Elon Musk rallies wealthy friends and true believers to his side on Twitter deal

Elon Musk’s $44bn Twitter takeover was never going to be conventional. First, he persuaded Wall Street to back him with enough debt to win over the company’s board. Now, he is relying on his billionaire friends to raise the cash portion of his offer and convince shareholders to make him king of the world’s “digital town square”.

Musk revealed $7.14bn of new funding from 19 investors on Thursday for his audacious bid, which would be one of the largest leveraged buyouts on record. The latest backers include figures from different corners of Wall Street, Silicon Valley and the decentralised crypto universe, who have either made billions thanks to the South African entrepreneur, or are happy to proclaim their support for a man who they deem a visionary.

Oracle co-founder and Tesla board member Larry Ellison wrote the largest new cheque, worth $1bn, while venture capital firm Sequoia has committed $800mn and Dubai-based Vy Capital is providing $700mn. Among the broad investor group, many said they were happy to give Musk the money without delving too deeply into how he planned to turn Twitter round.

The unusual roster shows how Musk has leveraged connections from Tesla and his other ventures to entice investors, as the large private equity groups that typically fund leveraged buyouts have mostly steered clear so far.

Wealthy friends open their wallets

When Musk announced the offer in late April, Twitter said he would pay $21bn in cash and finance the rest with $25.5bn in debt, including a $12.5bn margin loan against his Tesla shares.

At first Musk tried to tap large private equity investors. After several conversations with buyout titans, all major players except Brookfield Asset Management passed, said people briefed on the matter.

The main problem, those people said, was the lack of clarity around Musk’s plan to overhaul the San Francisco-based platform, as well as their inability to wield real influence on the maverick businessman.

Musk then tapped his wealthy, longtime friends, said people with knowledge of the matter. The pitch was simple: Musk made them billions, and they could repay that by backing his latest venture.

Ellison’s 1.5 per cent stake in Tesla has earned him more than $10bn. Fund manager Ron Baron, whose Baron Capital Management has made more than $7bn since first backing the carmaker in 2014, is investing $100mn in Musk’s Twitter deal.

The new cash will go towards reducing the debt portion of the bid, particularly Musk’s margin loan, which has now been halved to $6.25bn. Following the new capital injection from Musk’s friends, the equity component of the transaction is $27.25bn.

Reducing the size of the margin loan — secured against Musk’s Tesla shares — relieves some pressure on the billionaire. Since he revealed his stake in Twitter, shares in the electric carmaker have plunged 25 per cent compared to a 10 per cent fall in the benchmark S&P 500.

“He had the right to downsize the [margin loan] and just pay commitment fees going forward on the downsized amount, so he took that opportunity,” said a person familiar with the financing.

“Anybody who’s invested in Tesla should feel a little bit better that [fewer] Tesla stocks are going to foreclosure because he’s downsized the margin loan,” the person added.

VC buys into Musk’s vision

Even after the new equity, Musk will still be on the hook for just over $20bn to complete the transaction.

The Tesla chief executive sold $8.5bn of stock in the carmaker last month, which he may put to work on the Twitter deal. His 9.6 per cent stake in Twitter is worth about $3.7bn at Thursday’s trading price.

That leaves about an extra $8bn to complete the deal. It is unclear where Musk plans to raise this money from. But the latest round of endorsements, particularly from his tech friends, shows his ability to woo new investors.

The investments by venture capital firms including Sequoia, DFJ and Andreessen Horowitz were partly driven by a belief in Musk and his successful record at his other ventures, people briefed on the matter said.

Ben Horowitz, co-founder of Andreessen Horowitz, said the firm invested because it believed in “Elon’s brilliance to finally make it what it was meant to be”. Sequoia said Musk had an “opportunity to drive meaningful product innovation that will help unlock Twitter’s full potential as a global platform that connects the world”.

Sequoia, Vy and DFJ Growth all took part in a $675mn round of funding for Musk’s tunnelling start-up The Boring Company last month. They have also backed Musk’s rocket company SpaceX.

The only private equity group funding Musk’s acquisition of Twitter is the venture arm of Brookfield, which stumped up $250mn. Last year the Canadian group announced plans to build a housing development in Texas alongside Tesla Energy, the carmaker’s clean energy division.

Josh Raffaelli, managing partner at Brookfield Growth, the asset manager’s venture arm, wrote on LinkedIn: “We are thrilled we can once again support Elon . . . Funding secured.”

Binance, the world’s largest cryptocurrency exchange, has committed $500mn to the Twitter deal. Binance chief executive Changpeng Zhao said the investment was motivated by faith in Musk as a visionary entrepreneur, alignment with his philosophical objectives for Twitter, and a desire to integrate crypto technology into the social media platform.

“It’s more of a blank cheque,” Zhao told the Financial Times. “After the investment . . . Elon will figure out what he wants to do, and we’ll be supportive of that.”

Musk was “one of the smartest guys on Earth, probably”, he added.

Additional reporting by Scott Chipolina and Joshua Oliver in London