the lawsuit by the SEC yesterday announced. Uh, just four or five minutes after the close, and we saw what happened after hours trading, and of course what's happening in UH in trading today and UH, you know this is a big problem for Elon Muskin for Tesla obviously, David could lad do you ever look at used or pre owned car prices when it comes to Tesla? Yes, And I was looking, for example, at how they hold their value and they don't seem to do so is

that concerning? I think it should be concerning, UH And I think it's interesting too, UH that that they don't hold their value as someone might expect. But I think Tesla's concerned primary concern right now, they've got some more media issues with their UH cash position, you know they're there.

Will they be able to remain solvent? UH, their production problems, their quality problems, their service center problems, UM, and you know, just the metrics that they're trying to to hit as we go forward here over the coming weeks, months and a couple of quarters. Yeah. I mean, David to follow up on that when I asked, you know, why are

the shares falling? Is it because there is a feeling that Elon Musk might be kicked out of the position of chief executive officer and what that might mean for the company, both from a capital raising standpoint as well as directional standpoint. Is it because of concerns of fines that are going to potentially reduce their capital position further? Where's the risk here? Well, it's I think there's a couple of rests. So Uh, first it's that that, uh,

this is an overhang for the company. Um, there was an opportunity where this could have been there as a settlement in front of Elon Musk in the board on this, and h Elon Musk in his in his way, uh, decided to push back and fight it. So now there is you know, obviously a risk to shareholders as as we've seen today. Uh, there will be a risk in being able to raise capital and the risk of Elon Musk future with the company because he could be barred

from being a director officer of a public company. And that's problematic because you know, there's been estimates that there's a hundred dollars or a hundred and twenty dollars or a hundred forty dollars in the price of Tesla stock as Elon Musk premium. And look, he is a genius inventor visionary. You can obviously his his mission is admirable. And the people the you know, it's almost a cult following.

You know, the people that are the customers that are there at the delivery center, you know, uh respect they're going to a wedding receiving their vehicles. There is a loyal following. And if Ellen is gone or is forced to be gone from the company, uh, you know, there are analysts out there saying, well, that could be good because of his erratic behavior and there needs to be

an adult in the room running the company. The flip side of that is what Tesla has going for it is is very loyal following who has given Elon Musk and Tesla a lot of passes on broken promises, milestones that haven't been met, cars that are not good quality by a typical standards in the industry. And those people, when Elon is gone, they look at Tesla and site Tesla's Elon and Elon is Tesla and Elon we trust and Elon is gone, they lose that that I think

they lose a lot. And you know, PIM to David's point, there are a number of analysts from JP Morgan and UBS at a number of other big firms, saying that they are concerned that without Elon Musk at the top, Tesla is going to really struggle to raise money. And this is a problem because they're running out of cash

right They're burning they're burning cash. David, could do you have any thoughts on the speed with which this action by the Securities and Exchange Commission has been brought after learning that Mr Musk decided to not go along with a settlement. Well, it's it's um you know, when we look at it, and you know, we were on Bloomberg talking about it that week, it was it just was pretty obvious when you looked at the circumstances very quickly

that it there just wasn't a deal there. And then as more facts came out, it became, I think quite apparent to a lot of people that, um, this had a lot of the elements of what could be called stock manipulating or fraud. And I think the SEC knows they have an open and shut case. They wasn't. Did you hear the report for example that the reason that I think it was I can't remember whether it was in the journal at the times, but I mean even in our reporting that uh, he's selected the actual dollar

amount of four God, just tell that story. That's it.

And it was and it was I don't want to say amusing, but unusual that it was actually in the complaint that the SEC stated that he uh added premium to the stock price the time came up with about for nineteen rounded up to because of the reference to marijuana that that has and that his girlfriend would think that was funny and that and that's not me, No, No, that's the SEC indeed plane and which is unusual but interesting, and I think they wanted to point that out as

a flip at attitude about everything. And that's that's what that's what's key here that we got David. We gotta leave it there. Thank you very much for joining us. David Coudla, chief executive, chief investment strategist, Mainstake Capital Management. You're listening to Bloomberg. John Chambers he is perhaps best known as being the chairman and the chief executive former chairman and chief executive of Cisco. He began his career

in technology sales at IBM. He also worked for Wang Laboratories before joining Cisco, and he joins US now as the author of a new book entitled Connecting the Dots Lessons for Leadership in a Startup World. John Chambers, thanks very much for being with us, dam and Lisa. It's going to be a lot of fun and look forward

to our conversation. Well, I just want to give full disclosure that I first met John Chambers at a diner in Silicon Valley with another gentleman named Eric ben Hammou and he at that time was running a company called three Calm. And we know what happened to three Calm, which is it doesn't exist necessarily in its form anymore. Cisco,

on the other hand, went on to bigger and better things. John, maybe you could tell us why you wrote the book and why you believe that startups really demand a different level of attention, and how you ran Cisco as a startup really until you left. Well, thank you, Pim, and I very much remember that conversation because Eric is an excellent CEO and what it talks about, and I decided to right to book. Originally, I don't like writing. I'm dyslexic.

It is really hard to do. But I kept getting the same questions as I talked to startups around the world. I'm now which a C two ventures and where you've invested in sixteen startups globally and focus very much on how do you scale and grow companies? And I decided to write the book because I kept hearing these same questions from the startups. It didn't matter if you in Dubai,

New Delhi, Silicon Valley, West Virginia. The startupe e O s had the same type of issues and challenges, which were how to scale their company, how do you grow, when do you decide to hire people, how you deal with your challenges and your setbacks. And I love teaching and that's what I love doing, perhaps most of all, is building teams. So the lessons is very simple. I like to share those. You're in a period where you grow, you die, you disrupt, you get disrupted, you catch business

and technology trends at the same time. And Eric was a really good competitor, unfortunately, but we had probably five or six really tough, big competitors. Five or six companies are sized like Free Calm and Wealth Fleet in sent Optics,

and then a whole bunch of startups. What allowed us to break away was acting like a startup all the way, going from four people when I joined Cisco to seventy five thousand and to be reinvent ourselves again and again, and to learn that setbacks, while you wish you could avoid them, actually make you stronger as you move forward. So sharing, that's what I'm after, And I've had the opportunity to be in the front row seat and sometimes in the middle of the playing field as I walk.

These transitions occur in my home state of West Virginia, in Boston, which used to be the Silicon Valley of the world, as mainframe computers IBM, many computers think wang Deck data, general PC players now the Internet now moving to digitization. So I've seen the movie, I have the scars. I've done some things right and we have made some mistakes. And I've quired a hundred day companies, so i know

what it's like the scale companies. So, John, given that vast experience, and given the fact that you're currently looking for startups that are worthy of your investment, how well positioned is the US in the fight for you know, future dominance, not only over technology but in general with its startup culture. Uh. At least I think you've asked the major takeaway. I hope people get from the book. We think of ourselves as the innovation nation. We are

not and interesting us. The Bloomberg Index on Innovation doesn't have us in the top ten countries anymore. We think with the startup nation of the world. That was true in the nineties and two thousands, and we used to get a venture capital into our country and twenty years ago, then ten years ago, eighty. Today it's fifty. And if you watch, we're almost to the twenty year low in terms of startups I e H. Versus where we were

UH two decades ago. The number of I p o s and you guys know this very well, Lisa is UH at a very low level compared to where it was in the nineties. Were excited about doing two and thirty I p o S in the New York Stock Exchange the NASDAQ this year, and it's up slightly from the high in one eighties last year. But we did four hundred to five hundred per year in the nineties.

If you're going to generate twenty five to thirty million jobs over the next decade, and if you combine with that a requirement to generate another twenty million plus because digitization, automation artificial intelligence will destroy twenty to thirty million jobs, probably a third percent of our workforce if we don't get the startup engine going again and we're too complacent. One of the things I point out in the book

is the worst thing you can do. The worst thing you can do is keep doing the right thing too long, and that's what gets companies into trouble. And countries like France that you view and Pam you would have viewed three or four years ago, is the worst place to

do a startup. Have moved to the best place in Europe, going from a hundred and forty high tech startup venture backs per year to seven d and four years John, I just wonder if you could offer your thoughts about one of the various numbers of points that you make in the book about vision and strategy and so on.

But I thought that one particularly geographic proximity to headquarters or key operational centers, that's like real information you can use it is Originally I thought at at Cisco, we were building the Internet and we were changing the ways the world works. Has learned some place, and I thought you could have a company that has people everywhere and function just as good as one that had everybody's headquarters.

I was wrong. You've got to have economic centers where you can move your teams around as one product does better or another product does not, as you promote people from one function to another. And in this new startup world, Uh, if you watch what is happening, we're not just not doing the number of startups we should. In this country. It's almost all Northeast Coast, almost all Silicon Valley, and almost all Texas. We need to bring that across the

heartland of America and down to the southeast. So my view is that we need to locate startups at these hubs with universities and pick one or two universities per state and make all fifty state startups because that's where the job creation is going to occur. The big companies in total will not add head count uh this next decade. John Chambers, thank you so much. Unfortunately we have to leave it there. We can talk with you all afternoon.

We'd love to. John Chambers, former executive chairman and chief executive officer of Cisco, now is the founder CEO of j C two Ventures in Palo Alto, California, and the author of a new book connecting the dots lessons for leadership in a startup world. Indeed, Tesla's founder and charismatic chief executive, Elon Musk, was slapped with a lawsuit from the SEC saying that he was engaged in securities manipulation

with his for twenty dollars a share tweet. He said that funding was secured to go private, it was not. Joining us now, John Wilson had a research and corporate governance at Quarterstone Capital Group in New York. Joining us here in studios, John, I'd love to get your perspective in terms of the corporate governance aspect of this, in terms of what the board should have done and what the liability is of having one charismatic leader who is

somewhat unhinged. Well, that's a great that's a great couple of questions, and I think they'll take the second one first. Right, this is a company that you when you invest in this company, you are investing in one person, really, right, because this is a company. It's a car company, but it has trouble making cars sometimes. Right, it's deep in

debt um. It's signature product, the electric car is less and less a novelty every day, Right, as other manufacturers are coming up with their own lines, and so what are we investing. We're investing in the charism of this one individual and the fact that he's such a fan following all over the world. People want these cars in part because of his persona, and as it starts to flag, then you have to ask yourself, Okay, I need to take a step back, ask the question is what am

I investing in? Is this a company that can grow beyond? And this is what your your point about the founder's syndrome, essentially is can we grow beyond this one individual to create a sustainable going concern that can actually sustain itself over the long term. At this point, especially given their management troubles, seems hard to imagine how they're going to

do that. Now, you've written obviously not just about Tesla, but a variety of companies, and you also speak about how companies are not nimble enough when it comes to these issues. Could you just explain that, well, UM, a lot of companies have blind spots right about a lot of different cultural and social issues that they're facing. Right.

This is something that we look at when leaders UM are not in touch with what there are other stakeholders are talking about this can become a huge problem for companies. And one issue I think that pr on people's minds right now is the question of sexual and gender based violence. Right It's not quite the same thing as what TESLA is facing at the moment, but it's another cultural issue and an issue of leadership. I think, going back a year or so, if you had asked folks, are you

for or against sexual harassment? I think you would have pretty much found everyone to say they were against it. And yet, and yet, so many of these companies UM found themselves facing allegations, credible allegations of cultures of sexual harass but not just individual incidents, but whole ultures of

sexual harassment UM and really being surprised by this. And that was what I talked about, by not being nimble, not being aware of what's going on in your company or with its customers, its employees, its suppliers, and it prevents you from acting and it leads to surprises when you hear things in the news. All right, So you know you raised sort of a question. Not to conflate sexual harassment with securities manipulation, charges that the sec is

is going after Elon Musk. For there is though a question about the board here with Tesla as well as as you said, in terms of what their role ought to be in setting a culture that is conducive to a lot of different points of view. And so I'm wondering if you could just speak about Tesla, I mean, where is the responsibility for their board? Well, here's the problem. So this is this is an issue that we sometimes talk about, which is that corporate governance doesn't matter until

it does right. In other words, what I'm saying is that people have known for a long time the Tesla's board is a problem that many of the people on Tesla's board on have real close relationships to to Elon Musk. There there are members of the board who are part of Solar City, which then they purchased, which he also owned um And what we're finding out also right now is that there is no one with CEO level leadership skills on the board who could take over if see,

if he leaves. So these are all issues that we knew about, but Tesla stock continued to rise because of of Elon Musk. Suddenly he's a problem, and we're looking to the board and recognizing its inability to deal with the crisis. Alright, So you deal with a lot of boards, and you deal with a lot of companies. Do you feel like there is a critical mass of boards that recognize their role in setting up culture and can you give us a sense of what it takes for them

to play an active role in that. So I think that there are I don't want to I think that what we were seeing here is a is a problem of some boards, and I think there are other boards that are really trying to figure out, you know, what the right way to go is. But we're dealing with

new sets of issues all the time. There is a much greater awareness of the kinds of cultural issues that are going on all through you know, different companies, right, not just Tesla, but you know, relating to sexual and gender based violence, relating to racial equality, inequality of you know, um of income and so forth. And and the problem what boards need to do is they need to start to make themselves more aware of what their employees, their

their suppliers, their customers are thinking about them. I think there's too much in celerity on boards. There's there's not enough turnover on board. This is one governance issue that we talk about a lot is that Here's an interesting fact. Most of the majority of board members coming onto boards these days are members women are members of minority groups. However, board turnover is so low that the number of women total, the total women and minorities, is still less than thirty percent.

And so the problem is entrenched board members, a culture where boards are recycling themselves and you need new blood in order to understand what the issues that are emerging for companies are. We're speaking with John Wilson. He is the head of research and corporate Governance at Cornerstone Capital Group. John, is there any connection in your mind between the performance of a corporate culture and the performance of a stock In other words, can you make decent investment decisions? Perhaps

starting with the corporate governance issue? What I would say is, and one of the reasons why this is a challenge for investors is that cultural issues tend to be longer term. As I said before, they tend to not matter until they do. And uh, you know, the example of Nike is a great one where they lost a lot of talent all of a sudden because of issues of sexual

harassment in the company. And so if I, if I was an investor UM looking at a long term investment in a company, UM, I would definitely take corporate governance into account. Now that may, you know, not affect my short term decisions about market sentiment and and so forth, but if I'm not aware of the cultural and governance issues, then I'm opening myself up to risk over the long term,

you know. Just real quick here, I'm struck by what someone once told me that you have one charismatic leader who the whole company hinges on, that company is more likely to experience fraud. Just real quick. Has that been

your experience as well? UM? Yes, I think that's right, because if you have, if you are all about that one person, then other people tend to operate first of all without being um without accountability, right without transparency, and so they sort of get the mindset of impunity, if you will. And I think that can happen both for other executives at the company and for the charismatic founder who may sort of begin to see themselves as invulnerable,

and so that can happen. Thanks very much for being with us. John Wilson, head of Research and corporate Governance at Cornerstone Capital Group, talking about the connection between corporate governance, investments, and corporate performance. We are broadcasting live from the Bloomberg Interactive at Broker's studio is getting close to lunchtime in New York, so we want to talk about food, UH

and PAYM. We're very lucky we're joined by the co founders of AXL Foods, which is a quickly growing venture capital firm. Looking at what we're going to be snacking on next, it will actually be good for us. We have, luckily Lauren Jupiter and Jordan's gas Bar here in our eleven three oh studios. So Lauren, I want to start with you, what is AXL Foods? Uh? First of all things for for having us, We are a venture capital

fund focused on packaged food and beverage companies. So we invest in the newest, you know, the healthiest foods out there, um and and most delicious fods out there, but really companies ranging from start up all the way to sixty plus million of revenue and partner with them and really help them of where the pit as along the way.

Jordan's maybe you could speak to the issue that there are so many very large food companies and I'm thinking of dan On and Campbell soup and you know why that are looking to expand their business, but either they don't know how to do it in today's environment or they're too big to take chances on things. And I'm wondering if you could speak to that and how you help them in those roles. Absolutely, so we we are

very familiar obviously with both of those organizations. UM. What we're finding right now in the climate is that you know, large strategics are looking to either buy or invest in innovation. So there's a record amount of capital coming into the industry and it's a lot of the corpors that we're talking about, the COKEX, the pepsis that are driving a

lot of interest UM. They're coming down earlier in the market, they're making investments in small brands, they're putting resources to work UM and everything UM from direct partnerships with specific small companies that they get excited about to partnering with funds. You know, obviously we have a pretty public partnership with donone UM. You know, in in particular, it's not just

happening though with those organizations. We're seeing the retailers also activate and so UM there's more and more shelf space that's becoming available from the largest retailers in the world, including Costco and Walmart and Kroger UM. So it's across the board. What we're seeing is is that big food is getting very interested in the small guys. So, Lauren, what does innovation mean in the food space right now?

Considering the fact that you definitely have a packaging innovation to make people feel like you're getting something healthier versus trying to make that ice cream that you eat actually have zero calories and lots of protein and save your life and have no problems. So we think about innovation and what we actually called challenger brands in a variety of ways. So it can be the product, it can

be the ingredient profile. UM. You know, as an example, we have a product in our portfolio called for Sigmatic, which makes mushroom based coffees and powdered beverages, and that is an innovative ingredient profile. Innovation can also come in marketing and packaging and how that product is sort of delivered and communicated to the consumer. UM. And then the third step we sort of look at is innovation in terms of distribution and channel strategy. So we're seeing more

and more brands look at direct to consumer. We're looking at more brands look at disrupting the office space and going to direct a consumer in that capacity, and so we think about it really in those three buckets, Product, marketing, and distribution. Jordan's you are described as a reformed corporate lawyer, but also you are the kids snack Taste tests are correct, that's your official title. Okay, um One of the companies I believe that you've got something to do with is

uh kid Fresh. Tell us about that and maybe use it as example how you found it and what your role ends up being. Where we are thrilled to talk about kids Fresh. So something that's important to understand is that Lauren and I are the proud moms of four kids eating under and so it's a big part of our thesis is that we are investing in the companies that we are actually putting on the table for our kids.

And it's a big part of our philosophy is that the grocery store is going to look fundamentally different, and so we're really putting our money where our kids mouths are. You know, for lack of a better phrase, UM kid Fresh was a company we came across in two thousand sixteen.

They were in the market and had great traction. It's a New York based brand that is a better for you frozen kids platform that's really geared towards UM introducing hidden vegetables and sort of reinventing traditional favorites like mac and cheese and you know, chicken fingers and fish sticks

and things like that. UM at the time of our investment, you know, Matt Cohen, the founder, had really sort of gotten some great traction, and just as we were investing, he happened to pick up a national partnership with Walmart to complement his target and Kroger and our hold business. So we really enjoyed kind of working with Matt over

the past two years. Is he's been scaling really quickly, and UM certainly has found himself in a great position right now where everyone's thinking out innovation and kids platforms and who's going to be sort of the the going forward leader, and frozen is obviously one of the hottest categories now, but it's also in you know, these are traditional foods that people you know all across America are eating.

This is just a better for you version, and I will say as a working mother myself of two young children, one of the big challenges is making sure that you actually have something on the table at night. I mean, I'm sorry, but it's much more basic than just having something healthy sometimes. And it's not just in frozen meal solutions.

Right Also, we're investing heavily into kids beverages. We think that right now is the time it's right for innovation on shelf where we just made a big investment into a kid's water play, you know, and for us, it's a boxed water that's almost like it's an essence water for kids, and so it was launching ten thousand doors this summer, and it's an alternative to some of the you know, sort of more traditional players that we've seen,

like the Capri Sons in the market. But you know, for us, the idea that we're now going to have an offering for kids where it's a no sugar alternative is you know, pretty powerful. I was definitely the bad mom who brought Capri son for a snack, So I'm going to confess my guilty, Laura. I do want to just get your thoughts on when you have a smaller company scaling up in food businesses is traditionally very difficult.

How do you help with that? So, you know, we think about ourselves as dot connectors and what we like to do is help connect the dots for these brands between the resources they need in the industry. It's the relationships. It's the retailers, the distributors, the strategics who may someday beut their exit partners, and we create those relationships early and deeply as these brands grow. Um. But that being said, I think there's more and more um sort of resources

out there for brands to scale up. A lot of them are working with outsource manufacturers, co packers, and there's a lot of support from the retailers out there who are looking to bring these innovative products to shelf. And so it's a very exciting time I think to be

a food entrepreneur. And you know, not to mention how receptive I think consumers are today to to new healthy brands, just quickly, Jordan, give you about what is the biggest thing that you've learned working together, about the whole process of investing and then seeing it through the production. And so it's a wild ride. Um. I think that you

know and for us. Lauren and I are are entrepreneurs ourselves, and you know, we look at Excel we started only a couple of years ago and things have changed dramatically over the past couple of years. UM, it's really important to have have people around you that challenge you and make you think critically about your business, but also UM to really be able to rely on that you trust them. And so we think of ourselves as a partner for our founders, that it's a real brain trust and you know,

it's it's a different type of partnership. All right, We've got to leave it there, but I want to thank you both very much. Jordan's gas Bar, managing partner and Lauren Jupiter, co founder and managing partner of the venture capital fund Excel Foods. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm

on Twitter at Lisa Abramo wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.