E76: Elon vs. Twitter

1. 0:00 – 3:12

   Jason's new skincare routine, Sacks' Good Friday portfolio update, Bestie intros

   1. DSDavid Sacks0:00

      You got like moisturizer all over your face? Are you-

   2. JCJason Calacanis0:02

      I do.

   3. DSDavid Sacks0:02

      ... moisturizing?

   4. JCJason Calacanis0:03

      I am, I'm-

   5. DSDavid Sacks0:04

      (laughs)

   6. JCJason Calacanis0:04

      My skin is so dry. I just got over ba- having food poisoning and I'm like, I dehydrated. Okay, hold on, let me get this s- off, camera off.

   7. DSDavid Sacks0:10

      Look at this guy. You got makeup on?

   8. JCJason Calacanis0:12

      It's not makeup. It's moisturizer, dipshit.

   9. DSDavid Sacks0:14

      This is bad.

   10. JCJason Calacanis0:15

       The reason you look like the fucking Crypt Keeper and I look sh-wie and young and sh-felt is 'cause I do a little skincare routine, okay? Give me a fucking break.

   11. DSDavid Sacks0:22

       Look at him. Turn off his camera 'cause he's embarrassed about whatever he's doing right now.

   12. JCJason Calacanis0:25

       I'm not embarrassed. I just don't need you telling me how to (beep) (beep) .

   13. DSDavid Sacks0:29

       (laughs)

   14. JCJason Calacanis0:29

       Sacks is in a fucking good mood. What-

   15. DSDavid Sacks0:31

       (laughs)

   16. JCJason Calacanis0:31

       ... the Solana up 15 cents? Why are you so fucking happy, dummy?

   17. DSDavid Sacks0:34

       Well, the markets are closed today. It's Good Friday, so I have m- my stock portfolio can't be down 'cause the markets are closed.

   18. JCJason Calacanis0:39

       Yeah, thank Jesus. Praise Jesus.

   19. DSDavid Sacks0:41

       Yeah, it's a good Friday if the markets are closed and my portfolio can't go down any more. (laughs)

   20. JCJason Calacanis0:45

       (laughs) It's truly a good Friday.

   21. DSDavid Sacks0:46

       (laughs)

   22. JCJason Calacanis0:46

       Your portfolio will rise again.

   23. CPChamath Palihapitiya0:48

       These are...

   24. DSDavid Sacks0:49

       It needs to be resurrected.

   25. CPChamath Palihapitiya0:50

       I'm going all in. Don't let your winners ride. Rain Man, David Sacks. I'm going all in. And I said- We open source it to the fans and they've just gone crazy with it.

   26. JCJason Calacanis1:02

       WICs.

   27. DSDavid Sacks1:02

       Love you, Sacks.

   28. JCJason Calacanis1:03

       Queen of quinoa.

   29. CPChamath Palihapitiya1:04

       I'm going all in.

   30. JCJason Calacanis1:07

       Nowadays, he works in DNA but in the '90s all he cared about was the MDMA.
2. 3:12 – 30:50

   Breaking down Elon's offer to buy Twitter and take it private: poison pills, board responsibility and more

   1. JCJason Calacanis3:12

   2. DSDavid Sacks3:12

      There's only one issue.

   3. JCJason Calacanis3:13

      Elon put in a bid to buy Twitter outright on Thursday and take the company private in a deal worth $43 billion. Uh, the most breaking news when we're taping this on Fridays at 11:00 AM when we typically tape this, uh, is that the board of directors, you know, the professional board of directors- (laughs)

   4. DFDavid Friedberg3:33

      Has decided they would like to get personally sued. (laughs)

   5. JCJason Calacanis3:36

      You know what I mean? This is the most insane thing. I woke up and read this and I was like... Okay, they're creating a poison pin, uh, I'm sorry, a poison pill that's gonna give Twitter's existing shareholders the ability to buy more shares if Elon hits 15% of the company at a discount. Chamath, explain the concept of a poison pill, just generally speaking, and then give us your... 'Cause everybody knows what's going on, but, like, here we are in this whatev- I don't know if this is the seventh or eighth inning of this saga or if it's the second, uh, but where do you think we are in this saga? And then what happens on Monday and ex- describe a poison pill.

   6. DFDavid Friedberg4:11

      A poison pill is basically a defensive maneuver that a board of directors uses to prevent a hostile takeover, and basically, the simple way it works is it allows the board to create enormous amounts of new shares and effectively dilute the potential hostile acquirer so that it becomes economically unfeasible for them to get enough shares to get control. The way that they do that is that they basically give everybody except a person that crosses a certain ownership threshold, so let's use Twitter as an example. So the... Twitter's poison pill basically says that if you get to 15%, you're essentially locked out from a right that then everybody else has that effectively allows them to buy another share of stock at I think it's a 50% discount. And so what it does is it creates an incentive to essentially almost double the fully diluted shares outstanding of the business, and what that does is it makes it almost impossible for the person with 15% to then go and acquire what's necessary to get to 50%.

   7. JCJason Calacanis5:20

      Yeah.

   8. DFDavid Friedberg5:20

      There are different kinds of poison pills. There's things that you can do with debt, there's things that you can do with equity. But that's the thing that, that Twitter did. I think the... If anybody's interested in it, Nick, maybe you can just bring it up, but you can Google on Wikipedia, there's a phenomenal article, um, called Revlon versus McAndrew and Forbes. And McAndrew and Forbes was the holding company of this, um, very prolific deal maker in the '70s, '80s, and '90s named Ronald Perelman. And th- what happened was he was a CEO of a company called Pantry Pride, and Pantry Pride made an unsolicited hostile takeover bid for Revlon, which made makeup. And basically, you know, there was like 40 to 45 bucks a share.... the board instituted all these poison pills, the price kept escalating. Then a private equity firm stepped in, also tried to compete for the asset. All along the way, there was, um, enough shenanigans that essentially what, um, what, what, uh, Ronald Perelman did was, uh, sue Revlon, which went to Delaware court and from it basically came the current framework of law that we use in this situation. And basically what it means is that board directors have these fiduciary obligations to their shareholders, and in some cases, these are very broad fiduciary obligations, meaning do the right thing. But in some really narrow circumstances, all of that collapses and their sole focus is to get the best price. And what a director and a board of directors typically wants to do in a situation like this is not end up in that second bucket. They wanna keep all their options available. They don't necessarily want to sell to one person, you know, they're probably gonna assume they're gonna get fired from the board, they wanna stay on for different reasons, et cetera, et cetera. And so right now, what Twitter and their advisors are trying to do is basically stay in that first bucket, have all of the options available to them, and not be forced to run an auction. And I think what Elon will try to do is essentially use the public pressure that's going to build and the existing shareholders who own stock at 40 some odd dollars, a chance to basically get, you know, a, a 20% payday by selling it to Elon for 54 bucks or 53, whatever the price was. And the Twitter board now will have to justify how whatever they come up with is better than this, because then if they don't and they're still exercising this broad fiduciary obligations... You know, one thing I'll tell you as a public company director, it is a horrendous process when you get sued, and these guys will be in court for years. And the, the incremental pressure that this Twitter board has is that they can be held personally liable here. So I think it's getting very complicated, very quickly.

   9. JCJason Calacanis8:11

      Okay. On that note of personal liability, you have director's insurance, so-

   10. DFDavid Friedberg8:16

       Doesn't cover it.

   11. JCJason Calacanis8:16

       ... how can that pierce through?

   12. DFDavid Friedberg8:17

       Doesn't cover it. Doesn't cover it.

   13. JCJason Calacanis8:18

       Have there been examples of this happening?

   14. DFDavid Friedberg8:21

       Yeah, D&O insurance is, it's kind of like... D&O insurance is, their director and officer insurance, is, is a layer of protection that we all have as public company directors. We actually also have it as private company directors.

   15. JCJason Calacanis8:31

       Private companies, sure, yeah.

   16. DFDavid Friedberg8:32

       Yeah. But the, the amount of coverage changes. But what I'll tell you is D&O coverage tends to be relatively nominal because the risk profile doesn't really ex- you know, include these kinds of tail events. And now what you're talking about is 10 to $15 billion of equity value that's going to either get created for existing shareholders or get taken away.

   17. JCJason Calacanis8:54

       Hmm.

   18. DFDavid Friedberg8:55

       And typically, what courts will do is that they will look at the amount of money and they will start to think about, you know, compensatory and punitive damages as a function of how much money was, was made or lost. And so you're talking about a realm of, of, of risk now for these directors that's well beyond what D&O insurance will cover, so.

   19. JCJason Calacanis9:13

       When, if a lawsuit did happen, Chamath, it, you have to find damages. So if the board found a better offer, great. But if this thing goes down on Monday, Elon sells the shares and it goes down to 30, now you have the opposite effect. Go ahead, Friedberg.

   20. CPChamath Palihapitiya9:28

       So I, I'll say two things. One is, uh, all, in all these cases, by the way, the board is indemnified by the company, so the individual board members, I don't know if there's ever been a point in history when an individual board member's had to pay out of pocket for liability associated with their actions as a board member and as a fiduciary, uh, except when they've done something to benefit themselves outside of the company. Now, in, in this case, the, the job of the board is to use their best judgment to do what they believe to be in the best interest of creating the most value possible for the shareholders. It's very simple when the stock price is at 30 and someone says, "I'll give you 50 bucks," to say, "Oh, well obviously getting 50 bucks is in the best interest of the shareholders." Let's assume though that you're on that board and you know about some super secret plan that you believe in the next 30 days is gonna get the stock price to 60, and your belief in that plan and your understanding of that plan gives you a good rationale for having a debate as a board that this deal doesn't make sense at 50. We should hold out until we finish our plan over the next 30 days, get the stock up to 60, and then we'll see if someone comes in and says, "Hey, I'll give you even more than, than 60."

   21. JCJason Calacanis10:38

       Could be something on the product roadmap, right?

   22. CPChamath Palihapitiya10:40

       This is the complicated point. It's not just about the current share price, and there was a history in the '80s and '90s, uh, early '90s when stocks would drop tremendously for market volatility reasons or, or various... Uh, some bad news event or someone quits the board, macro, and all of a sudden the stock price drops and you have a hostile buyer that says, "Oh my God, this company looks super cheap. I'm gonna come in and buy it while it's cheap and I'll ge- offer them a premium to the current share price." And the share price recently may have been much higher than the price that's being offered and the board says, "You know what? We're gonna get back to that share price because the market will pick up again. Th- the things we're working on are gonna grow us out of this hole." And so it's very hard for us to sit here as... And, and I know that I want everyone here on this, this Zoom to suspend your alliance to Elon and belief that Elon will do a better job just for one second and just think about the board members. They've all been working on quarterly plans, strategic plans, et cetera with the current CEO and as a board for Twitter that gives them a point of view that says... Uh, may give them a point of view that says, "Hey, you know what? We can get back to 70 bucks a share." So remember, it was only a few months ago Twitter stock was trading at 70, the stock price dropped with market compression we've all experienced, and then Elon's come along and said, "I'll offer you guys 54 bucks." And the board's like, "Wait, a few months ago we were at 70. We have all these great things we're working on." And so I'm, I'm just trying to paint the other side for everyone that this is not just like a clear-cut obvious deal. It's their judgment at this point that they should get more for the stock given where they think the company's headed and where the stock price will, will eventually get to.

   23. JCJason Calacanis12:08

       All right. Going to you, Sacks.

   24. NANarrator12:10

       Yeah.

   25. JCJason Calacanis12:10

       You heard from Friedberg to suspend disbelief that the greatest entrepreneur on the planet running two of the most important companies is not-... more qualified (laughs) to run Twitter than the current CEO.

   26. DSDavid Sacks12:21

       Yeah, I'm not- I'm not gonna suspend my disbelief.

   27. JCJason Calacanis12:23

       Go ahead, Zach. (laughs)

   28. DSDavid Sacks12:24

       I- Let me make the case for the clear cut- for the clear-cut case here.

   29. CPChamath Palihapitiya12:27

       Sorry, l- let me just say something. He could be better at running this company-

   30. JCJason Calacanis12:30

       Could be?
3. 30:50 – 43:10

   Core issues of Elon vs. Twitter, analyzing reactions, breaking down Twitter's revenue per employee

   1. DSDavid Sacks30:50

      listen, what is this story really about?

   2. DFDavid Friedberg30:53

      Mm.

   3. DSDavid Sacks30:53

      It's about free speech. It's what it's about for Elon. He said in this takeover, and then at the speech that he gave at TED, that, "Listen, this is not about economics for me. Twitter needs to be the open town square. It is the marketplace for ideas. We're gonna make it a free speech platform. We're gonna open source the algorithm so people know when they're being canceled. They know why they were taken down." Is that algorithmic? Was that a human intervention? This is what it's about for Elon.

   4. DFDavid Friedberg31:18

      Transparency. We all want that.

   5. DSDavid Sacks31:19

      It's also what it's about... Hold on. It's also what it's about for all the elites, for everyone observing this, for everyone who's criticizing it, listen, look at the, uh, look at the reactions. We, we haven't talked a- at all about the hysterical reactions to all of this news that happened. I mean, there was a fan- fantastic, uh, tweet here. Well, Business Insider said that, "Elon Musk's attempt to buy Twitter represents a chilling new threat, billionaire trolls taking over social media." There's just one problem. Back in 2013, Business Insider's headline was, "Billionaire Jeff Bezos Washington Post Buy Marks a Fascinating Cultural Transition in America." So, these guys are completely hypocritical. When it's a billionaire that they like, they praise it. When it's, when it's a billionaire supporting free speech, they oppose it. That's what's going on. You had Jeff Jarvis with this insane-

   6. DFDavid Friedberg32:07

      Oh, Professor Jeff Jarvis? (laughs)

   7. DSDavid Sacks32:08

      Yes, saying-

   8. DFDavid Friedberg32:09

      (laughs)

   9. DSDavid Sacks32:09

      ... "Today on Twitter feels like the last evening in a Berlin nightclub at the twilight of Weimar Germany." I mean, somehow these people think that the reinstitution, the restoration of free speech is somehow like the, uh, the end of Weimar Germany. And then I think probably the best example was this tweet by Max Boot, where he says that, "For democracy to survive, we need more content moderation, i.e. censorship, not less." So, in the warped mind of all of these elites in the media, the corporate media, they think that for democracy to survive, they need more censorship. It's crazy.

   10. DFDavid Friedberg32:47

       This is the worst thing the Democrats ever did, is give the Republican Party free speech. That was our issue. How we gave it to you guys is just insane, David.

   11. CPChamath Palihapitiya32:54

       By the way, this is your bias in evaluating this deal. I wanna point that out. You, you talk about the board's bias, but you do have a bias on, on... And that's not really the question at hand. The question at hand is $54 the fair price to pay for this company?

   12. DFDavid Friedberg33:07

       No, I know-

   13. CPChamath Palihapitiya33:07

       That's it.

   14. DFDavid Friedberg33:08

       ... but it is also about free speech. There is another-

   15. CPChamath Palihapitiya33:10

       It, that, that's the motivation.

   16. DFDavid Friedberg33:11

       ... issue here at, at its core.

   17. CPChamath Palihapitiya33:11

       That's not, that's not the... Sorry.

   18. DFDavid Friedberg33:13

       I, well, I agree it's not about the deal, but that is why Elon's buying the company.

   19. CPChamath Palihapitiya33:16

       I agree. I agree. I agree.

   20. DFDavid Friedberg33:17

       He's not doing it for profit.

   21. CPChamath Palihapitiya33:18

       I'm just pointing out that we all, we all criticize the board and we all criticize them for not taking the deal. We're motivated generally because we wanna see the deal happen, we wanna see Elon do it.

   22. DFDavid Friedberg33:27

       I wanna be, I wanna be very clear. Couple things. First of all, the stock is basically the same price it was in December of 2013.

   23. CPChamath Palihapitiya33:34

       (laughs) Right. Right.

   24. DFDavid Friedberg33:36

       Okay. So-

   25. CPChamath Palihapitiya33:37

       What happened in the market during that time? (laughs)

   26. DFDavid Friedberg33:40

       It went absolutely up and to the right in a violent manner.

   27. CPChamath Palihapitiya33:43

       Right. So if you had a strategy to not grow (laughs) and you deployed it, could you actually achieve this performance? (laughs)

   28. DFDavid Friedberg33:50

       So, I'm, I'm just saying that's just an objective fact-

   29. CPChamath Palihapitiya33:52

       Yeah.

   30. DFDavid Friedberg33:52

       ... that we have to keep in mind.
4. 43:10 – 58:34

   Free speech and Twitter, predictions for how this saga ends, business film recommendations

   1. DSDavid Sacks43:10

      that part of the problem with our conversation today is that we're viewing this whole Elon versus Twitter thing purely in economic and, to some degree, operational terms, when really I think this is also an ideological and cultural battle or struggle.

   2. JCJason Calacanis43:23

      All right. We'll go to that. Let's do it.

   3. DSDavid Sacks43:25

      And this is why it's really captured the imagination of the public. There... Look, what is the... If you were to sort of zoom out, 30,000-foot view, the big struggle of our time, politically and culturally, is populist versus elitist, okay? That's the big battle that's happening. Elon is, uh, one of the rare billionaires who is sort of anti-elitist. He pokes fun at their pieties all the time. This is why they call him a troll, okay? He wants to restore free speech. Somehow, the elites are now on the side of censorship, like Max Boot said. They believe that in order to protect democracy, they need more censorship. What they really mean is to protect their control over democracy, they need censorship. Why? Because they're greatly outnumbered. There's more populists than elitists. So if... The more democratic this country becomes, the more they are gonna lose power and be kicked out. That is why they are so fiercely resisting the restoration of Twitter as a free speech platform. It means the end of their cultural power.

   4. DFDavid Friedberg44:23

      To your point, the, the Axios headline encapsulates that to a T. Um, I gave you guys the link. Nick, you can show it. "The world's richest man, someone who used to be compared to Marvel's Iron Man, is increasingly behaving like a movie super villain, commanding seemingly unlimited resources with which to finance his mischief-making." I mean, what a... Like-

   5. JCJason Calacanis44:48

      Yeah.

   6. DFDavid Friedberg44:48

      ... are you really? Are you serious? This is the same guy that's basically-

   7. JCJason Calacanis44:50

      That's journalism?

   8. DFDavid Friedberg44:51

      I mean, this is the same guy that's, that's doing more on climate change and has been doing it two, you know, 20 years ago when it wasn't popular, and satellites. But I, I said this before-

   9. JCJason Calacanis45:01

      And space travel.

   10. DFDavid Friedberg45:02

       And space travel. I... And I, and I said this before, but I just wanna say it again. I think if he does get, uh, control of Twitter and there is a strong, reliable moral force for free speech, I think that's actually gonna be his biggest contribution to society. Because independent of all these other things, you know, we want sort of this political philosophy of democracy and capitalism to roughly work together, and I think it sits on top of this fundamental idea that you can say what you think without retribution. And it's only there you can actually seek out different opinions and try different ideas and say things, and most importantly, make mistakes. And right now, we, we have such a high cost for making mistakes that it just shuts so many people down and out. And if he does that, that's actually a really big deal, I think, uh, globally.

   11. JCJason Calacanis45:54

       You know what that Axios headline could have said, Chamath? It could have said, "Elon Musk spends significant portion of his fortune to restore trust in public square by open-sourcing-"

   12. DFDavid Friedberg46:03

       No, but you can't because-

   13. JCJason Calacanis46:04

       Open-sour- Hold on. Open-sourcing the API and allowing transparent, um, uh, moderation.

   14. DFDavid Friedberg46:11

       No, Jason, they-

   15. JCJason Calacanis46:12

       'Cause that's what he said in his TED Talk.

   16. DFDavid Friedberg46:13

       No, Jason, they can't because they lose power if Elon wins and gets control of Twitter.

   17. DSDavid Sacks46:18

       Right, exactly. Look, the, the, the corporate jour-

   18. JCJason Calacanis46:20

       But I'm just saying that's the accurate headline.

   19. DSDavid Sacks46:21

       Corporate journalists like Axios, they don't make a lot of money. What they have is some degree of status, but more importantly, they have influence. That's why they do those jobs. And the fact of the matter... And, and their influence is enha- enhanced when other people don't have the right to speak. And, and the reason why Elon is a super villain in their eyes is because he's gonna give the people their right to free speech back. That is what this is really about, and they are adamantly opposed to that. Now, 10 years ago, 20 years ago, every member of the press would have defended the First Amendment. They saw freedom of speech, freedom of the press as synonymous and fundamental to our republic. Today, they don't believe that anymore. History has been inverted. Glenn Greenwald actually had a great paragraph about this. Um, if I could just... I know Jason's getting mad-

   20. CPChamath Palihapitiya47:05

       Here we go, in thrall to Greenwall. Here we go.

   21. DSDavid Sacks47:07

       ... in front of the fact that... Look, I mean, I'm a Glenn Greenwald stan, I'll admit it.

   22. CPChamath Palihapitiya47:08

       You are a fan. You're a super, you're a Stan.

   23. DSDavid Sacks47:09

       But what he said is that somehow the- these elites, they've somehow inverted history, so now they believe that it is not censorship that is the favored tool of fascist tyrants and authoritarians, even though every fascist and despot in history used censorship as a key means for maintaining power, but they instead believe that it is free speech, free discourse, and free thought that are the instruments of repression. So that is what it is about, but, but the, the irony is that these elites now believe in the use of authoritarian tactics to preserve their cultural power. That's, that's the battle that's taking place right now.

   24. JCJason Calacanis47:44

       I think they're conflating harassment on a platform or hearing opinions they don't like with s- with, you know, like actual censorship. There's gonna be harassment, sadly, in the world, and you can build tools to mitigate that. I mean, I... One of the things I don't understand, you know, um, I don't know if you know this feature they added last year or so where you can say only your followers can reply. Uh, you know, all these people who are complaining about harassment, I never see any of them say, "My followers can reply." If they did, they would never have anybody reply who they didn't want to reply. The problem would be solved. Okay. Lots more to come on this topic. I wanna just get final predictions-

   25. CPChamath Palihapitiya48:19

       That was a long topic for us, wow.

   26. JCJason Calacanis48:21

       Well, I mean, it, it, it, it's, it is, like-

   27. CPChamath Palihapitiya48:23

       Touched on a lot of topics.

   28. JCJason Calacanis48:23

       ... the perfect topic for us 'cause you have...... freedom of speech, you have markets, you have governance. I mean, it's just everything, entrepreneurship. I just wanna end with, you know, we're here 30 days from now. What is your majority case? What is your majority probability here, of what happens? Give it a second. What is the stock trading at, and who's running the company in 30 days? Sacks, you're first.

   29. DSDavid Sacks48:48

       He- here's what's gonna happen. This goes back to my tinfoil theory. I think one of two things is gonna happen, okay? First of all, Elon is gonna be thwarted by these folks.

   30. JCJason Calacanis48:56

       Okay.

Episode duration: 58:34