If I asked you what feeling comes up from the words “scorpion” or “Hindenburg,” you might say fear or pain. That’s exactly the kind of association that the founders of investment firms Scorpion Capital and Hindenburg Research are probably hoping for.
Both firms operate in an obscure but sometimes critical corner of the markets: short selling. While most investment firms buy stocks they think will go up, short sellers bet on stocks they think will fall. And they often release detailed research reports criticizing the companies they have targeted and explaining what investors should fear.
With Boston’s growing profile as a tech hub, some local high flyers are drawing the attention of short sellers. In June, Hindenburg issued a report blasting DraftKings, saying that the online gambling company’s technology was being used in countries that don’t allow online gambling. Since then, its stock has fallen and recovered — it’s down about 2 percent.
Then last week, Scorpion offered a report on Ginkgo Bioworks alleging the synthetic biology company was manufacturing revenue by creating its own customers. Ginkgo’s stock is down almost 20 percent since the report came out.
Neither firm’s research should be lightly dismissed. Hindenburg uncovered problems at electric truck maker Nikola that led to the departure of the CEO. And Scorpion’s recent targets include battery developer QuantumScape, whose stock price has nearly been cut in half since an April report.
The headline on Scorpion’s 175-page report on Ginkgo didn’t mince words: “A Snake Oil Salesman And Some Hedge Funds Partner Up To Pimp The Latest ‘Synthetic Biology’ Scam — As Phantom Revenue, A Hocus-Pocus Business Model, Rampant Related-Party Games, And A Decade of Colossal Failure Get Shoveled Into Yet Another Garbage SPAC.” (Yes, both Ginkgo and DraftKings went public via mergers with a special purpose acquisition company.)
Though the rhetoric might be over the top, some facts are not in dispute. Many of the early customers for Ginkgo’s design platform are startups that either Ginkgo or some of its main private investors have also backed. To Scorpion, it’s a sign of inflated revenue, as Ginkgo’s own investment capital returns to the company as sales from the startups.
Ginkgo, which disclosed those relationships in its filings, hasn’t said much in response yet. But CEO Jason Kelly issued a short statement defending the pattern uncovered by Scorpion as a purposeful and solid strategy. “We don’t think that is a problem—starting a biotech company should be as easy as launching a website,” Kelly said. “We’re happy we make it easy for companies to start on Ginkgo’s platform and hopefully more entrepreneurs hear about our platform today.”
As Boston companies achieve greater prominence in tech circles, not all the attention will be favorable, it seems.
Aaron Pressman can be reached at aaron.pressman@globe.com. Follow him on Twitter @ampressman.
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October 12, 2021 at 09:58PM
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Short sellers are coming for Boston tech - BetaBoston
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