February 3, 2023

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Three counterintuitive predictions for 2023 about Musk, SFB and even Kraft • TechCrunch

Bradley Tusk — who spent his early career in Democratic politics and later became a consultant and lobbyist for private companies battling regulators — now 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, lies at the intersection of technology and regulation, and his firm provides the most value for startups in sectors where changing regulations are bound to change the scale of the opportunities they chase.

As a service to Tusk Ventures’ current portfolio — and a calling card of sorts to potential founders — each year Tusk compiles some thoughts on the changes he sees coming over the next 12 months. As he has often been proven correct in hindsight, we caught up with him on the phone late last week to discuss some of his many predictions for 2023 and these three caught our eye in particular so we thought we’d share them here.

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

Big Brands [sell] Alcohol all the time and cannabis, many people would argue, is a less harmful substance than alcohol. We have this real disconnect between nearly two-thirds of the states and the federal government where recreational and medical cannabis is legal. And yet it’s Schedule 1 at the DEA [along with] heroin and meth and cocaine. . . which really doesn’t make much sense, especially since states keep legalizing it fully.

President Biden has said, “Let’s remove that from Schedule 1.” Once that happens, all kinds of interstate commerce that weren’t previously allowed will suddenly open up. So you’ll be able to do real banking, or trucking [plants] across state lines, advertising . . . All the things that a normal, really big company could do — a Kraft or Unilever and Anheuser-Busch or Philip Morris — they can’t really do under the current system, but once the federal restrictions are relaxed, then all of a sudden it opens up herself for her.

On [question I’ve asked cannabis founders over the years is] How will they compete with Unilever? Why would Unilever choose to buy them rather than just bury them? And most of the time the answer is that they can’t [compete]. They’re really just running against the clock and hoping the federal government isn’t actually doing the right thing. But I think once cannabis is removed from Schedule 1, and I don’t know if that’s going to happen 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, overvalued, or that traded at really high multiples on the Canadian stock exchange will feel great pain.

2) Instead of pushing crypto regulation further, Sam Bankman-Fried and the abrupt implosion of FTX actually plays a minor role in any new regulations that are enacted (although Tusk believes we will see more state and federal regulations in the next few 12 months). Here’s Tusk:

When the FTX thing started to explode, my take was, “Okay, this is going to result in a lot of very tight crypto regulation, which is going to be bad for the sector because SEC chief Gary Gensler has been pushing for this for a long time and it still is not happened because crypto is very popular with many real people. I thought FTX would give him the cover to be very aggressive towards the industry as a whole.

In a weird way ever since, as the story just got crazier and crazier and more and more like Sam Bankman-Fried was just a criminal mastermind who swindled people out of tens of billions of dollars and [that this debacle] is not something specific to crypto per se, it actually shifts the argument yet again. It [shifts from], ‘This whole industry is out of control’ to ‘This person was out of control’. It’s almost gotten 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 has done aligns with things we’re seeing in the cultural zeitgeist right now, which in this world of 24/7 media coverage and social media activity are the people who really need attention and just can’t get enough of it have to do 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 that people would talk about him, like we are doing right now. From this point of view, I suspect that he has achieved his goal.

What worries me for him, if you look at Tesla’s market cap, for example, it’s significantly higher than Toyota or General Motors, companies that sell a lot more cars. Tesla is making a great car and they’re growing and they’re okay with leaning 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’s managed to create such an image that he’s so far in the future and so much better than everyone else, which is really driving private investment in the stock. The same goes for SpaceX. Although it’s still a private company, I saw an article yesterday that said it’s now valued at $140 billion. [yet] there’s no way SpaceX could be that [worth] $140 billion given its sales. So, in a way, his genius is that he manages to create that perception that what he is doing is so innovative and so unique and that only he can do it; it drives tremendous value and investment in its businesses.

The really big risk with Twitter is that every time they do something really well known and public, they jeopardize that reputation. He took over Twitter that nobody really ever figured out how to make it a successful business and now it’s in his hands. And so far the ideas he’s published don’t sound that new or interesting to me; They feel like variations on things people have done in different ways before. And if he doesn’t have success with Twitter, will it pierce 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 at the risk of Tesla and SpaceX and other companies he owns falling in 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 at Twitter, according to Tusk. More here:

There just isn’t a great revenue model for all of this to start with. To make matters worse for them, I still think there is a risk that Section 230 of the Telecommunications Decency Act will eventually be amended or repealed. For now, it exempts platforms from liability for user-posted content, so I can defame you on twitter and you could sue me personally, but you couldn’t sue twitter. And as a result, for Twitter, Facebook and all platforms, their real economic incentive is to turn to negative and toxic content, because as much as we hate it, that drives attention and clicks, and therefore ad rates and revenue. So effectively, the lack of platform liability creates a world where the internet needs to be as toxic and horrible as possible.

But if [we repeal] Section 230, it’s going to be very similar to what happened with the tobacco companies from the 1980’s onwards when suddenly they were prone to litigation and they started getting these multi-billion dollar judgments and as a result they went into real economic pain and finally had to get theirs [marketing practices] because it cost them more money than usual. Right now, Facebook is paying the small fines it receives from the FCC because they end up making so much money from negative content. The repeal of Section 230 would change that.