Ginkgo Bioworks Called a Colossal Scam by Short Seller Scorpion Capital
Posted on 10/07/2021
On October 6, 2021, short seller Scorpion Capital released a damaging 175-page report alleging that Ginkgo Bioworks Holdings, Inc. is a “colossal scam.” The report shows the company is highly dependent on related-party transaction revenues. The report charges that the company is a “Frankenstein mash-up of the worst frauds of the last 20 years.” Founded in 2009, Ginkgo Bioworks specializes in using genetic engineering to produce bacteria with industrial applications.
Ginkgo Bioworks Holdings went public through a SPAC transaction with blank check company Soaring Eagle Acquisition Corporation in September 2021.
Major investors in Ginkgo Bioworks before it went public include hedge fund Viking Global Investors, Bill Gates’ family office Cascade Investment, and General Atlantic. Cascade and Viking Global also participated in investing in a number of associated-platform companies of Ginkgo Bioworks.
How Much of the Reported Revenue is Actually Cash and Not Related-Party Revenue?
Scorpion Capital found that related-party revenue for Ginkgo Bioworks was 65% of foundry revenue in 2019 and 72% of foundry revenue in 2020. Scorpion Capital estimates that non-cash revenue for 2020 was 47%. In the last twelve months ended June 30, 2021, Ginkgo Bioworks reported revenue of US$ 133.1 million and a net loss of US$ 200.5 million. The company’s operating margin for that period was -155.8%.
Ginkgo Bioworks created new entities for its platform that it funds with investors like Viking Global and Cascade Investment. Many of these platform companies like Allonnia LLC had an absence of dedicated HR, legal, and finance staff. Scorpion Capital contends Ginkgo Bioworks is playing shell games which in turn generate some level of “fake revenue”. For example, some of the related parties are housed inside Ginkgo’s headquarters and its related parties generally have few or zero employees on LinkedIn.
In October 2019, Ginkgo Bioworks revealed the Ferment Fund, a private investment vehicle for Ginkgo spinout companies. The US$ 350 million vehicle received financial backing from Ginkgo’s major investors which includes Cascade Investment, Viking Global Investors, and General Atlantic. From the SPAC prospectus, initial investments in new companies associated with Platform Ventures includes US$ 12.9 million from Cascade Investment, US$ 19.5 million from General Atlantic, and US$ 57.8 million form Viking Global Opportunities Illiquid Investments Sub-Master L.P. These backed-companies could essentially pay Ginkgo a fair market value for their services.
Zymergen Case Study
Ginkgo Bioworks largest competitor in the synthetic biology space is Emeryville, California-based Zymergen. Zymergen went public in April 2021 but soon imploded and its CEO Zymergen cofounder Josh Hoffman stepped down in August 2021. At that time, Zymergen forecast “product revenue to be immaterial in 2022.” Soon after that news, Zymergen’s stock dropped 69% in after-hours trading, destroying around US$ 2.5 billion in market value. In 2020, Zymergen reported a net loss of US$ 262 million and revenue of only US$ 13 million.
