This Week in Startups - E1112: Emergency Pod! Nikola fraud allegations, Trevor Milton resigns, Jason reflects on Trevor’s answers

Episode Date: September 22, 2020

Check out the full Trevor Milton interview: https://youtu.be/SH-zhlqvJWM Jason on CNBC 9/11/20: https://youtu.be/_FV7g2UJDsw FOLLOW Jason: https://linktr.ee/calacanis Referenced in this episode: Hindenburg Research - Nikola Report: https://hindenburgresearch.com/nikola FreightWaves Article: https://www.freightwaves.com/news/breaking-news-trevor-milton-out-of-nikola Bloomberg Article: https://www.bloomberg.com/news/articles/2020-09-14/sec-said-to-examine-nikola-over-short-seller-s-fraud-allegations Nikola Press Release: https://nikolamotor.com/press_releases/nikola-sets-the-record-straight-on-false-and-misleading-short-seller-report-96 Nikola One Video: https://youtu.be/IAToxJ9CGb8

Attention everybody. Attention everybody. This is an emergency podcast, an emergency podcast. Trevor Milton has left Nicola. That's right. You all know that we had Trevor Milton on this week and start us back in July, episode 1090. And the company had gone public through a SPAC, special purpose acquisition corporation that we've been talking about a whole lot here in the Silicon Valley. And I went on after that podcast, I went on CNBC. And I said, listen, remember. my rule about sunicorns. If a company is valued at over a billion dollars before it launches its product, then there's a good chance it's either a fraud or it's going to zero. Well, here we are. It is September 21st when we are taping this Monday and tomorrow we will release this on Tuesday the 22nd. That's when you're listening to it. Trevor last night, Trevor Milton, the CEO, I'm sorry, the co-foundant, and the executive chair. He had given up his CEO slot,

but basically the front man for Nicola has resigned. This week in startups is brought to you by Clavio is the e-commerce marketing platform that helps brands build relationships with memorable email and SMS messages. Over 40,000 brands choose Clavio to help them grow. Learn more and get started with a free trial at clavio.com slash twist.

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Silicon Valley Bank has helped thousands of tech and life science companies plan for the future. Learn more at SVB.com slash next. Silicon Valley Bank, Bill for what's next. Per Freight Waves, breaking news on Sunday night, Trevor Milton has resigned as executive chairman of Nicola Motor and has departed the company effective immediately. And this is amiss fraud allegations

and the SEC looking into Nicola. So I'll just run through the timeline here. And a lot of people have asked me about my interview with Trevor. And a lot of people said, hey, it felt like you were maybe throwing softballs at him, or maybe you weren't your usual aggressive self. And I want to talk exactly about my interview technique with Trevor because it was a very deliberate, as some of you correctly assessed. somebody asked me, did I let him talk himself, you know, into trouble and just step back and

watch the train wreck? To a certain extent, yes, I knew that something was fishy about this company. Now, this is all not definitive yet. These are all allegations. This is all speculation. But I did know a couple of things. And this is my spidey sense as both an interviewer from doing a thousand episodes of this week in startups, as well as an investor in over 200 companies.

I can tell when somebody's BSing a little bit. I can tell when they're hyping. I have a good read on people. And the read I had on Trevor was it didn't all add up. Now, I'm not saying it felt Bernie Madoff level or Elizabeth Holmes level, but it didn't feel far off from Elizabeth Holmes. I'll be totally honest. That doesn't mean I think it's a fraud to the level of Veranos.

I don't think it is, actually. I think it's just a little bit of delusional valuation for a company that should have never been public. If this company was worth $100 million or $200 million and it had grand plans and somebody wanted to put $50 or $100 million into the company, that would be one thing. But for a company to become worth over $10 billion, over $20 billion, and for the founder to sell something like $70 million in shares early on in this process, that didn't add up to me. So I'm going to just go through in today's episode a little bit about the timeline here and things that as a retail investor in the stock market you should look out for,

and just a general assessment of what happened during the interview. So we're going to look at some of the interview clips and just sort of assess what we saw. And maybe this is interesting. Maybe it's not. We'll find out. It's a new emergency type pod. And really, as I've said to retail investors, many times. This is a message to retail investors.

This is a message to retail invest in their product. You are not qualified to invest in it. That's right. If you have not used the product. If you can't go see the product, if the product does not yet exist, whether it's magic leap, or quibby before it came out, when things become worth over a billion dollars before they're launched, just be concerned. And maybe you don't need to invest in that company. Maybe you as a retail investor or even an angel investor. Maybe you have other opportunities to invest in a company. I don't know. Tesla's got their cars in market. You can say what you want about the valuation, but you can't question the product. I just got the model Y. on Friday. In fact, I traded in my Model 3. The Model 3 was the best car I'd ever driven in my life.

And now the Model Y is much better than the Model 3. And that was like a two-year cycle between the two. So if you can use the product and you love it and you can find customers for a product and they love it, well, something adds up. Ready? Okay. So let's go through this. He's going to remain, obviously, the company's, one of the company's largest shareholders. But he's not going to have a say in how this company is managed.

sources tell Freight Works that the decision was Milton's and effect to protect the company and his investment. Milton owns approximately 82 million shares are 20% of the company worth $2.8 billion. The company is down, I think 20% today, which seems like a low number. I would thought the company would have lost half its value and be worth $5 billion or something. So somehow the company did not crater today. I guess some people are keeping the faith. But here's the timeline recently. And again, we had him on the pod back in July. episode 1090. But on September 10th, Hindenberg Research published a report on Nicola and accused them of being an intricate fraud built on dozens of lies over the course of its founder and executive

chairman Trevor Milton's career. Hindenberg Research was founded by Nate Anderson and is a short-selling firm that specializes in forensic financial research and looks for illegal, unethical business or financial reporting practices and undisclosed regulatory product and financial issues. And in this report that Hindenberg research put out, now of course, they've got a short position, so they're betting that it goes down. They recorded dozens of detailed false statements by Nicola Founder, Trevor Milton, including recorded phone calls, text, message, private emails, and behind the scenes, photographs. According to Hindenburg, we have never seen this level of deception at a public company,

especially of the size. So how is that possible, you ask yourself? Well, the company went through a spec, and it went public that way, and it went public in a market that was going bonkers as the government is pouring trillions of dollars into the economy, and let's face it, Tesla, which the company is named after. After a company named Tesla came out with electric cars, they came out with a company called Nicholas, something I called him out on during the podcast.

He didn't have a great answer for that. But I clearly saw that as like a weird red flag. Like, why would you name your company the same as Tesla? When Tesla is such a big brand, it would be like me naming my company. I don't know if Apple is out. I'm going to name my company like Fuji Apple, you know, or something. you know, a Granny Smith, right? Like, it's like, I don't think that's probably a great idea to confuse the public.

And here is what Hindenberg said. Trevor has managed to parlay these false statements made over the course of a decade into a $20 billion public company. Not anymore, apparently. He has linked, inked partnerships with some of the top auto companies in the world, all desperate to catch up to Tesla and to harness the EV wave. In January of 2018, Nikola released a video of a semi-truck in motion, presumably powered by their hydrogen battery. It was fake. The truck was slowly rolling down a slight decline, and the video was rotated to trick the viewer. Nicholas' response to this was, Nicola described this third-party video on the company's social media as in motion.

It was never described as under its own propulsion or power train driven. Wow, that is dicey. If you're faking the video, well, that sounds like Elizabeth Holmes faking a blood test, doesn't it? And on September 14th, according to Bloomberg, the SEC announced plans to launch an investigation in Nicola over, fraud allegations published by Hindenberg. The SEC generally does not waste their time. As you saw, they're very thorough. And they tend to actually take their time on these matters. If you remember with the ICO craze, they, in the ICO craze, the SEC, really, you know, they, some people felt they were moving too slow to stop these things. But I think the SEC actually gives people the

benefit of the doubt before they go in there. So it actually is, this seems like a pretty quick response, which means I think they probably have, this is my gut. I don't have evidence of this, but my intuition, and I'm going to talk a lot about intuition on this podcast. My intuition, in hearing the company was worth $20 or $30 billion at the peak before it had a product, that that's indicative of a fraud or indicative of perhaps malfeasance or a scam. That's my personal belief. That's not necessarily reality. It's just a spidey sense I have, a rule I have. On September 14th, Nicola responded via press release, denying all allegations. And harassment claims on September 20th started to pop up. I am not going to go into the harassment

claims because I do not have full information on them. And I don't think anybody should speculate on these harassment claims unless they've talked to all the parties. So, Twitter is a very open platform. If you do a search for Nicola, where you do a search for Trevor Milton, on Twitter, you will see a bunch of tweets. I cannot tell you if they're real or not. I can't tell you if they're fake accounts or not. But journalists, I understand, are investigating these tweets that you may find on the Twitter.

And you will be able to determine, I think, probably by the end of this week or next week, if there are any substance to these, I do not want to comment one way or the other because, again, I haven't talked to any of the parties. So when we get back from this quick break, we're going to do a little forensic here of the interview I just did a couple of months ago and some of the answers, and we're going to kind of unpack what many believe to be a Theranos-level frog. When we get back on an emergency podcast for this weekend startups.

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We're back. We're back. All right. Sorry to blow your ear drums out people, but I got myself a megaphone. I got myself a megaphone, which, you know, I haven't felt heard after 1,100 episodes and 100,000 people coming to my live events and having 300,000 of you follow. me on the social media. I feel unheard. And I needed to get this megaphone to get the word out. Okay, here's the first clip. I started the show out like I normally do. Hey, everybody. Hey, everybody.

Another episode of This Week in startups. I always like to ask the founder, hey, what are you working on? Tell me about company name and your mission. We'll ask him, hey, how did you come up with the idea? I might do a little preamble, but here it is. I asked Trevor what the product is. And here is how he answered. You know, I'd like to start with what is the product that you are trying to create in the world or products, and why is that important to you? Yeah, I mean, it hasn't been a pretty crazy, incredible ride getting here. We were private for, you know, for a few years. And a lot of people asked, you know, why'd you go public? Well, mainly it was because of WeWork.

Once WeWork came around, they kind of, there was a big glass house. The cracks started coming. The whole thing fell down overnight. And, you know, they wanted to, they wanted to see our entire business model. When investors, prior to WeWork, investors would come in and invest a lot of money. And it was, you just should sell them on the vision that they'd hire McKinsey to analyze your business. and they'd get the sign off and they'd make the investment. Once we work came along, ultimately the next question was,

what makes you not the next we work? So the discussion totally changed and it became a problem. So we wanted to show everyone, when you go public, you show them everything. They get to see your books, the money, every contract, every related party transaction. They get to see everything. And ultimately, what that is that brought a lot of confidence to the investors around NICLA. So what is NICLA? We are a zero emission.

original equipment manufacturer building very big zero emission semi-trucks. But I would tell everyone we're not really just a truck builder. We're actually a technology infrastructure play. And then why is that? It's because we don't make money necessarily on the trucks. We make money on the infrastructure, the hydrogen. Okay. Now, this was a very really interesting moment.

I didn't ask him why you went public. He immediately, when I asked him what he's working on and why it's important to the world and to him, he immediately talks about this giant fraud. Now, if Freud were here co-hosting with me today, Dr. Freud would be like, wait a second, is this some weird, you know, displacement or projection or something? Like, I don't know what's going on here, but you know how they say the criminals return to the scene of the crime sometimes?

Well, this was a very weird moment. He's talking about a fraud. I asked him about his company. He immediately brings up the latest fraud in the technology or business world. We work, which most people believe are unvalued. And he's actually defending himself here, which in hindsight makes sense because at this time, maybe in July he did think he was going to face some accusations of this. And maybe he's cutting everybody off on the pass immediately saying, listen, I took the company

public. I went under the scrutiny. This has to be on the up and up, which there is something to that. He did take the company public. But the other thing, that's a little bit of, so there's a huge red flag there. Like, why not talk about your product, right? You know, if you were to ask anybody else, like, hey, so tell me about Airbnb. they would be like, well, we liked to travel and we were looking for affordable ways to travel

and we were looking to make money off our apartment. So we started doing couch surfing and renting our couches and it was a very cool way to see the world. Like they would get right into the product, right, not talk about, oh, you know, there was this fraud previously and we're not a fraud. Very weird moment. Also, he calls himself an OEM, an original equipment manufacturer, which is kind of weird because the company, based on everything that I've been able to understand about it doesn't make its own products. It pulls together a bunch of different pieces and essentially it has contracts with a lot of different vendors. You have to wonder where did these contracts come from. And it's another red flag in our industry is that a letter of intent means nothing.

A contract really doesn't mean anything. What really matters is when a customer uses a product, pays for it, loves it, recommends it to a friend. We actually have something called net promoter score to track scientifically people's ability to build products that people recommend to each other. And so this was a very weird way to start the interview. Now, later in the interview, I was confused because he's talking about he's going to make hydrogen stations that are 10 times cheaper. And he didn't really give me a great answer to how they were able to achieve this,

especially if they're using other people's parts and just putting everything together. well, if he could make somebody else's components 10 times better, why didn't they make them 10 times better? Or did he take somebody else's components and just by the nature of using them, figure out some way to put them together? That would be like me buying, you know, I don't know, a camera that was four megapixels and I suddenly figured out how to make it 40. Like it doesn't seem possible, right? That you would be able to do that or the person who sold you the four megapixel camera would have already made it 40 megapixel. So that was like another red flag for me. and the one that I found the most perplexing,

and the answer that had me, the question and answer segment, that had me the most confused. And again, I gave Trevor the benefit of the doubt on the pod. And I would still give them the benefit of the doubt. In all cases, I give the founders a better doubt

because sometimes being a visionary founder, you do sound a little bit crazy when you say you want to change the world. I've seen people launch all kinds of crazy startups and actually make it happen. And so there is that suspended. disbelief and the founder might be able to pull it off that we celebrate in entrepreneurship and especially here in Silicon Valley. But these answers were a little bit weird. And this one is

weird because I asked him why Nicola would pursue both hydrogen and electric and he kind of had an answer for that. You know, electric works better. The city hydrogen works better on the road. Okay, maybe I'll give him the benefit of the doubt on that. I'm not sure if that's actually true. but why would he create a consumer pickup truck, the Nicola Badger? Why would he go into competition with Tesla Cybertruck or the Ford F150? I mean, these are big competitors to go up against. You're going up against the O'Guard and the avant-garde Tesla. That doesn't make a lot of sense.

Why wouldn't you just focus on one thing? Startups that succeed tend to focus on one thing and do it really well. Well, let's roll the tape and hear Trevor's answer to that. So now you've got all this cash on the balance sheet and you've got all this runway. But you, this building a network of hydrogen chargers and coordinating the building of hydrogen trucks and satisfying a bunch of customers seems like an awful lot of work. And then, I'm not sure exactly the date you announced it, what date did you announce that you're going to take on Ford's F-150 pickup truck and Elon Cybertruck and the revenge?

and the Rivan, Rivan is the other. Rivian. Rivian. Sorry, Rivian. So now you decide, F it, I'm going to create an F-150, the best-selling car in the United States, I think, and obviously the best-selling truck. Why would you take on more work? That's a good question.

So here's the reason why. Our trucks are a gravy train with money. That's where all the money comes from is our big semi-trucks, right? The problem is, is 90% of Americans will never own a semi-truck. And so your portfolio of investors can be very limited. And we wanted to go and build a company that's going to be worth $500 billion trillion over, say, 10 or 15 years. And if you're limiting yourself to 10% of the market, you'll never do it.

No matter how good your numbers are, the reason why people love Apple, everyone touches their product. Why do they love Google? Everyone touches their product. So what I did is I knew day one, you know, once we started coming out, we had all this gravy train coming in from the semi-truck program, my question was, okay, that's great. great, but I'll never touch the average consumer. So therefore, 90% of investors will probably never invest in me. So I needed to touch the consumer. And so the truck is for the profit, the semi-truck, the pickup truck's for the consumer. And the consumer is the one who is part

of the Robin Hood portfolio, is part of the family office or whatever. And that's where all the valuation of the company comes from. All right. This is super weird. And you can actually, I'm watching myself, which is very weird. I'd never watch my own podcast. I hate the sound of my own voice. I hate watching myself on the podcast because I'm, I'm watching and I'm seeing like maybe I should ask a question a little bit better. I can always improve the questions. And thank you for those of you say I'm a great interviewer, but I can't stand watching me interview somebody because I just think about how to make I could make it 10% better. But this is bizarre. First of all, he's saying the trucks are his gravy train. The truck's

not even out yet. So how is the truck your gravy train? That was like why I was perplexed. But then I realized when he said, I were trying to build a trillion dollar company. I was like, okay, this person's delusional number one. Like, okay, but fine. you want to build a trillion dollar company. I hope all the founders I invest in from com.com to Robin Hood to Wealthfront to Steezy and FitBot all hope they build a trillion dollar company. That'd be amazing. But it's also a little crazy when you don't even have a product out to start talking about

having a trillion dollar valuation. And then to build a product specifically to bait Robin Hood traders, full disclosure, angel investor in Robinhood, that's a flex. But to actually bait people into buying the stock and the family offices who might invest in the company, that kind of puts you in the realm of stock manipulation. In other words, you're building a product. I think that the most uncharitable explanation of this is we're going to build an unprofitable or break-even consumer truck for the explicit purposes of getting people to buy the stock.

Well, that feels to me like stock manipulation, doesn't it? that would be the equivalent of, I don't know, Google saying we're going to make a Robin Hood competitor and feature so that we can get more people to buy Google stock. That would be a weird thing to say. And this was such a weird thing to say. It kind of threw me for a loop. You can see it in my face where I'm like, what the F is this person talking about? This is so weird. And he literally, I didn't ask him to name check Robin Hood.

I didn't ask him to talk about stocks and, you know, appealing to a wider birth of a wider footprint of consumer retail investors as well as professionals like family offices. So that was really weird. But perhaps one of the weirdest red flags of anything a founder can do is when a founder is so unconvinced of the value of their stock that they sell it early. if you're selling your shares in a company before you've even relaunched, before you've even launched your product, that is the red flag of red flags. We had a company called Secret where the founders sold shares before they were prof. They had the product in market like a beta, but they had started channeling shows already. We just had Clubhouse, which sold, I think the co-founder sold before the product even in the app store. That raised a lot of red flags.

These are red flags, folks. And when we get back, Trevor is going. to answer the question of why he took 70 million of investors' money off the table before any product was launched and before he was ousted from his own company or resigned. We'll see eventually what the truth is when we get back on this week at startups. All right, let's get down to brass tax. Everybody, LinkedIn Jobs is giving you 50 bucks, $50 off your first job posting. And if you're not familiar with Lincoln Jobs, well, it's the greatest hiring platform in the world. you all know that. And our friend and listener from this week in startups, Aaron Mason, from Emma A.I basically has had incredible success using LinkedIn jobs. He received 110

relevant applications for his machine learning engineer in four days with a modest budget. Some might even say a small budget, tiny budget. He's a startup. Listen, he's on a budget. And from job post to offer accepted in only a few days. How amazing would that be for you right now? to fill that job right now, that fast, that affordably well. How can you do that? You can do it on LinkedIn. That's right. LinkedIn has over 690 million members worldwide.

And let's face it, now that we're all sheltering in place and working from home, you can hire people anywhere in the world. Every team has had to figure out remote work. And that means you're going to fill these jobs even faster with even more qualified people, but only if you use LinkedIn because they screen candidates with those hard. and soft skills you're looking for. And they put your job in front of qualified members every day. So it can be seen by people looking for jobs and companies like yours.

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Twist listeners, retail investors who bought Nicola. This is your boy, J-Cal. Do not buy stocks before. Do not buy stocks before the company has released a product. That is my warning to you. Do not invest in companies before consumers have the product. And certainly do not invest in a company where the founder has sold shares before he's launched a product. Here we go.

The SPAC puts the money in. You have a pipe, a private investment in a public entity that occurs at the same time. But then you sell $70 million in shares at that same time. Is that correct? Yep. Yeah. So how do you, I mean, that's something people were really critical of. Like, why, if you're so long, the vision, would you take 70 million off the table in, you know, before the products even launched that, that was a red flag of red flags for me and for others. Yeah, there's a lot of people have asked me and criticize me. And here's the, here's the real answer to it. When we did, when we were going through this, the pipe put in all their money at $10, you know, at the $10 share price, essentially, which is the pre-IP price for everybody. The SPAC put in. the thing at $10 as well. And the pipe, these big funds like Fidelity, P-SAM, you know, all these different groups that were in that are in here, Black Rock, all these other groups.

They came in and they said, look, you got too much control, way too much. You own the board. You own. What was your ownership at that point percentage-wise, Walpard? Well, I gave up a lot. So I had 70% of the company and I gave about 30 to my employees. I wanted them to all become rich. And so I gave, I wanted them all become, you know, I don't want all the money myself.

I want to share it with, I want to share it with people that are, to have a family. So you created a 30% employee stock option pool and, well, I gave away probably about 15% directly and then the other 15% through the option. So it was over 30% of my stock was deluded. It was taking off 30% of the top to those guys. And I still had 40% of the company. Yeah. And, and I'll make, you know, hundreds of people wealthy in their generations to come after

it. And that's what I like in life. But the answer to the why. the sock was sold this, they came to me, they said, look, we don't want you to be the CEO and the executive chairman. You got to choose one or the other. And I said, and I asked them why. I said, what's your reason? And they said, well, it's not healthy to have one voice everywhere to control everything. And I said, I can see that. That's actually some wisdom in that. And I've always done everything where everything I've ever done with the board has always been a unanimous consent,

which means I've successfully convinced my board to do something every one of a, I don't ever overrule my board. If someone doesn't like something, I want to know why. I'm a very objective guy. People may not think this, but I, I won't do something if even one of my guys objects to it. I want to find out why. And if I can't commence him, then I won't be able to convince the market. So when they came to me and they said that, I was like, okay, I understand. And they said, we want you to have a lot, we want you to be locked up longer. We want you to be here for a long period of time. We want you to take $1 salary. And, and also the whole executive team. This is what's not, this is what no one ever reported on. All they did is report on the bad, right? Because it gets

headlines. So the entire executive team came in and said, okay, we're going to take one dollar salary. And we get stock bonuses. That's it. And they said, Trevor, we want you to reduce down some of that control. And they said, we'll buy some of those shares from you so you can live on this. You're not focused on money during the time that you are running this company. We want you to have some money out now. It's smart. And we want you to focus on Nikola, not focus on how you're going to pay your bills or pay for your house or whatever else. Okay. So, uh, I, I didn't realize it, but I did ask that in a very confrontational way. You know, up until that point, I think the interview, I was, I wouldn't say I'm throwing,

you know, softballs at Trevor, but I was indeed trying to give him a fair shake and let him speak. And that is a key as an interviewer and interview technique is to, you know, especially early on in the interview, I like to let people warm up and talk and not interrupt them. I mean, I know some of you will write in the YouTube comments that interrupt people. Sometimes I do, but it's for a specific reason because I'm trying to keep them moving because they're doing their like PR bullshit. But here, you know, this is not PR speak that much as he, I think he truly believes what he's saying that he wants to make everybody rich around him.

And I think he's convinced himself of that. And that's great. That's the nature of equity and why it's so powerful in capitalism. But he never answers a question of why he sold that 70 million. He keeps saying like other people told me. to do it. But you know, you make that, you make that transaction. You make that trade. He made that trade. He's saying people pushed him into that trade. They wanted to have less control. But he never really talks about why he decided to make that trade. And if he did believe in the company and he did

believe in his long term potential, you know, you probably wouldn't want to liquidate before the products even launched if you were very long. And so that was the, as I said, red flag of red flags for me and others. And a little bit delusional there about the board and how he always wants unanimous consent. And that I found a little weird because I think he still had board control. I'm not certain of that.

But this is another red flag for folks. When you start to see the red flags mounting, like the product's not out, like they don't actually make anything themselves, they, you know, everything is made, by other parties and he's kind of, Niccolo was kind of putting together other people's technology to make a new product and that new product was going to change the world.

Well, that's not actually how it works. You know, like, in order to change the world, you have to have like scientists and PhDs and when it comes to physics, like real world stuff. You're going to have to have some people who actually make stuff.

I do think they make some software. I do think they make some entertainment systems or whatever. But very, very weird moment. I think it was unsatisfying answer for many people. And I'm sure, certain, absolutely certain, that when this becomes like a full-blown investigation, that's the piece that would be potentially securities fraud. Because not only is he making an offering

to the public to buy shares in the company or convincing the SPAC to do stuff, but then he sold his shares at a time when other people were buying them. And if there were material things that he left out, or there were things that were misrepresentation, misrepresented, or there were some misrepresentation, that's when you get into this unique term. Security is fraud. You're selling a security based on incorrect information or not disclosing stuff, and that's when you get to security fraud. This is where I think Trevor could get himself in a lot of hot water.

It's one thing to fail if everything's above board. But once you've sold your own shares and you've profited, and then it fails, you've got to be careful because even if you were completely incompetent, you didn't benefit from it. But once you start benefiting from it, that's when I think people, you know, regulators, SEC, DOJ, whoever, you know, they're going to start maybe taking a deeper look

or they're maybe going to want their pound of flesh and the pound of flesh in the sense it would be that $70 million. Now, this was a little bit weird, his answer. I asked him, why would you name a company, NICO when Tesla already exists is kind of lame, right? and so here's his answer to that. And now, did you pick the name Nikola five years ago because Tesla existed and you thought

that would be like interesting? How did you come to the brand name? Because people are like, well, that's kind of close to Tesla. Yeah. How did you come to the name, the naming of the company when there was another company with the last name of the inventor? Yeah, I didn't name it after it because that would be a very prick move to do. That's not you.

You said it not me. I'm kind of asking for that reason because it felt a little bit trolley. to it would be a prick move if it was it had nothing to do with that had everything to do with the fact that nicola Tesla was the greatest inventor in the world i'm a true inventor i'm a creator i started five companies in my life i've been doing this for 20 you know over 20 years i know i know what it's like to create i know what it's like to innovate and the greatest creator of electricity and technologies around that have been nicola tesla so this was paying homage to him had nothing to do with elon and the biggest problem that i have is you know the the guys over there that got upset

us for doing that. It's all a pride thing. It has nothing to do with it. Like, no one, this is everything. I mean, I guess the argument would be you're kind of drafting on their branding. What do we get out of it? There's nothing we get out of it. I mean, it creates a category. Every journalist has to say, oh, Nikola and Tesla, Nikola Tesla get it. Like, it basically it puts you in the category, you know, or stands you next to them, right? It's kind of like a photo bomb. I guess there's a cynical way to describe it. I guess there's probably some good that can come from up, but there's also been a lot of bad. And so I've always told people look, when I have a belief in something, which is I think that Nikola Tesla was one of the greatest

inventors in the world, I'm going to name my company after him. I own the trademarks on it. So I'm going to do it regardless of what someone else thinks because I'm a guy of principle. Now, if someone else doesn't like it, I don't, it doesn't matter to me. But just to answer your question, it had nothing to do with what Tesla itself. All right. So anyway, that was like a really lame answer. But it was pretty funny for him to say that would be a real prick move. I agree. But yeah, you get a weird sense about that was maybe not the truth. It's pretty clear they named it Nicola to troll. I think it was a troll move. And I like how I asked the question, handled it there, to be totally honest. And I like my follow-up question there

about which card do you like better. There's also a moment in time during this interview where he says, like, you know, I think Elon's a smart guy. I'm like, yeah. So, yeah, I guess you give Elon credit for being smart. And yeah. So about 10 days ago, I was on the CNBC, as I am every, I know, three, four, or five weeks I go on basically when I feel like I have something to contribute. And when we get back from this quick break, I'll play you what I said on CNBC. And then we'll wrap up here with some final thoughts on this very special. Emergency pod. Yes, an emergency pod. Trevor has left Nicola.

We get back on this week's service. This week in startups is brought to you by Silicon Valley Bank. What's next? What if? Are we ready? Now what? These are the questions that can keep founders up all night. And no one understands us quite like Silicon Valley Bank for over 35 years. Silicon Valley Bank has helped thousands of high growth companies by providing scalable financial solutions, along with insights and economic. expertise that many other banks just can't. They can't do it. From health care to hardware, software to infrastructure, Silicon Valley Bank works with companies across the innovation landscape at all stages of the journey, anticipating their needs before they do. And by providing access to insights and in-depth reports, SVB can help you make more informed decisions and assist in turning your great idea into a great business, which could be why 50% of U.S.-based venture-back

tech and life science companies bank with SVB. That's incredible. Think about that. Will your business be next? Learn more at SVB.com slash next. Silicon Valley Bank, built for what's next. All right. So we're talking about Trevor leaving.

Nikola. Nikola is on Monday, September 21st. I'm going to pull up my stock, ticker here and take a look. Basically down. 19% plus today and down maybe almost 1% after hours. Surprisingly, not more. The fact that the company is still worth $10 billion is just absolutely bizarre to me. I would have thought this company would have lost 90% today.

I'm not sure who's holding onto their shares at this point. If my brother or cousin held shares in Nikola and they lost half their money, I would tell them all money has value, sell every single share you can. and get that 50 cents or 25 cents on the dollar back and then go ahead and invest it in a company that, you know, has got proper management that, you know, is actually delivering a product, maybe has a product in market. But here is my CNBC. And, you know, people were saying maybe I was going out in a bit of a limb by being critical

just 10 days ago. This was September 11th. I was on 9-11. Thoughts and prayers to the families who lost love. ones on that day, that horrible day 19 years ago. And here is my commentary when I was on CNBC. Your too soon unicorn rule. For some I've heard that, Sunicorn, too soonicorn. Yeah. Yes. And so that's a reference to Theranos. You say that if a startup becomes worth $1 billion before they launch their product, they're either going to fail or become a fraud.

And of course, this follows Trevor Milton's response to activists shortseller Hindenberg, which accused the company, Nicola, of being the latter. Okay, break it down for us. What is Nicol, I hear then? So I had a $12 billion on my podcast. I should add much more than one. All right. So I had Trevor on my podcast.

And he was very honest. And he spent, you know, like I think an hour and a half on the pod talking very specifically about their plans. And, you know, there's a possibility that he'll hit some of these tar. I don't believe that companies should go public before they have product market fit. We've seen this a couple of times recently, Quibi, you know, they were over a billion dollars when they were before they had their product launch. Obviously, Derenos comes to mind.

And magically, the AR company in Florida, you know, has had CEO turnover and their product is, you know, we're still waiting. So it's just a, it is a red flag for us in the Valley. It doesn't mean it might not work out. It might work out. But I think what retail investors need to know when they buy into something like Nicola is that they're paying a price that's 100 times what private company investors like myself pay for companies that have the same level of product market fit. And that means, you know, I'm not sure how you get a return on investing in an $11 billion company. That's probably arguably worth, you know, a couple of hundred million, you know, two, three, hundred million would probably be what it would be as a private company.

So this new SPAC revolution that we have, I would just caution people to really look at who the promoter is. You know, if it's Chamoth, who I obviously have a long-term relationship with in business, we've done a lot of deals together and with our friends. You know, someone like that is going to put out a certain type of product. And, you know, given how easy these SPACs are, we're going to see a lot of inventory that might be questionable. So only invest what you can afford to lose folks. Yeah. And so I think that's prophetic. if I do say so myself.

Like you're investing at a hundred times what the private markets would value this company at. Entry price matters. If you're trying to get a return on investment, R-O-I, return on investment, and you want to beat the market, if you're paying a hundred times the value of the company, that's a lot you've got to catch up to. And so I really think you have to look at and study the valuation of these companies before you make an investment.

I was just having a discussion in a chat room with a founder who wanted. you know, maybe 11 or 12 times their top line revenue in this next round. And I said, listen, that 10 times revenue feels like a cap to me based on this, you know, where the company's at. I don't know if I want to syndicate a deal that's 11, 12, 13 times, you know, the last three months revenue on, you know, average run rate for the year. So I do think you have to think these things through. And I do think these SPACs will allow things to go public earlier, which is the whole point.

you want to get more inventory out there. But boy, be careful, folks. Be careful and don't invest any money in these type of deals that you can't afford to lose. Now, if you invest in Disney or Amazon or Google or Facebook, do I think you have, or Netflix, do you think that those companies are going to suddenly lose product market fit? I don't think so. It would take a long time for Netflix to lose all its subscribers. I mean, literally they could just do oranges the new black, you know, for another 10 seasons and they'd have some baseline of users.

You know, Disney could just destroy the Star Wars franchise and put out a Marvel movie with Robert Downey Jr. You know, once a year for the next decade or two and still have some level of product market fit. So you really need to be careful when investing at the entry price and think about your downside. just overall, I think, the signs were there when I did the interview. I wasn't trying to pin anybody to the wall in this interview. I knew for sure that the truth would come out about the company. And I knew there were a lot of red flags. So I just thought, let's let the founder talk.

And a lot of people were like, you were too easy on him. Or I was savvy enough to know that if you have somebody on, you should let them talk. Let the Mustang run. let the dogs run. Let him run. Let's see where he takes this. And so I think this interview, you know, the Hindenberg people watch the interview and they had a couple of good laughs out and I understand. And I'm guessing some moments of my interview will wind up in this DOJ case or SEC case and people will refer to it because, and you need to understand this as a founder.

And they give this advice to founders all the time. understand that when you make claims while your company is raising money, you're not just raising money in the abstract. You're doing a transaction. That transaction is you're raising that money in exchange for equity. Another word for equity, the form in which that equity takes place is stocks. And if you sell stock and you don't tell the truth and if you don't disclose anything material. Well, guess what? That's securities fraud. And there's a group of people in the Securities Exchange Commission, which take it pretty darn seriously. And those are some principled people. I can tell you that because anybody who worked at the SEC could make five, 10, 20 times their

salary working in private practice, whether in a law firm or a hedge fund or starting their own company. And so they're really, those people in general, and I don't know all of them, but when I see people who take public service jobs, whether they're in the Southern District of New York, or they're at the SEC, they are principled individuals. And so here is my assessment of Trevor. I think that he was an entrepreneur who got above his skis. The SPAC opportunity was there for him. He took that opportunity. The people running the SPAC maybe should have given this a little more vetting, but they probably wanted to capture the magic and ride the coattails of Tesla. And so you have an industry-leading company like Tesla,

and then everybody from Rivian and, you know, that other dipshit Fisker with the terrible cars that everybody hates, Fisker trying to ride Elon's coattails. You know, those people trying to ride Elon's coattels. By the way, you know, Elon suffered to make that company work. He almost went bankrupt personally. It almost killed this entire career. And, you know, trying to just draft off of Tesla's success is not a successful strategy. And here is my final take on it.

Nikola is going to not exist within 24 months. The stock is going to go to, 10% of whatever it is, and they're going to sell the assets for 10 cents on the dollar. It will be disbanded. And I bet that everybody involved in this shenanigan is going to be embroiled in lawsuits for a decade. Just like Theranos. Just like Bernie Madoff. Now, is it going to be criminal charges?

Is it going to be going to jail like Bernie Madoff did? was it going to be just penalties and fines? We'll find out. We don't know how much of this were bending the truth versus outright fraud. But my advice to everybody, every founder who can hear my voice right now, every investor can hear my voice right now is, just do things right. Capitalism is already set up in a way capitalism is already rigged. It's rigged to benefit people who are bold and who make great products. You don't need to rig it any more than that basic concept. You just need to wake up every day and make your product 10% better, 5% better, 1% better. Just wake up every day and make your product slightly better. And capitalism will

take care of itself. The value of your company will take care of itself. You don't need to be an $11 billion company, a $20 billion company out of the gate. It's fine to be a $10 million company or a $20 million company or a $2 million company. You know, just enjoy the ride, make great products, and don't try to bend reality in any way. And I'm constantly unspinning projections, numbers, you know, people who are founders or investors, just spinning, spinning, spinning, spinning. And spinning is dangerous. You don't want to pretend you're at 30,000 feet when you're really at 1,000 because

you're run into the side of a mountain. you have to understand where you're at in life. You have to understand who you are. And this is the case of people thinking that there's something they're not. If this was an $11 billion company, you'd have a billion dollars in revenue. It's pretty much that simple, right? You'd have $500 million a billion in revenue. You'd have a product.

And there wouldn't be this very easy, you know, assessment for people to make from, you know, Hindenberg research, they wouldn't be able to take this thing apart if they were just more humble and they had a smaller valuation. If this was a $300 million company and there was a $50 million crater, it wouldn't be a big deal. But we're talking about hundreds of millions, if not billions of dollars at stake here. My ultimate prediction is it will go kaput to zero. It's possible it gets sold for parts, but man, once a company has this level of negative, activity around it and it starts circling the drain like this, it's very hard, very hard to stop the death spiral. They're losing altitude and they're gaining speed and they've lost control of the ship.

That means this plane is going to crash. And when it does, there'll be no survivors. So for those of you who are investors, I saw some people on the Reddit board we're talking about they put their entire life savings into this. That is not how you invest. The way you invest is by having diversification. and if you're trying to invest in companies that don't have products in market, you're just putting yourself at a huge disadvantage when you could have used Disney Plus, you could have used Netflix and actually tried the product and made your decision based on trying a product. With that, thanks to producer Nick for sending everything up today.

Hey, thanks for Trevor for coming on the pod. And, you know, in terms of the other things that might come out in the next week, which I didn't get into because I don't know. any of the allegations around Trevor in his personal life. I'm not saying that those are not important. They're breaking literally in the hours in which I am doing this podcast. Literally, there are tweets breaking right now about Trevor Milton's personal life that are gnarly, but I don't know any of the people involved.

I can't verify it, but I can tell you that I was told, from somebody on the inside that there are journalists who are super qualified for investigating and vetting the stuff, who will have information for the community by Friday of this week. So I think by Friday there'll be enough stories on whatever happened in Trevor's personal life for us to know definitively or as definitively as one can in a he said, they said situation. I'll leave it at that. Thanks for tuning in and we'll see you all next time on this week and Starves. Bye-bye.