The big Twitter co-investors were mostly long time Musk allies

All told, Musk raised $7.1 billion of the $44 billion purchase price from those 19 prestigious partners. He also borrowed $13 billion from a group of banks including Morgan Stanley and Mitsubishi, so the transaction’s total equity portion reached over $30 billion, with Musk himself supplying at least $24 billion. Hence, the partners own a bit less than one-quarter of the enterprise. Seventeen players furnished cash, while two, Fidelity and Kingdom Holding, controlled by Prince Al Waleed bin Talal of Saudi Arabia, rolled their pre-Musk shares into stakes in the newly private enterprise.

In fact, Prince Al Waleed was the biggest investor by far, providing $1.89 billion or 27% of the equity provided by the co-investors. By contrast, Fidelity ranked among the minor members, parlaying its $315 million in stock into 4.5% ownership alongside Musk. The club mates are chiefly longstanding supporters of Musk ventures past and present. Oracle co-founder Larry Ellison, the second largest backer at $1 billion, cleaned up as a huge Tesla shareholder, and served on the EV-maker’s board from 2018 to 2022. Private equity powerhouse Sequoia of Silicon Valley ($800 million) boasted a long history with Musk. It led the financing for X.com, the online bank that Musk co-founded in 1999 that became part of PayPal, and provided funding for his tunnel digging outfit the Boring Co. Vy Capital ($700 million), a secretive tech investment firm in Dubai, was a lead investor in the Boring Co. and led a follow-on round for Neuralink, Musk’s startup working on a brain-computer interface.

Long time Tesla bull Ron Baron chipped in $100 million via a subsidiary of his mutual fund empire Baron Capital. Baron’s performance has benefited hugely from the Musk connection. In August of 2022, he disclosed making $6 billion by betting early on Tesla. He remains a big shareholder and an outspoken champion for the stock. Changpeng Zhao became of the club’s whales. He steered Binance, the giant crypto exchange he founded and still heads, to commit $500 million towards the purchase price. Zhao seemed entranced by Musk’s mystique as an evangelist of free speech. In a tweet announcing his investment, Zhao praised Musk’s vision of a fully open, “global town square” where crypto enthusiasts could voice their views, and expressed satisfaction in making “a small contribution to the cause.”

In announcing their participation, the partners foresaw that the new leader would dramatically transform the broken platform. “We invested because we believe in Elon’s brilliance to make it what it was meant to be,” tweeted Ben Horowitz of famed tech investor Andreessen Horowitz, which put $400 million into the deal. John Rafffelli of Brookfield Asset Management ($250 million) stated on LinkedIn, “Purchase price really cheap since business has been so poorly run.”

The losses on Twitter so far are staggering

No sooner did the deal close than the bad news on Twitter began to pour forth. None of Musk’s co-investors have commented publicly on Twitter’s travails, but it must be clear to all of them that their investments are, at least for now, worth a lot less than the billions wagered on their hero. Twitter’s now a private company, and its numbers are no longer available for review. While Musk’s acknowledged the steep drop in revenues at the social media stalwart, and fired three-quarter of its employees to curb the bleed of cash, he hasn’t provided numbers specific enough to arrive at a valuation. But we do have a single clear window into what Twitter’s worth right now. And it’s provided by a reliable source, America’s biggest asset manager, Fidelity.

Fidelity habors just a fraction of its Twitter stake in its $100 billion Fidelity Contrafund. As an open-ended vehicle where investors buy and sell shares at net asset value, the Contrafund must provide a market value for each of its stocks every month, regardless of what it originally paid for them. Just after the Twitter deal closed in October, the Contrafund’s Twitter holding stood at $53.5 million. That’s the Contrafund’s portion of the cash $315 million that Fidelity contributed to the buyout. (The balance is held in other Fidelity funds that don’t mark to market.) The $53.5 million reflects the full, $54.20 per share, or $44 billion in total, that Musk and his partners spent for Twitter.

What’s happened to that relatively tiny investment tells us tons about Twitter.

It didn’t take long for Fidelity to recognize that its investment was worth far less than what it had just paid and initially recorded. In November, the Contrafund wrote down its Twitter shares by 56%, to $23.5 million. In March came another 7.5% hit to $19.5 million. And on May 28, the Contrafund disclosed that through late April, it had subtracted an additional 3.5% from its starting, full valuation, whittling the estimated worth of the Twitter on its books to $17.65 million, and for a total, seven month takedown of 67%. Hence, Fidelity’s now marking down Twitter’s equity at one-third of the approximately $31 billion contributed by Musk and the partners.

We can apply the same math to the 19 equity partners’ original, $7.1 billion investment. By Fidelity’s measure, it’s now worth one-third of that total, or $2.34 billion, meaning that as of now, the group has suffered an almost $5 billion loss. That’s a $670 million drop for Ellison, a $540 million slide for Sequoia investors, and a $260 million bath for the Andreessen Horowitz Capital Fund. By Fidelity’s reckoning, Baron’s down by $67 million.

Twitter’s misfortunes under Musk must mark a particularly unhappy chapter for Prince Al Waleed, who had praised the visionary purchaser as “an excellent leader to propel…[Twitter’s] great potential.” Musk paid an almost 50% premium for Twitter, measured from the time he first announced his share purchases. The Prince could have cashed out like the other sellers, and gotten a huge windfall in collecting almost $1.9 billion for his shares. Now, that position, according to the Fidelity metrics, is worth just $630 million. Maybe Musk will still deliver. But for now, it looks like the pied piper has led his star-studded array of followers on a star-crossed misadventure.