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Tesla Will Struggle To Raise Money Without Elon: Kudla (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Tesla
• 0:30
  Speaker 1: definitely on the forefront of people's minds this morning after
• 0:34
  Speaker 1: the SEC sued Elon Musk for misleading the world frankly,
• 0:38
  Speaker 1: but particularly the markets when he said that he was
• 0:40
  Speaker 1: going to take Tesla private for four d and twenty
• 0:44
  Speaker 1: dollars share, saying that funding was secured when in reality
• 0:48
  Speaker 1: it wasn't. Shares now of Tesla down by eleven percent,
• 0:52
  Speaker 1: so definitely seeing a big fall there. David Cutla is
• 0:56
  Speaker 1: founder and chief executive officer and chief investment strategist of
• 0:59
  Speaker 1: Mainstay Capital. David, you're joining us now, you've embarished on
• 1:03
  Speaker 1: Tesla all along. What's your take on this? What are
• 1:06
  Speaker 1: the declines really stemming from here? Well, the declines today
• 1:11
  Speaker 1: or something from the lawsuit by the SEC yesterday announced. Uh,
• 1:16
  Speaker 1: just four or five minutes after the close, and we
• 1:19
  Speaker 1: saw what happened after hours trading, and of course what's
• 1:21
  Speaker 1: happening in UH in trading today and UH, you know
• 1:25
  Speaker 1: this is a big problem for Elon Muskin for Tesla obviously,
• 1:30
  Speaker 1: David could lad do you ever look at used or
• 1:32
  Speaker 1: pre owned car prices when it comes to Tesla? Yes,
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  Speaker 1: And I was looking, for example, at how they hold
• 1:40
  Speaker 1: their value and they don't seem to do so is
• 1:43
  Speaker 1: that concerning? I think it should be concerning, UH And
• 1:48
  Speaker 1: I think it's interesting too, UH that that they don't
• 1:51
  Speaker 1: hold their value as someone might expect. But I think
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  Speaker 1: Tesla's concerned primary concern right now, they've got some more
• 2:00
  Speaker 1: media issues with their UH cash position, you know they're there.
• 2:05
  Speaker 1: Will they be able to remain solvent? UH, their production problems,
• 2:10
  Speaker 1: their quality problems, their service center problems, UM, and you know,
• 2:15
  Speaker 1: just the metrics that they're trying to to hit as
• 2:18
  Speaker 1: we go forward here over the coming weeks, months and
• 2:21
  Speaker 1: a couple of quarters. Yeah. I mean, David to follow
• 2:23
  Speaker 1: up on that when I asked, you know, why are
• 2:25
  Speaker 1: the shares falling? Is it because there is a feeling
• 2:29
  Speaker 1: that Elon Musk might be kicked out of the position
• 2:31
  Speaker 1: of chief executive officer and what that might mean for
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  Speaker 1: the company, both from a capital raising standpoint as well
• 2:37
  Speaker 1: as directional standpoint. Is it because of concerns of fines
• 2:40
  Speaker 1: that are going to potentially reduce their capital position further?
• 2:44
  Speaker 1: Where's the risk here? Well, it's I think there's a
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  Speaker 1: couple of rests. So Uh, first it's that that, uh,
• 2:52
  Speaker 1: this is an overhang for the company. Um, there was
• 2:55
  Speaker 1: an opportunity where this could have been there as a
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  Speaker 1: settlement in front of Elon Musk in the board on this,
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  Speaker 1: and h Elon Musk in his in his way, uh,
• 3:08
  Speaker 1: decided to push back and fight it. So now there
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  Speaker 1: is you know, obviously a risk to shareholders as as
• 3:15
  Speaker 1: we've seen today. Uh, there will be a risk in
• 3:17
  Speaker 1: being able to raise capital and the risk of Elon
• 3:22
  Speaker 1: Musk future with the company because he could be barred
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  Speaker 1: from being a director officer of a public company. And
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  Speaker 1: that's problematic because you know, there's been estimates that there's
• 3:32
  Speaker 1: a hundred dollars or a hundred and twenty dollars or
• 3:34
  Speaker 1: a hundred forty dollars in the price of Tesla stock
• 3:39
  Speaker 1: as Elon Musk premium. And look, he is a genius
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  Speaker 1: inventor visionary. You can obviously his his mission is admirable.
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  Speaker 1: And the people the you know, it's almost a cult following.
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  Speaker 1: You know, the people that are the customers that are
• 3:57
  Speaker 1: there at the delivery center, you know, uh respect they're
• 4:00
  Speaker 1: going to a wedding receiving their vehicles. There is a
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  Speaker 1: loyal following. And if Ellen is gone or is forced
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  Speaker 1: to be gone from the company, uh, you know, there
• 4:11
  Speaker 1: are analysts out there saying, well, that could be good
• 4:13
  Speaker 1: because of his erratic behavior and there needs to be
• 4:16
  Speaker 1: an adult in the room running the company. The flip
• 4:18
  Speaker 1: side of that is what Tesla has going for it
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  Speaker 1: is is very loyal following who has given Elon Musk
• 4:24
  Speaker 1: and Tesla a lot of passes on broken promises, milestones
• 4:28
  Speaker 1: that haven't been met, cars that are not good quality
• 4:31
  Speaker 1: by a typical standards in the industry. And those people,
• 4:36
  Speaker 1: when Elon is gone, they look at Tesla and site
• 4:38
  Speaker 1: Tesla's Elon and Elon is Tesla and Elon we trust
• 4:42
  Speaker 1: and Elon is gone, they lose that that I think
• 4:46
  Speaker 1: they lose a lot. And you know, PIM to David's point,
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  Speaker 1: there are a number of analysts from JP Morgan and
• 4:50
  Speaker 1: UBS at a number of other big firms, saying that
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  Speaker 1: they are concerned that without Elon Musk at the top,
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  Speaker 1: Tesla is going to really struggle to raise money. And
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  Speaker 1: this is a problem because they're running out of cash
• 5:01
  Speaker 1: right They're burning they're burning cash. David, could do you
• 5:05
  Speaker 1: have any thoughts on the speed with which this action
• 5:08
  Speaker 1: by the Securities and Exchange Commission has been brought after
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  Speaker 1: learning that Mr Musk decided to not go along with
• 5:15
  Speaker 1: a settlement. Well, it's it's um you know, when we
• 5:20
  Speaker 1: look at it, and you know, we were on Bloomberg
• 5:22
  Speaker 1: talking about it that week, it was it just was
• 5:27
  Speaker 1: pretty obvious when you looked at the circumstances very quickly
• 5:33
  Speaker 1: that it there just wasn't a deal there. And then
• 5:36
  Speaker 1: as more facts came out, it became, I think quite
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  Speaker 1: apparent to a lot of people that, um, this had
• 5:42
  Speaker 1: a lot of the elements of what could be called
• 5:44
  Speaker 1: stock manipulating or fraud. And I think the SEC knows
• 5:49
  Speaker 1: they have an open and shut case. They wasn't. Did
• 5:51
  Speaker 1: you hear the report for example that the reason that
• 5:54
  Speaker 1: I think it was I can't remember whether it was
• 5:56
  Speaker 1: in the journal at the times, but I mean even
• 5:58
  Speaker 1: in our reporting that uh, he's selected the actual dollar
• 6:02
  Speaker 1: amount of four God, just tell that story. That's it.
• 6:07
  Speaker 1: And it was and it was I don't want to
• 6:10
  Speaker 1: say amusing, but unusual that it was actually in the
• 6:13
  Speaker 1: complaint that the SEC stated that he uh added premium
• 6:20
  Speaker 1: to the stock price the time came up with about
• 6:23
  Speaker 1: for nineteen rounded up to because of the reference to
• 6:28
  Speaker 1: marijuana that that has and that his girlfriend would think
• 6:32
  Speaker 1: that was funny and that and that's not me, No, No,
• 6:35
  Speaker 1: that's the SEC indeed plane and which is unusual but interesting,
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  Speaker 1: and I think they wanted to point that out as
• 6:42
  Speaker 1: a flip at attitude about everything. And that's that's what
• 6:45
  Speaker 1: that's what's key here that we got David. We gotta
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  Speaker 1: leave it there. Thank you very much for joining us.
• 6:50
  Speaker 1: David Coudla, chief executive, chief investment strategist, Mainstake Capital Management.
• 6:55
  Speaker 1: You're listening to Bloomberg. John Chambers he is perhaps best
• 7:09
  Speaker 1: known as being the chairman and the chief executive former
• 7:12
  Speaker 1: chairman and chief executive of Cisco. He began his career
• 7:16
  Speaker 1: in technology sales at IBM. He also worked for Wang
• 7:20
  Speaker 1: Laboratories before joining Cisco, and he joins US now as
• 7:25
  Speaker 1: the author of a new book entitled Connecting the Dots
• 7:29
  Speaker 1: Lessons for Leadership in a Startup World. John Chambers, thanks
• 7:33
  Speaker 1: very much for being with us, dam and Lisa. It's
• 7:36
  Speaker 1: going to be a lot of fun and look forward
• 7:38
  Speaker 1: to our conversation. Well, I just want to give full
• 7:40
  Speaker 1: disclosure that I first met John Chambers at a diner
• 7:47
  Speaker 1: in Silicon Valley with another gentleman named Eric ben Hammou
• 7:52
  Speaker 1: and he at that time was running a company called
• 7:55
  Speaker 1: three Calm. And we know what happened to three Calm,
• 7:58
  Speaker 1: which is it doesn't exist necessarily in its form anymore. Cisco,
• 8:02
  Speaker 1: on the other hand, went on to bigger and better things. John,
• 8:07
  Speaker 1: maybe you could tell us why you wrote the book
• 8:09
  Speaker 1: and why you believe that startups really demand a different
• 8:15
  Speaker 1: level of attention, and how you ran Cisco as a
• 8:18
  Speaker 1: startup really until you left. Well, thank you, Pim, and
• 8:22
  Speaker 1: I very much remember that conversation because Eric is an
• 8:25
  Speaker 1: excellent CEO and what it talks about, and I decided
• 8:29
  Speaker 1: to right to book. Originally, I don't like writing. I'm dyslexic.
• 8:33
  Speaker 1: It is really hard to do. But I kept getting
• 8:36
  Speaker 1: the same questions as I talked to startups around the world.
• 8:40
  Speaker 1: I'm now which a C two ventures and where you've
• 8:42
  Speaker 1: invested in sixteen startups globally and focus very much on
• 8:46
  Speaker 1: how do you scale and grow companies? And I decided
• 8:49
  Speaker 1: to write the book because I kept hearing these same
• 8:51
  Speaker 1: questions from the startups. It didn't matter if you in Dubai,
• 8:55
  Speaker 1: New Delhi, Silicon Valley, West Virginia. The startupe e O
• 9:00
  Speaker 1: s had the same type of issues and challenges, which
• 9:03
  Speaker 1: were how to scale their company, how do you grow,
• 9:05
  Speaker 1: when do you decide to hire people, how you deal
• 9:08
  Speaker 1: with your challenges and your setbacks. And I love teaching
• 9:11
  Speaker 1: and that's what I love doing, perhaps most of all,
• 9:13
  Speaker 1: is building teams. So the lessons is very simple. I
• 9:18
  Speaker 1: like to share those. You're in a period where you grow,
• 9:20
  Speaker 1: you die, you disrupt, you get disrupted, you catch business
• 9:24
  Speaker 1: and technology trends at the same time. And Eric was
• 9:27
  Speaker 1: a really good competitor, unfortunately, but we had probably five
• 9:32
  Speaker 1: or six really tough, big competitors. Five or six companies
• 9:35
  Speaker 1: are sized like Free Calm and Wealth Fleet in sent Optics,
• 9:38
  Speaker 1: and then a whole bunch of startups. What allowed us
• 9:41
  Speaker 1: to break away was acting like a startup all the way,
• 9:44
  Speaker 1: going from four people when I joined Cisco to seventy
• 9:47
  Speaker 1: five thousand and to be reinvent ourselves again and again,
• 9:51
  Speaker 1: and to learn that setbacks, while you wish you could
• 9:54
  Speaker 1: avoid them, actually make you stronger as you move forward.
• 9:58
  Speaker 1: So sharing, that's what I'm after, And I've had the
• 10:00
  Speaker 1: opportunity to be in the front row seat and sometimes
• 10:03
  Speaker 1: in the middle of the playing field as I walk.
• 10:05
  Speaker 1: These transitions occur in my home state of West Virginia,
• 10:08
  Speaker 1: in Boston, which used to be the Silicon Valley of
• 10:11
  Speaker 1: the world, as mainframe computers IBM, many computers think wang
• 10:16
  Speaker 1: Deck data, general PC players now the Internet now moving
• 10:20
  Speaker 1: to digitization. So I've seen the movie, I have the scars.
• 10:23
  Speaker 1: I've done some things right and we have made some mistakes.
• 10:26
  Speaker 1: And I've quired a hundred day companies, so i know
• 10:28
  Speaker 1: what it's like the scale companies. So, John, given that
• 10:31
  Speaker 1: vast experience, and given the fact that you're currently looking
• 10:34
  Speaker 1: for startups that are worthy of your investment, how well
• 10:38
  Speaker 1: positioned is the US in the fight for you know,
• 10:42
  Speaker 1: future dominance, not only over technology but in general with
• 10:45
  Speaker 1: its startup culture. Uh. At least I think you've asked
• 10:49
  Speaker 1: the major takeaway. I hope people get from the book.
• 10:52
  Speaker 1: We think of ourselves as the innovation nation. We are
• 10:55
  Speaker 1: not and interesting us. The Bloomberg Index on Innovation doesn't
• 10:59
  Speaker 1: have us in the top ten countries anymore. We think
• 11:02
  Speaker 1: with the startup nation of the world. That was true
• 11:04
  Speaker 1: in the nineties and two thousands, and we used to
• 11:07
  Speaker 1: get a venture capital into our country and twenty years ago,
• 11:11
  Speaker 1: then ten years ago, eighty. Today it's fifty. And if
• 11:14
  Speaker 1: you watch, we're almost to the twenty year low in
• 11:17
  Speaker 1: terms of startups I e H. Versus where we were
• 11:21
  Speaker 1: UH two decades ago. The number of I p o
• 11:24
  Speaker 1: s and you guys know this very well, Lisa is
• 11:27
  Speaker 1: UH at a very low level compared to where it
• 11:29
  Speaker 1: was in the nineties. Were excited about doing two and
• 11:31
  Speaker 1: thirty I p o S in the New York Stock
• 11:33
  Speaker 1: Exchange the NASDAQ this year, and it's up slightly from
• 11:37
  Speaker 1: the high in one eighties last year. But we did
• 11:40
  Speaker 1: four hundred to five hundred per year in the nineties.
• 11:44
  Speaker 1: If you're going to generate twenty five to thirty million
• 11:46
  Speaker 1: jobs over the next decade, and if you combine with
• 11:49
  Speaker 1: that a requirement to generate another twenty million plus because digitization,
• 11:54
  Speaker 1: automation artificial intelligence will destroy twenty to thirty million jobs,
• 11:58
  Speaker 1: probably a third percent of our workforce if we don't
• 12:02
  Speaker 1: get the startup engine going again and we're too complacent.
• 12:05
  Speaker 1: One of the things I point out in the book
• 12:07
  Speaker 1: is the worst thing you can do. The worst thing
• 12:09
  Speaker 1: you can do is keep doing the right thing too long,
• 12:11
  Speaker 1: and that's what gets companies into trouble. And countries like
• 12:14
  Speaker 1: France that you view and Pam you would have viewed
• 12:17
  Speaker 1: three or four years ago, is the worst place to
• 12:19
  Speaker 1: do a startup. Have moved to the best place in Europe,
• 12:22
  Speaker 1: going from a hundred and forty high tech startup venture
• 12:25
  Speaker 1: backs per year to seven d and four years John,
• 12:29
  Speaker 1: I just wonder if you could offer your thoughts about
• 12:31
  Speaker 1: one of the various numbers of points that you make
• 12:36
  Speaker 1: in the book about vision and strategy and so on.
• 12:39
  Speaker 1: But I thought that one particularly geographic proximity to headquarters
• 12:44
  Speaker 1: or key operational centers, that's like real information you can
• 12:49
  Speaker 1: use it is Originally I thought at at Cisco, we
• 12:53
  Speaker 1: were building the Internet and we were changing the ways
• 12:55
  Speaker 1: the world works. Has learned some place, and I thought
• 12:58
  Speaker 1: you could have a company that has people everywhere and
• 13:01
  Speaker 1: function just as good as one that had everybody's headquarters.
• 13:04
  Speaker 1: I was wrong. You've got to have economic centers where
• 13:08
  Speaker 1: you can move your teams around as one product does
• 13:11
  Speaker 1: better or another product does not, as you promote people
• 13:13
  Speaker 1: from one function to another. And in this new startup world, Uh,
• 13:18
  Speaker 1: if you watch what is happening, we're not just not
• 13:20
  Speaker 1: doing the number of startups we should. In this country.
• 13:23
  Speaker 1: It's almost all Northeast Coast, almost all Silicon Valley, and
• 13:27
  Speaker 1: almost all Texas. We need to bring that across the
• 13:30
  Speaker 1: heartland of America and down to the southeast. So my
• 13:34
  Speaker 1: view is that we need to locate startups at these
• 13:37
  Speaker 1: hubs with universities and pick one or two universities per
• 13:41
  Speaker 1: state and make all fifty state startups because that's where
• 13:44
  Speaker 1: the job creation is going to occur. The big companies
• 13:46
  Speaker 1: in total will not add head count uh this next decade.
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  Speaker 1: John Chambers, thank you so much. Unfortunately we have to
• 13:52
  Speaker 1: leave it there. We can talk with you all afternoon.
• 13:53
  Speaker 1: We'd love to. John Chambers, former executive chairman and chief
• 13:56
  Speaker 1: executive officer of Cisco, now is the founder CEO of
• 14:00
  Speaker 1: j C two Ventures in Palo Alto, California, and the
• 14:03
  Speaker 1: author of a new book connecting the dots lessons for
• 14:06
  Speaker 1: leadership in a startup world. Indeed, Tesla's founder and charismatic
• 14:20
  Speaker 1: chief executive, Elon Musk, was slapped with a lawsuit from
• 14:24
  Speaker 1: the SEC saying that he was engaged in securities manipulation
• 14:27
  Speaker 1: with his for twenty dollars a share tweet. He said
• 14:32
  Speaker 1: that funding was secured to go private, it was not.
• 14:35
  Speaker 1: Joining us now, John Wilson had a research and corporate
• 14:37
  Speaker 1: governance at Quarterstone Capital Group in New York. Joining us
• 14:40
  Speaker 1: here in studios, John, I'd love to get your perspective
• 14:44
  Speaker 1: in terms of the corporate governance aspect of this, in
• 14:48
  Speaker 1: terms of what the board should have done and what
• 14:52
  Speaker 1: the liability is of having one charismatic leader who is
• 14:56
  Speaker 1: somewhat unhinged. Well, that's a great that's a great couple
• 14:59
  Speaker 1: of questions, and I think they'll take the second one first. Right,
• 15:01
  Speaker 1: this is a company that you when you invest in
• 15:05
  Speaker 1: this company, you are investing in one person, really, right,
• 15:08
  Speaker 1: because this is a company. It's a car company, but
• 15:10
  Speaker 1: it has trouble making cars sometimes. Right, it's deep in
• 15:13
  Speaker 1: debt um. It's signature product, the electric car is less
• 15:17
  Speaker 1: and less a novelty every day, Right, as other manufacturers
• 15:20
  Speaker 1: are coming up with their own lines, and so what
• 15:23
  Speaker 1: are we investing. We're investing in the charism of this
• 15:25
  Speaker 1: one individual and the fact that he's such a fan
• 15:28
  Speaker 1: following all over the world. People want these cars in
• 15:30
  Speaker 1: part because of his persona, and as it starts to flag,
• 15:34
  Speaker 1: then you have to ask yourself, Okay, I need to
• 15:36
  Speaker 1: take a step back, ask the question is what am
• 15:38
  Speaker 1: I investing in? Is this a company that can grow beyond?
• 15:41
  Speaker 1: And this is what your your point about the founder's syndrome,
• 15:44
  Speaker 1: essentially is can we grow beyond this one individual to
• 15:47
  Speaker 1: create a sustainable going concern that can actually sustain itself
• 15:52
  Speaker 1: over the long term. At this point, especially given their
• 15:55
  Speaker 1: management troubles, seems hard to imagine how they're going to
• 15:57
  Speaker 1: do that. Now, you've written obviously not just about Tesla,
• 16:01
  Speaker 1: but a variety of companies, and you also speak about
• 16:04
  Speaker 1: how companies are not nimble enough when it comes to
• 16:08
  Speaker 1: these issues. Could you just explain that, well, UM, a
• 16:11
  Speaker 1: lot of companies have blind spots right about a lot
• 16:14
  Speaker 1: of different cultural and social issues that they're facing. Right.
• 16:17
  Speaker 1: This is something that we look at when leaders UM
• 16:21
  Speaker 1: are not in touch with what there are other stakeholders
• 16:23
  Speaker 1: are talking about this can become a huge problem for companies.
• 16:27
  Speaker 1: And one issue I think that pr on people's minds
• 16:29
  Speaker 1: right now is the question of sexual and gender based violence.
• 16:32
  Speaker 1: Right It's not quite the same thing as what TESLA
• 16:34
  Speaker 1: is facing at the moment, but it's another cultural issue
• 16:37
  Speaker 1: and an issue of leadership. I think, going back a
• 16:39
  Speaker 1: year or so, if you had asked folks, are you
• 16:42
  Speaker 1: for or against sexual harassment? I think you would have
• 16:45
  Speaker 1: pretty much found everyone to say they were against it.
• 16:47
  Speaker 1: And yet, and yet, so many of these companies UM
• 16:51
  Speaker 1: found themselves facing allegations, credible allegations of cultures of sexual
• 16:56
  Speaker 1: harass but not just individual incidents, but whole ultures of
• 17:00
  Speaker 1: sexual harassment UM and really being surprised by this. And
• 17:04
  Speaker 1: that was what I talked about, by not being nimble,
• 17:06
  Speaker 1: not being aware of what's going on in your company
• 17:09
  Speaker 1: or with its customers, its employees, its suppliers, and it
• 17:13
  Speaker 1: prevents you from acting and it leads to surprises when
• 17:16
  Speaker 1: you hear things in the news. All right, So you
• 17:18
  Speaker 1: know you raised sort of a question. Not to conflate
• 17:20
  Speaker 1: sexual harassment with securities manipulation, charges that the sec is
• 17:24
  Speaker 1: is going after Elon Musk. For there is though a
• 17:27
  Speaker 1: question about the board here with Tesla as well as
• 17:31
  Speaker 1: as you said, in terms of what their role ought
• 17:34
  Speaker 1: to be in setting a culture that is conducive to
• 17:37
  Speaker 1: a lot of different points of view. And so I'm
• 17:39
  Speaker 1: wondering if you could just speak about Tesla, I mean,
• 17:43
  Speaker 1: where is the responsibility for their board? Well, here's the problem.
• 17:46
  Speaker 1: So this is this is an issue that we sometimes
• 17:48
  Speaker 1: talk about, which is that corporate governance doesn't matter until
• 17:51
  Speaker 1: it does right. In other words, what I'm saying is
• 17:53
  Speaker 1: that people have known for a long time the Tesla's
• 17:55
  Speaker 1: board is a problem that many of the people on
• 17:58
  Speaker 1: Tesla's board on have real close relationships to to Elon Musk.
• 18:02
  Speaker 1: There there are members of the board who are part
• 18:04
  Speaker 1: of Solar City, which then they purchased, which he also
• 18:08
  Speaker 1: owned um And what we're finding out also right now
• 18:10
  Speaker 1: is that there is no one with CEO level leadership
• 18:13
  Speaker 1: skills on the board who could take over if see,
• 18:15
  Speaker 1: if he leaves. So these are all issues that we
• 18:17
  Speaker 1: knew about, but Tesla stock continued to rise because of
• 18:21
  Speaker 1: of Elon Musk. Suddenly he's a problem, and we're looking
• 18:25
  Speaker 1: to the board and recognizing its inability to deal with
• 18:27
  Speaker 1: the crisis. Alright, So you deal with a lot of boards,
• 18:29
  Speaker 1: and you deal with a lot of companies. Do you
• 18:32
  Speaker 1: feel like there is a critical mass of boards that
• 18:34
  Speaker 1: recognize their role in setting up culture and can you
• 18:39
  Speaker 1: give us a sense of what it takes for them
• 18:41
  Speaker 1: to play an active role in that. So I think
• 18:43
  Speaker 1: that there are I don't want to I think that
• 18:46
  Speaker 1: what we were seeing here is a is a problem
• 18:49
  Speaker 1: of some boards, and I think there are other boards
• 18:51
  Speaker 1: that are really trying to figure out, you know, what
• 18:54
  Speaker 1: the right way to go is. But we're dealing with
• 18:56
  Speaker 1: new sets of issues all the time. There is a
• 18:58
  Speaker 1: much greater awareness of the kinds of cultural issues that
• 19:01
  Speaker 1: are going on all through you know, different companies, right,
• 19:04
  Speaker 1: not just Tesla, but you know, relating to sexual and
• 19:07
  Speaker 1: gender based violence, relating to racial equality, inequality of you know,
• 19:11
  Speaker 1: um of income and so forth. And and the problem
• 19:14
  Speaker 1: what boards need to do is they need to start
• 19:17
  Speaker 1: to make themselves more aware of what their employees, their
• 19:20
  Speaker 1: their suppliers, their customers are thinking about them. I think
• 19:24
  Speaker 1: there's too much in celerity on boards. There's there's not
• 19:28
  Speaker 1: enough turnover on board. This is one governance issue that
• 19:31
  Speaker 1: we talk about a lot is that Here's an interesting fact.
• 19:34
  Speaker 1: Most of the majority of board members coming onto boards
• 19:38
  Speaker 1: these days are members women are members of minority groups. However,
• 19:41
  Speaker 1: board turnover is so low that the number of women total,
• 19:45
  Speaker 1: the total women and minorities, is still less than thirty percent.
• 19:48
  Speaker 1: And so the problem is entrenched board members, a culture
• 19:52
  Speaker 1: where boards are recycling themselves and you need new blood
• 19:55
  Speaker 1: in order to understand what the issues that are emerging
• 19:58
  Speaker 1: for companies are. We're speaking with John Wilson. He is
• 20:02
  Speaker 1: the head of research and corporate Governance at Cornerstone Capital Group. John,
• 20:06
  Speaker 1: is there any connection in your mind between the performance
• 20:10
  Speaker 1: of a corporate culture and the performance of a stock
• 20:14
  Speaker 1: In other words, can you make decent investment decisions? Perhaps
• 20:19
  Speaker 1: starting with the corporate governance issue? What I would say is,
• 20:23
  Speaker 1: and one of the reasons why this is a challenge
• 20:25
  Speaker 1: for investors is that cultural issues tend to be longer term.
• 20:30
  Speaker 1: As I said before, they tend to not matter until
• 20:32
  Speaker 1: they do. And uh, you know, the example of Nike
• 20:34
  Speaker 1: is a great one where they lost a lot of
• 20:37
  Speaker 1: talent all of a sudden because of issues of sexual
• 20:40
  Speaker 1: harassment in the company. And so if I, if I
• 20:43
  Speaker 1: was an investor UM looking at a long term investment
• 20:46
  Speaker 1: in a company, UM, I would definitely take corporate governance
• 20:49
  Speaker 1: into account. Now that may, you know, not affect my
• 20:53
  Speaker 1: short term decisions about market sentiment and and so forth,
• 20:56
  Speaker 1: but if I'm not aware of the cultural and governance issues,
• 21:00
  Speaker 1: then I'm opening myself up to risk over the long term,
• 21:03
  Speaker 1: you know. Just real quick here, I'm struck by what
• 21:06
  Speaker 1: someone once told me that you have one charismatic leader
• 21:09
  Speaker 1: who the whole company hinges on, that company is more
• 21:12
  Speaker 1: likely to experience fraud. Just real quick. Has that been
• 21:17
  Speaker 1: your experience as well? UM? Yes, I think that's right,
• 21:21
  Speaker 1: because if you have, if you are all about that
• 21:23
  Speaker 1: one person, then other people tend to operate first of
• 21:27
  Speaker 1: all without being um without accountability, right without transparency, and
• 21:32
  Speaker 1: so they sort of get the mindset of impunity, if
• 21:35
  Speaker 1: you will. And I think that can happen both for
• 21:38
  Speaker 1: other executives at the company and for the charismatic founder
• 21:41
  Speaker 1: who may sort of begin to see themselves as invulnerable,
• 21:44
  Speaker 1: and so that can happen. Thanks very much for being
• 21:46
  Speaker 1: with us. John Wilson, head of Research and corporate Governance
• 21:50
  Speaker 1: at Cornerstone Capital Group, talking about the connection between corporate governance, investments,
• 21:56
  Speaker 1: and corporate performance. We are broadcasting live from the Bloomberg
• 22:10
  Speaker 1: Interactive at Broker's studio is getting close to lunchtime in
• 22:14
  Speaker 1: New York, so we want to talk about food, UH
• 22:17
  Speaker 1: and PAYM. We're very lucky we're joined by the co
• 22:19
  Speaker 1: founders of AXL Foods, which is a quickly growing venture
• 22:24
  Speaker 1: capital firm. Looking at what we're going to be snacking
• 22:28
  Speaker 1: on next, it will actually be good for us. We have,
• 22:30
  Speaker 1: luckily Lauren Jupiter and Jordan's gas Bar here in our
• 22:33
  Speaker 1: eleven three oh studios. So Lauren, I want to start
• 22:36
  Speaker 1: with you, what is AXL Foods? Uh? First of all
• 22:39
  Speaker 1: things for for having us, We are a venture capital
• 22:42
  Speaker 1: fund focused on packaged food and beverage companies. So we
• 22:45
  Speaker 1: invest in the newest, you know, the healthiest foods out there,
• 22:50
  Speaker 1: um and and most delicious fods out there, but really
• 22:52
  Speaker 1: companies ranging from start up all the way to sixty
• 22:55
  Speaker 1: plus million of revenue and partner with them and really
• 22:58
  Speaker 1: help them of where the pit as along the way.
• 23:01
  Speaker 1: Jordan's maybe you could speak to the issue that there
• 23:04
  Speaker 1: are so many very large food companies and I'm thinking
• 23:07
  Speaker 1: of dan On and Campbell soup and you know why
• 23:11
  Speaker 1: that are looking to expand their business, but either they
• 23:15
  Speaker 1: don't know how to do it in today's environment or
• 23:19
  Speaker 1: they're too big to take chances on things. And I'm
• 23:22
  Speaker 1: wondering if you could speak to that and how you
• 23:25
  Speaker 1: help them in those roles. Absolutely, so we we are
• 23:29
  Speaker 1: very familiar obviously with both of those organizations. UM. What
• 23:33
  Speaker 1: we're finding right now in the climate is that you know,
• 23:35
  Speaker 1: large strategics are looking to either buy or invest in innovation.
• 23:38
  Speaker 1: So there's a record amount of capital coming into the
• 23:40
  Speaker 1: industry and it's a lot of the corpors that we're
• 23:43
  Speaker 1: talking about, the COKEX, the pepsis that are driving a
• 23:46
  Speaker 1: lot of interest UM. They're coming down earlier in the market,
• 23:49
  Speaker 1: they're making investments in small brands, they're putting resources to
• 23:52
  Speaker 1: work UM and everything UM from direct partnerships with specific
• 23:57
  Speaker 1: small companies that they get excited about to partnering with funds.
• 24:00
  Speaker 1: You know, obviously we have a pretty public partnership with
• 24:03
  Speaker 1: donone UM. You know, in in particular, it's not just
• 24:06
  Speaker 1: happening though with those organizations. We're seeing the retailers also
• 24:09
  Speaker 1: activate and so UM there's more and more shelf space
• 24:12
  Speaker 1: that's becoming available from the largest retailers in the world,
• 24:16
  Speaker 1: including Costco and Walmart and Kroger UM. So it's across
• 24:20
  Speaker 1: the board. What we're seeing is is that big food
• 24:22
  Speaker 1: is getting very interested in the small guys. So, Lauren,
• 24:25
  Speaker 1: what does innovation mean in the food space right now?
• 24:27
  Speaker 1: Considering the fact that you definitely have a packaging innovation
• 24:31
  Speaker 1: to make people feel like you're getting something healthier versus
• 24:34
  Speaker 1: trying to make that ice cream that you eat actually
• 24:36
  Speaker 1: have zero calories and lots of protein and save your
• 24:39
  Speaker 1: life and have no problems. So we think about innovation
• 24:42
  Speaker 1: and what we actually called challenger brands in a variety
• 24:45
  Speaker 1: of ways. So it can be the product, it can
• 24:47
  Speaker 1: be the ingredient profile. UM. You know, as an example,
• 24:50
  Speaker 1: we have a product in our portfolio called for Sigmatic,
• 24:52
  Speaker 1: which makes mushroom based coffees and powdered beverages, and that
• 24:57
  Speaker 1: is an innovative ingredient profile. Innovation can also come in
• 25:01
  Speaker 1: marketing and packaging and how that product is sort of
• 25:04
  Speaker 1: delivered and communicated to the consumer. UM. And then the
• 25:08
  Speaker 1: third step we sort of look at is innovation in
• 25:10
  Speaker 1: terms of distribution and channel strategy. So we're seeing more
• 25:13
  Speaker 1: and more brands look at direct to consumer. We're looking
• 25:15
  Speaker 1: at more brands look at disrupting the office space and
• 25:19
  Speaker 1: going to direct a consumer in that capacity, and so
• 25:21
  Speaker 1: we think about it really in those three buckets, Product, marketing,
• 25:24
  Speaker 1: and distribution. Jordan's you are described as a reformed corporate lawyer,
• 25:30
  Speaker 1: but also you are the kids snack Taste tests are correct,
• 25:35
  Speaker 1: that's your official title. Okay, um One of the companies
• 25:39
  Speaker 1: I believe that you've got something to do with is
• 25:41
  Speaker 1: uh kid Fresh. Tell us about that and maybe use
• 25:45
  Speaker 1: it as example how you found it and what your
• 25:49
  Speaker 1: role ends up being. Where we are thrilled to talk
• 25:52
  Speaker 1: about kids Fresh. So something that's important to understand is
• 25:55
  Speaker 1: that Lauren and I are the proud moms of four
• 25:58
  Speaker 1: kids eating under and so it's a big part of
• 26:00
  Speaker 1: our thesis is that we are investing in the companies
• 26:03
  Speaker 1: that we are actually putting on the table for our kids.
• 26:05
  Speaker 1: And it's a big part of our philosophy is that
• 26:07
  Speaker 1: the grocery store is going to look fundamentally different, and
• 26:10
  Speaker 1: so we're really putting our money where our kids mouths are.
• 26:13
  Speaker 1: You know, for lack of a better phrase, UM kid
• 26:15
  Speaker 1: Fresh was a company we came across in two thousand sixteen.
• 26:18
  Speaker 1: They were in the market and had great traction. It's
• 26:21
  Speaker 1: a New York based brand that is a better for
• 26:24
  Speaker 1: you frozen kids platform that's really geared towards UM introducing
• 26:28
  Speaker 1: hidden vegetables and sort of reinventing traditional favorites like mac
• 26:31
  Speaker 1: and cheese and you know, chicken fingers and fish sticks
• 26:36
  Speaker 1: and things like that. UM at the time of our investment,
• 26:39
  Speaker 1: you know, Matt Cohen, the founder, had really sort of
• 26:42
  Speaker 1: gotten some great traction, and just as we were investing,
• 26:45
  Speaker 1: he happened to pick up a national partnership with Walmart
• 26:48
  Speaker 1: to complement his target and Kroger and our hold business.
• 26:50
  Speaker 1: So we really enjoyed kind of working with Matt over
• 26:52
  Speaker 1: the past two years. Is he's been scaling really quickly,
• 26:55
  Speaker 1: and UM certainly has found himself in a great position
• 26:58
  Speaker 1: right now where everyone's thinking out innovation and kids platforms
• 27:01
  Speaker 1: and who's going to be sort of the the going
• 27:04
  Speaker 1: forward leader, and frozen is obviously one of the hottest
• 27:06
  Speaker 1: categories now, but it's also in you know, these are
• 27:09
  Speaker 1: traditional foods that people you know all across America are eating.
• 27:12
  Speaker 1: This is just a better for you version, and I
• 27:14
  Speaker 1: will say as a working mother myself of two young children,
• 27:17
  Speaker 1: one of the big challenges is making sure that you
• 27:19
  Speaker 1: actually have something on the table at night. I mean,
• 27:21
  Speaker 1: I'm sorry, but it's much more basic than just having
• 27:25
  Speaker 1: something healthy sometimes. And it's not just in frozen meal solutions.
• 27:29
  Speaker 1: Right Also, we're investing heavily into kids beverages. We think
• 27:32
  Speaker 1: that right now is the time it's right for innovation
• 27:34
  Speaker 1: on shelf where we just made a big investment into
• 27:37
  Speaker 1: a kid's water play, you know, and for us, it's
• 27:39
  Speaker 1: a boxed water that's almost like it's an essence water
• 27:42
  Speaker 1: for kids, and so it was launching ten thousand doors
• 27:44
  Speaker 1: this summer, and it's an alternative to some of the
• 27:48
  Speaker 1: you know, sort of more traditional players that we've seen,
• 27:50
  Speaker 1: like the Capri Sons in the market. But you know,
• 27:53
  Speaker 1: for us, the idea that we're now going to have
• 27:54
  Speaker 1: an offering for kids where it's a no sugar alternative
• 27:59
  Speaker 1: is you know, pretty powerful. I was definitely the bad
• 28:01
  Speaker 1: mom who brought Capri son for a snack, So I'm
• 28:03
  Speaker 1: going to confess my guilty, Laura. I do want to
• 28:06
  Speaker 1: just get your thoughts on when you have a smaller
• 28:08
  Speaker 1: company scaling up in food businesses is traditionally very difficult.
• 28:15
  Speaker 1: How do you help with that? So, you know, we
• 28:17
  Speaker 1: think about ourselves as dot connectors and what we like
• 28:19
  Speaker 1: to do is help connect the dots for these brands
• 28:22
  Speaker 1: between the resources they need in the industry. It's the relationships.
• 28:25
  Speaker 1: It's the retailers, the distributors, the strategics who may someday
• 28:29
  Speaker 1: beut their exit partners, and we create those relationships early
• 28:32
  Speaker 1: and deeply as these brands grow. Um. But that being said,
• 28:36
  Speaker 1: I think there's more and more um sort of resources
• 28:39
  Speaker 1: out there for brands to scale up. A lot of
• 28:41
  Speaker 1: them are working with outsource manufacturers, co packers, and there's
• 28:44
  Speaker 1: a lot of support from the retailers out there who
• 28:47
  Speaker 1: are looking to bring these innovative products to shelf. And
• 28:49
  Speaker 1: so it's a very exciting time I think to be
• 28:51
  Speaker 1: a food entrepreneur. And you know, not to mention how
• 28:54
  Speaker 1: receptive I think consumers are today to to new healthy brands,
• 28:57
  Speaker 1: just quickly, Jordan, give you about what is the biggest
• 29:01
  Speaker 1: thing that you've learned working together, about the whole process
• 29:05
  Speaker 1: of investing and then seeing it through the production. And
• 29:09
  Speaker 1: so it's a wild ride. Um. I think that you
• 29:11
  Speaker 1: know and for us. Lauren and I are are entrepreneurs ourselves,
• 29:14
  Speaker 1: and you know, we look at Excel we started only
• 29:16
  Speaker 1: a couple of years ago and things have changed dramatically
• 29:18
  Speaker 1: over the past couple of years. UM, it's really important
• 29:20
  Speaker 1: to have have people around you that challenge you and make
• 29:23
  Speaker 1: you think critically about your business, but also UM to
• 29:27
  Speaker 1: really be able to rely on that you trust them.
• 29:29
  Speaker 1: And so we think of ourselves as a partner for
• 29:30
  Speaker 1: our founders, that it's a real brain trust and you know,
• 29:33
  Speaker 1: it's it's a different type of partnership. All right, We've
• 29:36
  Speaker 1: got to leave it there, but I want to thank
• 29:37
  Speaker 1: you both very much. Jordan's gas Bar, managing partner and
• 29:41
  Speaker 1: Lauren Jupiter, co founder and managing partner of the venture
• 29:44
  Speaker 1: capital fund Excel Foods. Thanks for listening to the Bloomberg
• 29:51
  Speaker 1: P and L podcast. You can subscribe and listen to
• 29:53
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 29:58
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 30:02
  Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast,
• 30:05
  Speaker 1: you can always catch us worldwide on Bloomberg Radio.