Background Information & Context
In exchange for services related to the 2016 US presidential election, Twitter acquired a 9.9% stake in its parent company from Russian investor, Yevgeny Prigozhin. This transaction raised the prospect that it could be used in political influence campaigns. With the election only weeks away, the ownership of Prigozhin’s stake quickly became a hot topic. Elon Musk was one of many who expressed an interest in buying the stake.
Musk had been a vocal supporter of Twitter, having frequently expressed his admiration for the platform’s transparency and openness in conversations with his followers. When the news broke that Twitter was considering selling the stake, Musk quickly expressed interest in being the one to purchase it.
Source of Funds
At the time of Musk’s bid, he was believed to have a personal fortune nearing $20 billion. Sources close to the billionaire, however, suggested he was unlikely to put up any of his own funds and instead looked to leverage his status to rally more substantial financial backing.
He drew much attention from investors and venture capitalists when he shared his plans to purchase the stake, due largely to Twitter’s popular appeal and the intense public scrutiny of US elections. On October 31, 2016, Musk declared that he had secured the funding for the transaction. Twitter promptly accepted his bid and added the stake to his portfolio.
Funding Sources and Reactions
Though Musk remained tight-lipped about the source of the funding, it is believed that he secured the money from venture capital firm Andreessen Horowitz, which had invested in Tesla back in 2009.
The firm made an undisclosed sum of money available to Musk in exchange for Tesla stock as part of the terms of the deal. Other potential sources of capital include SoftBank, BlackRock, and Digital Sky, who all were reportedly interested in participating in Musk’s bid.
Though the funding remained largely under wraps, Musk’s move to buy the stake won approval from the public. Not only did it inject investment into the platform and create potential new opportunities for innovation, but it also gave investors a new way to gain exposure to tech start-ups. The move also meant Musk was able to gain a greater influence over the platform’s operations.
Elon Musk’s Motives
It is not known exactly why Musk decided to purchase Twitter’s stake, though it is likely the billionaire saw the opportunity as a way of giving the platform more public exposure. Given his close relationship with the company and his public approval for the platform, it seems likely he may have seen the acquisition as a way of cementing his reputation as an influential figure in social media.
Additionally, Musk’s purchase enabled him to maintain a certain level of control over the platform. This could prove helpful as he seeks to navigate potential political entanglements. As his own Twitter followers grew and the platform’s influence grew, Musk stands to further benefit.
Alex Stamos, Former Chief Security Officer of Twitter
Alex Stamos, the former chief security officer of Twitter, described how 2016 was something of an “inflection year” and how the acquisition of Twitter by Musk had a huge impact. Stamos noted that while Musk’s purchase was primarily driven by business motives, it also presented a unique opportunity to shape the platform’s future.
He also suggested that Musk’s purchase may have gone some way to restoring faith in the platform among its users, given the amount of scrutiny it had come under in previous years. Stamos noted that over the course of many discussions with Musk, his passion for innovation was clear and that it was likely this passion, combined with a keen business sense, that likely drove him to acquire the stake.
Variants & Alternatives of Funding
Despite the fact that Musk’s purchase of the stake was largely funded by venture capital, other potential sources of funds were available to him. In addition to venture capital, it is believed he could have sought to rally financial backing from a variety of other sources, including other popular billionaires, private equity firms, and professional finance institutions.
Additionally, Musk himself may have always been capable of self-financing the purchase, irrespective of other sources of funds. Given his large personal net worth, it is likely that he would have been able to finance the purchase entirely from his own pocket, though he likely saw greater advantage in leveraging his status and relationships to draw additional capital.
Impact of purchase
The purchase of Twitter’s stake by Musk has had a considerable impact on the platform. Not only has it provided much needed capital that has enabled the platform to pursue new opportunities in innovation and technology, but it has also improved the public’s perception of the platform.
Musk’s commitment to the platform, combined with his financial resources, have enabled him to acquire a greater level of control over the platform’s operations. This has in turn provided him with greater influence over the platform’s operations, enabling him to shape the platform in ways that he sees fit.
Musk’s acquisition of the stake has also had a direct impact on the performance of the platform. Traffic to the website has increased substantially since Musk’s purchase, leading many to suggest that his investment has been a major contributing factor.
