Forget the “TechnoKing”: Elon Musk will truly be the king at SpaceX

Elon Musk has incredible influence over the companies he leads. While he already calls himself Tesla’s “TechnoKing,” he is a true ruler of SpaceX, where he has an unprecedented level of control over one of the world’s most valuable companies.

Musk’s ownership grip on SpaceX was finally revealed in the company’s IPO filing announced on Wednesday.

After the IPO, Musk will be CEO, CTO, and Chairman of the Board of SpaceX, and will have more than 50% of voting power, giving him the ability to appoint directors as he sees fit. He basically can’t be fired.

The company has placed limits on how shareholders can file legal challenges, and would benefit from a more lenient regulatory regime in its home state of Texas — an environment Musk helped create when he loudly moved Tesla’s founding there from Delaware.

As SpaceX bluntly says to potential investors in the filing: “This will limit or prevent your ability to influence the affairs of the company and elect our directors.”

More control than Mark

Tech founders have enjoyed increasing control over public companies over the past two decades, especially as Google, Meta (then Facebook) and other tech companies offered dual-class shares.

But Musk and SpaceX are taking things much further, according to Anne Lipton, a law professor at the University of Colorado.

In a blog post published last Friday, Lipton argued that Musk is blurring the three most powerful leverages shareholders can typically use to pressure top executives at a public company.

The first is voting. SpaceX uses a dual-class structure, with Musk owning 93.6% of the super-voting Class B shares, which will not be available to the public in the offering.

Despite his goal of becoming the largest IPO in history, Musk will still retain more than 50% of voting power once SpaceX is listed. This makes it a “regulated company” according to stock exchange standards, and regulated companies are allowed to exempt themselves from rules requiring independent oversight.

SpaceX states in its IPO filing that common shareholders (who will own Class A shares) “will not enjoy the same protections afforded to shareholders of companies subject to all of Nasdaq’s corporate governance requirements.”

Most importantly, Musk’s voting control means he will be able to decide on anything that requires shareholder approval. This includes decisions such as mergers and acquisitions. If Musk eventually wants to merge with or otherwise acquire Tesla, as many people expect, he won’t need to convince SpaceX shareholders.

Voting control is the biggest difference between Musk’s power at SpaceX and Tesla’s. Musk has only about 20% of voting control in Tesla, and has been forced to put enormous pressure on the company in recent years — including, at one point, threatening to leave altogether — to acquire more shares. (Tesla last year committed to preparing a $1 trillion compensation package approved by shareholders.)

Legal shield

The second lever that SpaceX is working to reduce is the ability to file lawsuits.

By incorporating in Texas, SpaceX has ensured that shareholders cannot file what is known as a “derivatives suit” unless they own at least 3% of the company’s shares. (At an expected valuation of $1.75 trillion, this equates to a position worth about $52 billion.)

Derivatives lawsuits occur when shareholders file a lawsuit against a company’s directors on behalf of the company itself — such as when a minority shareholder sued Tesla’s board of directors over the $56 billion pay package given to Musk in 2018.

Furthermore, SpaceX included language in its bylaws that would shift most lawsuits either to the new Texas Business Court, which only begins operating in 2024, or through mandatory arbitration.

In other words, Lipton told TechCrunch: “Forget it, that’s it. There won’t be a lawsuit” in most cases.

This was not the case before Musk moved Tesla out of Delaware and moved it to Texas, she said.

In fact, Lipton said that until a few years ago, Delaware was increasingly scrutinizing exactly what type of company SpaceX was under control.

“You could have dual-class shares, and that would give you significant voting power, but it also means you are subject to greater oversight by the Delaware court system,” she said.

Vote with your feet

Lipton sees the final lever of shareholder power that SpaceX has broken as the ability to sell shares and withdraw.

SpaceX has successfully lobbied the Nasdaq to relax rules governing how and when companies are added to the Nasdaq 100 index – a group of large-cap companies it describes as “fundamentally sound and innovative.”

This process used to take months, but SpaceX is now expected to be added to the list within weeks.

When companies are added to these indices such as the Nasdaq 100 or S&P 500, they become automatic buys for large financial institutions (such as 401k providers).

Therefore, Lipton says SpaceX’s stock price will be supported in the first days of public trading by this impending listing, as traders will want to buy before institutional investors come in and push the price higher.

“Normally, if you can’t vote, and you can’t file a lawsuit, you can at least sell and lower the price, and that hurts,” Lipton said. “It hurts the console [of the company]it hurts executives who are paid in stocks. But even this is being manipulated now.”

Chan Ahn, a former Goldman Sachs and JPMorgan executive and current CEO of private equity token Tessera, said he broadly agreed that a rapid inclusion in the Nasdaq 100 could send the price higher.

But shareholders will still be able to “vote with their feet” and sell their shares — and that may not have the same effect, he told TechCrunch.

“You don’t have to buy, and if you have it, if you don’t like it, you can sell,” he said.

All the money

On top of this control, Musk is expected to make a historically unusual amount of money from SpaceX in the future.

Not only will the IPO make him the world’s first trillionaire, but he will also receive a compensation package consisting of 1 billion Class B shares.

These shares will not vest until Musk makes the company worth $7.5 trillion and, more importantly, accomplishes “establishing a permanent human colony on Mars with at least 1 million people.”

But while the “Mars colony” requirement may make the package seem unachievable to many, Musk could still extract a lot of value from these stocks long before SpaceX reaches the red planet.

In the stock award agreement attached to its IPO filing, SpaceX discloses that Musk can vote those shares even before they vest. Moreover, he can also mortgage them as collateral for loans. It’s a popular move for wealthy people to get a lot of money without being taxed on unrealized gains, something Musk has done often in the past with his shares in SpaceX and Tesla.

While borrowing against Mars colony shares technically requires board approval, Musk controls the board. In the end the decision will be his.

These incredibly valuable shares become common stock when Musk sells them.

But there is one notable exception. Musk could place them in trusts to retain their super-voting status, meaning it’s possible that the SpaceX kingpin – who we know has at least 14 children – could put himself in a position to take control of the dynasty.