Notes from the video you should have watched. —Brought to you by DataFox
Elon Musk is an incredible entrepreneur. From a young age he believed there were 3 things that would most affect the future of humanity: (1) The Internet, (2) Sustainable Energy, and (3) Space Exploration. He went on to revolutionize every one of those industries. A serial entrepreneur in every sense of the word, Elon has inspired a generation to take on the world’s biggest challenges. The success of Tesla, combined with SpaceX’s out of this world ambition launched Elon firmly into the public spotlight. Today, the smallest tweet from @elonmusk is reason for headlines.
We at DataFox believe in the great value of long form journalism, so today we are bringing you an intriguing PandoMonthly Fireside Chat with Elon Musk, who is co-founder/CEO of Tesla and SpaceX (where he is also Chief Designer), and Chairman of SolarCity. You can also call him Iron Man.
Elon talks about retiring on Mars and not resting until the majority of new cars are fully electric. In that context... a year old video is truly timeless. (PandoMonthly first published the video on 7/17/2012)
Billion Dollar Companies
In the history of the Silicon Valley only two people have started three companies worth over a billion dollars - Jim Clark (with Silicon Graphics, Netscape, and Healtheon - all in the same industry) and Elon Musk, who has arguably started four:
● PayPal (payments) one of the hardest industries to disrupt on the web ● Tesla (automotive) at the time American auto manufacturers are going bankrupt ● SpaceX (rockets) going to space, at a fraction of the cost ● Solar City (solar energy) largest solar utility in the world ○ Could have been named a co-founder, but decided against it ○ Co-founded by Lyndon and Peter Rive (Elon’s cousins)[/vccolumntext][vccolumntext]
The McLaren F1 Incident
Video Link: PandoMonthly
In 1999 Elon bought a one million dollar McLaren F1, which he used for his daily commute and trips between SF to LA. One day on Sand Hill Road, with Peter Thiel in passenger seat on their way to see (Sir) Michael Moritz at Sequoia, an incident happened.
● Elon to Sarah: “lets see how the story you tell compares to the reality, because the reality is pretty messed up" ● The Reality:
Peter to Elon: What can this do? Elon to Peter: Watch this. “I floored it and did a lane change on Sand Hill. The McLaren has no traction control, its massive power to the wheels. 640 horse power and it only weights a ton. It can break the wheels free at 80 mph... so the rear end broke free and it starts spinning. I was going straight, turned, and I remember seeing the cars coming towards me while I was going backward. Then we hit a 45 degree embankment on Sand Hill, which tossed the car in the air like a discus and it kept rotating with about 3 feet of air clearance according to witnesses. Then the car slammed down on the ground going the original direction." The car was not insured.
At a time that everyone thought the web is dead, a lot of people who worked at PayPal were very successful at starting web companies - now known as the PayPal Mafia. See this great interactive map from PandoDaily. Elon prefers to spend his time on industries that don’t see a lot of innovation, and with his share of the proceeds from PayPal’s sale to eBay he finally had the resources to do so.[/vccolumntext][vcrowinner][vccolumninner width="1/1"][vccolumntext]
- Innovation is a byproduct of a lack of new entrants into an industry
- High capital intensive industries don’t see a lot of new entrants (space, automotive)
- Elon's proceeds from PayPal’s were about $180 million - here is how he spent them:
- SpaceX: $100 million
- Tesla: $70 million
- Solar City: $10 million
- At one point he had to borrow money for rent (2008)
The origin for SpaceX started from a conversation with Adeo Ressi, his college housemate and founder/CEO of The Founder Institute. Elon kept thinking that there would be a plan to send people to Mars, the obvious next step after the Moon, but space innovation basically peaked with the Apollo Program. So he decided to do something about it.
● Wanted to send a small greenhouse to Mars as a philanthropic mission, which would demonstrate: ○ The furthest a plant has ever traveled ○ The first life on Mars ○ "Money shot" of a green plant with a red background ○ Goal was to get people excited about Mars and increase NASA's budget
● Traveled to Russia 3 times to buy a couple of the largest ICBMs in the Russian fleet ○ Negotiated a deal... but decided to build the rocket himself ○ "It turns out that Russia is quite a Capitalist society" (implying they wanted too much money)
● Rockets are pretty much out of the comfort zone of most VCs ○ Didn't raise outside funding for SpaceX in the first 3 rounds ○ First questions investors ask are: (1) Tell us one of your prior successes in this field? and (2) What can we compare this to?
● Able to raise a round of funding after the 3rd launch (almost reached orbit) ○ Founders Fund deserves a lot of credit (Peter Thiel)
● The goal of SpaceX is to build the technology that will get people to Mars ○ Important to build a self-sustaining civilization on another planet ○ The Shuttle program was a big mistake (could only get to low earth orbit)
- "The reason why we haven't advanced in space was that the cost of space transportation has become unaffordable."
- "It's become more and more expensive to do less and less in space, and we really need to improve the technology of space transportation, so that's why I started SpaceX."
"Staring Into the Abyss" (2008)
2008 was the most difficult period in Elon’s life. It looked like all of his companies were about to die, SpaceX had its 3rd launch failure in a row, the Tesla financing round fell apart because of the financial crisis (hard to raise money for a startup car company when GM and Chrysler are going bankrupt), and he was going through a very public divorce.
● Needed to make a choice between SpaceX and Tesla ○ “It's like if you have 2 kids, do you spend all your money to maximize the probability of success of one, or do you try to keep both alive?” ○ Decided to allocate all of his remaining assets between SpaceX and Tesla ○ Very real possibility that both companies would still die, and his net-worth would be wiped to zero
● Tesla Financing ○ Committed all of his reserve capital to Tesla, and had to step in as the CEO ○ Closed the round in the last day on the last hour it was possible to do so (Christmas Eve 2008, 6pm) ○ Tesla was a few days away from running out of money and going bankrupt
The Importance of Tesla
Elon thought that the big car companies would start creating electric vehicles, and GM did, with the EV1. But when the federal tax credits changed less favorably, GM recalled all the EV1 and crushed them. That’s when he knew that it would have to be a startup that brought an electric car into the market.
- "To what degree is Tesla serving as a catalyst for the advent of electric vehicles?"
- At some point when most cars manufactured are electric, the catalytic value of Tesla would have been realized, and Elon would no longer need to run the company.
Update: GM is learning.
- The goal of Tesla is to serve as a catalyst for the advent of electric vehicles.
Experience with VCs
Video Link: PandoMonthly
Elon’s advice for raising money from venture capitalists is to optimize for the quality of the investor, not for valuation.
● “If you have a choice between a lower valuation from someone that you really like, or higher valuation from someone you have even a slight question mark on, take the lower valuation” ○ "It's sort of like getting married, although maybe I am not good at that"
● Tesla Series C Round ○ Multiple competing bids - one from Kleiner Perkins, the other from Vantage Point ○ Kleiner offered a $50 million pre money valuation, Vantage Point offered $70 million ○ If John Doerr agreed to join the Tesla board they would have done it at $50 million, but John had too many obligations / another Kleiner partner wanted the deal
● Elon would only do the deal with Kleiner at the lower valuation if John Doerr joined the board ○ Reflecting on that decision, Elon admits that it was probably a mistake ○ Sarah: "and then they did Fisker instead" ○ Elon: "and that was their mistake"[/vccolumntext][vccolumntext]
Differentiation Between Tesla and Other Electric Car Companies
What differentiates Tesla from other electric car companies is that Tesla is a hard-core technology company taking on very serious engineering challenges. Elon goes on to say:
- "You only build value in a company if you're doing tough work to solve hard problems"
- "Tesla does real manufacturing. For the Model S, coils of aluminum and plastic pods come in... and cars come out"
- Tesla did all the vehicle engineering, powertrain engineering, software, styling, design, etc.
- Toyota and Daimler (Mercedes) buy electric powertrains from Tesla
- "If this was easy, they would just do it themselves”
- "Tesla will be an extremely valuable company in the long term"
If Elon Musk Started Another Company…
Although he is a bit preoccupied at the moment running SpaceX and Tesla, while also being a father to 5 kids (twins and triplets), Elon can’t help but think through an idea that could improve the world around him. Here are the four ideas he could see himself working on in the future, but not any time soon!
(1) Supersonic Electric Jet
● Elon wants to build a vertical takeoff and landing supersonic electric jet
● Disappointed to see the Concord retired - was a step back for air travel / technology improved dramatically since the 1960’s (when it was designed)
● An electric aircraft gets better the higher you go (reduced air density), where's a combustion engine does not (starving for oxygen) ○ "You can get super efficient and super fast with an electric aircraft"
● Vertical takeoff and landing works well with being supersonic
● Possible that Elon may work on an electric supersonic aircraft at some point in the future, but not any time soon ○ "Between SpaceX and Tesla I kind of have the ingredients, so it's very tempting”
(2) Pre-Fabricated Double Decker Highway
● Significantly improve traffic by having pre-fabricated double decker highways
● Placing a steel box over the center divider with a lane on the inside and a lane on top that's made out of prefabricated sections
● “I think you could make fusion work, and by that I mean, magnetic confinement fusion, or relatively standard fusion"
● Hyperloop could be a 5th mode of transport
● Idea for the Hyperloop came from the California "high speed" rail project that has the distinction of being the slowest bullet train and the most expensive per mile ($60 billion dollars to go from SF to LA)
What are the attributes that you would want in a new mode of transport?
- Can never crash
- Immune to weather
- 3x or 4x faster than the current bullet train (or twice the speed of an aircraft)
- Downtown LA to Downtown SF in under 30 minutes
- Cost less than any other mode of transport
- Self powering (solar), with a way to store the power without the use of batteries
Update: Elon released the Hyperloop design on 8/12/13[/vccolumntext][vccolumntext]From Q&A
Hydrogen Fuel Cells
● "The math is so super obviously in favor of batteries that it's like staring facts in the face and saying they are not true"
● “If you take the best case scenario for a fully optimized fuel cell and see how it compares to current lithium ion batteries in production, it loses. Success is not one of the possible outcomes.”
● At Tesla they used to call fuel cells "fools’ cells”
● According to the auto manufactures... fuel cells are the technology of the future (a future that’s always 10 years away)
The Capital Markets
● Elon finds the public markets to be an effective source of capital
● "Worked out well for Tesla, Solar City will probably go public later this year (2012), and SpaceX could go public at any point - SpaceX has been cash flow positive for a few years so it doesn't really need additional capital”
● Doesn't consider the additional public company regulatory requirements to be a problem (already has the proper controls and effective governance in place)
● "Not that bad to be a public company, unless you are going to get very concerned with the daily fluctuations of the stock price - you shouldn't worry about the daily fluctuations of the stock price too much"
SpaceX's Plans of Going to Mars
SpaceX is continuing to develop the technology that at some point will be at the level required to get us to Mars:
- "We can conceivably be at Mars around 15 years from now" (by 2027)
- Developed a system that could achieve Mars colonization (on paper)
- Concluded only 2 years ago that it is possible to create a self sustaining civilization on Mars
- Far from having that system exist in reality (first we have to be able to get there)
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