Startup Lessons I learned from Tesla Origin Story by Co-Founder Marc Tarpenning
These days, when I think of Tesla the image of Elon and his gigafactory stretching for miles and miles in Reno, Nevada (soon to be replicated in Berlin) comes to mind. A month ago, I heard Marc Tarpenning’s tech talk on Tesla origin story and it was refreshing to know that it too started as a scrappy startup just like Carta, a $1B+ fin-tech unicorn. I had worked for the company for five years. As employee number 4, I had seen all the ups and downs throughout its start-up journey.
Before they could afford fancy office buildings, Marc Tarpenning and Martin Eberhard founded Tesla as a tenant in a no-nonsense office building decorated with fancy plumbing fixtures in conference rooms, owned by, not surprisingly, an eccentric plumber turned businessman in San Carlos.
In 2003, no one in their right mind would finance an auto company startup that “wanted” to produce electric vehicles. Martin had a master’s degree in electrical engineering and tinkered with cars as a kid but that was about it. So how did they do it?
Use data as competitive advantage to disrupt industry
Did you know that people tried to make electric cars as far back as 1800's? It was pretty popular until Ford introduced the Model T in 1908 and killed electric cars. Why? Model T cars cost roughly $600 whereas electric cars cost 3 times more than that.
Time passed and car companies simply didn’t feel the need to work on electric cars. For almost 100 years!!! Gas was cheap. The Big Three (Ford, GM, Chrysler) were happy. The only time they worked on electric cars was when California made it a mandate in the 90’s but when the program ended, they stopped making EVs.
What truly became Tesla’s competitive advantage was their focus on analytics. The Big Three had started using subcontractors for parts to save money — this made it impossible to get any data on the car as a whole and understand the details of the experience as a driver because the data was siloed. Tesla collected in-depth data on every Tesla car from the get-go allowing Tesla’s engineers to constantly innovate and improve the car’s performance.
Start fundraising right after you hit a milestone
The Tesla co-founders knew investor psychology very well. Starting an automotive startup in 2003 was unheard of. Investors wanted to minimize their risk while not lose the opportunity to invest in a hot startup. They instilled strong confidence by strategically timing their fundraising activities.
Finding the right lead investor
As you can guess, Tesla had a hard time finding investors for their series A round. The seed round was funded by the co-founders and their friends and families. But when it came to the next round, the VCs on Sandhill road were reluctant to invest without a lead investor.
That’s when serendipitously, Elon reached out and offered to underwrite the entire round himself. As part of “Paypal Mafia,” Elon had celebrity status in Silicon Valley. In 2006, they launched in Santa Monica and the rest is history.
When Marc talked about this, I remembered how hard it was for Carta to raise their series A round. In 2014, the word “fintech” was still new. At the time, Silicon Valley VCs were more interested in B2C startups, not B2B. After 24 VCs said no, Henry, our CEO flew to New York to meet Fred Wilson from USV. We were all crossing our fingers. Finally, Fred decided to invest in Carta and we all cheered when we heard the news. Other investors followed and Carta became a unicorn in 2018.