Joe Zhao, Partner, Millennia Capital, joins Cheddar News to follow up and break down the fallout from Twitter whistleblower Peiter 'Mudge' Zatko's testimony in front of a Senate Judiciary Committee and how it impacts Elon Musk's Twitter takeover saga.

Opening Bell

Assessing the Fallout From the Twitter Whistleblower Hearing

joining us now to break all of this down, Joe's partner at Millenia Capital, Thank you so much for being with us this morning. I want to know what your reaction was to what came out of that cause hearing yesterday because I know our team was watching and there was so much to dig into. Well for sure, Good morning. I heard the testimony and it was definitely concerning. I think the some of the issues that were raised were um you know how um you know there were, I think some controls that could have been added to sort of enhance data and use the data and twitter. But my first impression was you know, while it was concerning this was you know, if you've heard this trend amongst tech companies, whether it was this company in particular other companies um in the past I think it's more of a reflection of the industry where the industry is as relates to moving towards becoming much better with with using consumer data. And I think as an industry we are moving in that direction with you know, the avenue of GDP are that there are several bills that are going through both the state and the federal Legislature um in fact in in my sort of asset class of venture capital, there's several startups which are working to enhance how you know, uh consumer and business data is being used in such purposes. So I would say what what the concern raised is is a is an issue the industry um is working through uh kind of improving on that front. But I would in my mind separate out the whistleblower's kind of testimony from the acquisition which is sort of the the other issues I think in my mind there's two issues, there's the acquisition between um you know mascot and twitter and there's the this whistle blowers race issue and I think these are independent issues that need to be addressed separately. Yeah, I think that's a really good point and I'm also glad that you mentioned this in the context of the industry and big tech and social media as a whole because I wonder what you thought was the most damaging aspect of the testimony from Zack. O obviously we realized or we heard a lot about security but is this an issue that is specific to twitter or is this something that you're seeing with a lot of platforms across the board? I was it's more the latter. Um you know there are a lot of companies which are figuring out how to properly use data in the context of best privacy practices, best um kind of cybersecurity practices, I would say as an industry um there's so much data that are coming online and there's so much um um innovation in the daily economy digital economy and so you know, cybersecurity, consumer private protections both in europe and the U. S. And Asia are becoming a whole new industry. So I would say as the industry matures uh companies like twitter and others will become better at using data is a part of, you know, the whole data economy is only a decade or two old. And um, so I would say the most concerning to answer your question directly, The most concerning aspect that came out to me was obviously some of the personal descriptions of the whistle blurb in the context of his interactions with, with the executive team and I think that obviously there's room for improvement within corporate management. Um, and you know, but but I think what he said is not new, you know, refer to similar things with with other tech companies and I think the tech companies are working to improve those things, but it does take time, but, but I think my takeaway is it highlights the need for the industry to move forward. And I think, you know, Congress on the Senate side is working on a few bills and hopefully that's gonna be, that's gonna kind of drive kind of a better practices. But I think both the industry and government need to come together to you know, kind of to continue to drive the now that the adoption of these policies. Yeah, something that really struck me and still sticks with me now from Sacco's testimony was the fact that internally it didn't seem according to him that twitter or twitter leadership were concerned about any sort of finds that the company received because of regulation here domestically. We what they seemed more threatening or threatened by were foreign regulators and some of the different solutions that they use abroad. So what kind of resolutions are you expecting in terms of consequences for twitter here? What do you think? We could see coming down the pipeline? For sure. So, um the first question is, you know, obviously, you know, we can't just listen to one side, we have to get both sides of the story, but I think often in a corporate setting, um you know, a member who raises an issue and it's one of the many issues this season he's dealing with. So sometimes priorities kind of shifted. But I would say the issue he raised was concerning. Um and and perhaps from his perspective the management didn't deal with it directly and maybe the investment management can can do better and can do a better job next time. But I would say on on on on on on a global level. Um I think, you know, as the um you know, kind of governments from each country is whether it's the U. S. Is red similar laws in past in India, in in in the far eastern europe, hopefully as there's a more over global according to the effort to sort of uh to work with companies that better use consumer data, you know, for example, GDP are the um that legislation hopefully that's going to drive the global standard for how to use and process data so that there's no more loopholes like the ones we have heard from the whistle poorer. Um and I think having said that the last thing from twitter's management, I think, I'm sure they've, I'm sure they've they've, I'm sure twitter management has gotten the point, you know, this is made all the way to the top of the top of the funnel is made it to Congress. But I think what's, what's top of mind right now for twitter management is also working through this acquisition sort of the process. But I think when it's all said and done the industry is going to have to obviously, you know, self reflect and move forward and I think they are. But I think I think this, this legislation, this whistle blowers kind of testimony became a hot issue in the context of the the twitter acquisition talks. Mhm. Yeah. And speaking of those talks, one of the reasons why we didn't get the other side of the story was because of this ongoing lawsuit between twitter and Elon musk and you know, just yesterday lots happening for twitter shareholders voted to approve Elon musk's deal. So what happens next here? Yeah, on twitter side, things are moving along and they're doing kind of their following through on the acquisition, on the, on the side of the buyer, you know, they're obviously working too, you know, um they're moving the direct different direction, but I think the most important opinion. Um I think would be the one by the judge. You know, if the judge who ultimately decides the fate of this acquisition. Um you know, in my mind, there's a few things that are being said in the media um and there's a few things that are not being widely talked about that I want to just kind of kind of bring it to the top of the mind. One is, you know, if I were the judge and if I were working on this case, from the perspective of the judge, I'm thinking, okay, well, this acquisition offer was made in april 2022. Right, well, that also implies, is um the buyers team worked on this acquisition in probably in q one of this year, and maybe even as late as early as late last year at that time, the state of the capital market was way different than the state of the capital markets today. And obviously, you know, one of the reasons that the buyer maybe trying to renegotiate or kinda even back out of the deals, because the state of the capital markets in the financial markets has completely sort of, you know, turned upside down from six months ago to now. And so there's gonna be, I think the judges thinking, is there a legit reason for this deal is not going through, or is it more of a reason that, you know, the financing was Uh, you know, was not as secure as before. And I think if, you know, I think the judges is working through the issues, but I think that was probably, that's probably one reason I would really highlight is does the buyer even have $44 billion dollars to make the acquisition to kind of get the acquisition to go through? I mean, that may be one of the reasons that they're trying to renegotiate. Okay, lots of good analysis. There one more question for you, obviously from the drama standpoint of everything. We watched Elon musk live tweeting as this testimony was unfolding, he tweeted a popcorn emoji and also made a joke about a Tesla cyber whistle. I think it's supposed to be kind of like the cybertruck a play on that. Essentially my question though, being he's watching, how do you expect musk's legal team to use this testimony in this case moving forward? Yeah. You know, like from my perspective, I'm thinking, okay, well, this case was going for for some time and this whistle or um, you know, introduced a whole twist to the, to the, to the, to the, to the sort of the disagreement, I guess let's put it that way. And obviously the substance of this whistle ward, um, testimony, um, seems to kind of favor the argument of the buyer. Um, but I would, and I think maybe that's why, you know, you saw some of those emojis. Um, and, and you know, this, the introduction of this whistle blower's argument definitely introduces there was a side of the, of the uh, for the buyer and former buyer. But having said that, I, you know, from the judge again, I think the most important, the most important important opinion is one is the is the judges. And if I were the judge, I'm probably thinking, well, You know, the issue raised here is a concerning issue. But the buyer during the due diligence process, you know, Q1 or even as late as last year should have uncovered these issues. And, you know, if the buyer didn't uncover these issues and these issues became a part of the acquisition, then it was probably on the following buyer could not have done as much diligence to kind of uncover some of these things. So, I don't expect to be honest, this um this whistleblower's testimony that really changed the outcome of the decision here is going to make it more complex. But having said that, I would in my mind, I separate out these two issues. The whistleblower's complaint or issue. No concern is independent issue. That reflects more about twitter and the industry and the acquisition is still its own sort of, you know, its own kind of issue. Okay, joe's our partner at Millennia Capital is so good to break that down with you. Thanks so much