We’re here at PandoMonthly LA for a fireside chat between Sarah Lacy and Elon Musk, where Musk was asked about his experiences with raising outside venture capital. As Musk is the founder of multiple multi-billion dollar companies, he has a unique angle on the venture capital world.
Musk’s advice for other entrepreneurs is to go for venture capitalists that provide extra value by being quality venture capitalists, rather than going for the most favorable valuation.
“I think one thing that’s important is, if you have a choice between a lower valuation with someone you really like or a higher valuation with someone you have a question mark about, take the lower valuation,” says Musk. “It’s better to have a higher quality venture capitalist that you think would be great to work with than it is to get a higher valuation with someone who you have even a question mark about.”
When asked if he had made that mistake with any of his companies, Musk tried to dodge the question. However, he did divulge some details about Tesla’s Series C round of financing. According to Musk, there were multiple competing bids, with one from Kleiner Perkins valuing the company at $50 million pre-money, and one from VantagePoint, valuing the company at $70 million pre-money.
On paper, the offer from VantagePoint made more sense, but it all came down to which partner would be working with the company from that point on. Musk had to make the decision of which firm to go with, and he pushed for Kleiner Perkins, so long as John Doerr joined the Board of Directors of Tesla.
In the end, Kleiner Perkins didn’t want Doerr to join the Board, so Tesla was funded by VantagePoint. In retrospect, Musk sees this round of financing as a mistake. One that others can and should learn from.