Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
Investors in Elon Musk’s acquisition of Twitter are set to profit hugely from the soaring valuation of his artificial intelligence company, rewarded as loyal supporters of the billionaire’s business empire. It’s planned.
Musk gave investors who backed his $44 billion acquisition of Twitter a 25% stake in xAI, which he created last year to compete with rivals like OpenAI and Anthropic.
xAI plans to close a new $5 billion funding round as early as Wednesday, according to people familiar with the talks, doubling its valuation to $50 billion in just six months.
This means some of Mr. Musk’s backers, who were saddled with billions of dollars in unrealized losses from the Twitter acquisition, could become “whole” through xAI stock thanks to the start-up’s significant rise in value. It means.
Investors in both Musk companies who will benefit include Fidelity, Oracle co-founder Larry Ellison, Saudi Arabia’s Prince Alwaleed bin Talal, Twitter founder Jack Dorsey, and Silicon Valley venture firm Sequoia Capital. and Andreessen Horowitz.
The connections between Mr. Musk’s businesses are the latest example of overlapping incentives for those who support his businesses, including electric car maker Tesla and rocket maker SpaceX.
Many of his financial backers have justified their support for the acquisition of Twitter Inc., since renamed X, as a bet on Musk and a way to stay in his orbit. The idea is considered particularly prescient since Musk is a close ally of President-elect Donald Trump.
“Very few tech industry adages actually apply,” said one investor in Mr. Musk’s company. “Never bet against Elon.”
When this week’s funding round closes, xAI will have raised a total of about $11 billion in investments needed to fund its AI models and the massive spending needed to build one of the world’s largest supercomputer clusters.
Its rapid growth has been a boon for Twitter’s stock investors, from which Musk secured $7.1 billion to finance the acquisition, with the rest coming from his own assets, including bank loans and the sale of Tesla stock. . Banks such as Morgan Stanley and Barclays owe about $13 billion in Twitter debt.
Since then, the social media platform’s value has plummeted as advertisers abandoned the site over concerns about content moderation. Fidelity has disclosed the value of its X shares, but it has written down nearly 80% of its investment, making it now worth $9.4 billion.
xAI raised $6 billion in May, its first major cash infusion from outside investors, giving the company a post-capital valuation of $24 billion. Many of Mr. Musk’s X backers, including Andreessen Horowitz, Sequoia Capital, Prince Alwaleed and Fidelity, chose to put more cash into the startup deal.
In the recent $5 billion funding round, only investors who backed xAI in previous funding were allowed to invest, according to several people familiar with the matter.
Recommended
Musk wrote about X in November 2023 that investors in X would own 25% of xAI, but did not provide further details.
X investors were granted a quarter of xAI’s shares in both funding rounds, according to people familiar with the matter. Their shares were not diluted by new shares issued after the closing of the latest financing, they added.
While proving lucrative, the related transactions will create complex considerations for investors in Mr. Musk’s company.
“It’s hard to manage conflicts of interest in this kind of thing,” said one company investor. “You have to be a fiduciary and you have to be on both sides.”
Mr. Musk did not respond to requests for comment.
