Paul Singer vs. Twitter
European Straits | Monday Note
Hi, it’s Nicolas from The Family. Here’s the first Monday Note edition, focusing on Elliott Management’s Paul Singer’s demand that Jack Dorsey step down as Twitter CEO.
Steve Blank once called it the “Revenge of the Founders”. From 2009 onward, there was an unprecedented ability of entrepreneurs to submit investors to their will. That trend was able to be explained by various other trends: the massive influx of liquidity following the financial crisis (the global savings glut); access to ever cheaper and more robust technology (AWS); the fact that more individuals are connected to one another thanks to social media (2B Facebook users); and lessons drawn from the dotcom era.
What happens when better educated founders raise LOTS of capital from desperate investors to enter new markets where users are more connected than ever? Suddenly, the balance of power tilts in their favor. No more of those venture capitalists imposing “adult supervision”, as when Eric Schmidt took over from Google’s Larry Page and Sergey Brin. As seen with Mark Zuckerberg, Travis Kalanick, Brian Chesky, and Evan Spiegel, founders could finally take their revenge and do what they like.
However, the tide seems to be turning again. In the aftermath of WeWork botching its IPO, and as Uber and Facebook don’t seem to be escaping the fierce “techlash”, investors are affirming their will to power again. The latest episode came last week with Paul Singer’s Elliott Management, an activist investor, securing a significant share in Twitter and demanding that Jack Dorsey step down as CEO.
One reason for this shift is that tech is becoming more and more mainstream. Most of the exceptional performance on US equities markets recently has been driven by the stocks of large tech companies going up, which in turn has attracted more conventional investors. It was only a matter of time before those players started to wield power and demand changes in governance and/or higher returns. Apple was forced to finally serve up a dividend by Carl Icahn back in 2013; now it’s Paul Singer’s turn to hold Twitter accountable to its shareholders. But what are his complaints?
The main issue is that Dorsey, while serving as Twitter’s CEO, is also the CEO of fast-growing payment giant Square. Not only does he have to split his time between the two companies, which is highly unusual (both are listed), but a larger share of his personal wealth is tied up in Square, which has Twitter shareholders like Singer rightly worried.
Another issue is that Dorsey made a splashy declaration a few months ago about his wanting to spend more time in Africa—which is a promising market for both Square and Twitter. I personally applauded the move at the time (in an issue of my newsletter titled Is Africa the Future of European Tech?) But it was perceived as a sign of defiance by Twitter’s shareholders.
A third category of motives seem to be political (although that hasn’t been made explicit). Contrary to Facebook, Twitter has taken a tough stance against the spread of fake news and misinformation by prominent politicians. Since Paul Singer is one of the Republican Party’s so-called “mega donors”, he might want to challenge a CEO perceived as anti-Trump.
Still, it’s not clear how things will play out. Unlike Facebook, Twitter has been inspiring more trust, not less. Also, it is profitable, with a stock price that has gone up for most of the recent period. So Dorsey’s stewardship seems to be doing fine.
(And by the way, Singer is not a rookie when it comes to understanding tech and its inner workings: he’s the founder and main financial sponsor of Startup Nation Central, an organization that serves as a platform for the Israeli startup ecosystem—inspired by the great book Startup Nation by Dan Senor and Saul Singer (no relation). So it’s not as simple as “old world vs. new world” here.)
In any case, Silicon Valley is up in arms against Singer’s move. As Paul Graham wrote in a tweet, “The job of CEO requires product vision”, while Elon Musk voiced his support for Dorsey, who he finds “has a good heart”. And so we’re about to witness one of many showdowns between Silicon Valley and Wall Street when it comes to tech companies having their shareholders’ best interests at heart (or not).
What does it all mean for Europe? Two things, mostly:
If US investors start to play hardball with US tech companies, it means that the latter will be forced to focus on their immediate environment and will have even less time and resources to consider opportunities in Europe—which is consistent with Peter Zeihan’s thesis of the US retreating into itself. In concrete terms, there’s good news: US tech companies will be less formidable outside the US and markets like Europe are now up for grab for local champions. But there’s also bad news: less counting on US tech giants to acquire European startups.
Meanwhile, it should inspire some rejoicing in the fact that fewer European tech companies are listed. I was involved in discussions on the topic a few months ago with James Clark of the London Stock Exchange, Hussein Kanji of Hoxton Ventures, and my friend Ian Hathaway, which led to my writing here and here. But as we witness Jack Dorsey’s coming under fire, having fewer IPOs sounds like good news for European founders (and we even have our own European public market saga with the Just Eat / Takeaway / Delivery Hero story).
Read more on Paul Singer, his firm Elliott Management, and his current battle with Twitter:
Inside Elliott Management: How Paul Singer’s Hedge Fund Always Wins (Jen Wieczner, Fortune, December 2017)
Paul Singer, Doomsday Investor (Sheelah Kolhatkar, The New Yorker, August 2018)
Elliott v. Jack (Dan Primack, Axios, March 2020)
Jack Dorsey’s moment of reckoning (Hannah Murphy and Tim Bradshaw, The Financial Times, March 2020)
Meet Jesse Cohn, the hedge fund wunderkind looking to oust Twitter CEO Jack Dorsey (Casey Sullivan and Bradley Saacks, Business Insider, March 2020)
Twitter Owner Wants Full-Time CEO (Matt Levine, Bloomberg, March 2020) [**HIGHLY RECOMMEND**]
😀 Covid-19 is contributing to a large-scale experiment in switching to remote work and embracing online events. This is all in line with the main prediction I offered Sifted when they asked me what I saw coming in 2020. Covid-19 wasn’t a thing back in December, but this holds: The Year of Remote Work.
🙂 Libra might be making a comeback. I started as a Libra enthusiast (I saw it as the West’s best response to the mobile payment revolution in China), and have since become a Libra-pessimist given its problems dealing with regulators. But a compromise seems to be in sight. Read more in Bloomberg.
😏 Maybe you’re tempted to buy US stocks after the recent dip, but be warned (in this case, by a Nobel Prize Winner) that they may still be overpriced. Also have a look at my piece What’s Happening With the Stock Market? to understand why US equities have been performing so well over the past decade.
😐 It’s just been reported that Anthony Lewandowski, former head of Google’s self-driving cars operation, has been forced to declare personal bankruptcy so as not to pay $179M to Google to compensate for stealing intellectual property. I highly recommend this New Yorker article about him.
😒 Europe’s investment banks have tried and failed to enter the US market, as told in detail by the Financial Times. Meanwhile, US investment banks are gathering ever more market share in Europe (see this Bruegel paper). This is not good for European startups, as I once explained here.
😖 Covid-19 again. Whereas Asian nations seem to be containing the danger thanks to a swift response at a very large scale, the number of cases and fatalities is rising extremely fast in the US, Italy, and France. The best article I read this week on the topic is by The Economist’s Ryan Avent: Difficult Times.
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From London, UK 🇬🇧