A Horseman of the Apocalypse

A look at electric vehicle company Rivian

There’s a secret competition running where companies, whether they know it or not, are jockeying to be one of the horsemen of the next tech apocalypse.

Who is going to become the next Webvan? Who will be the Lehman Brothers of this crisis? Who is going to be that iconic, once-in-a-crisis company associated with all that went wrong in the heady mania that led up to what will, in retrospect, look like an utterly foreseeable industry-wide financial ruin?

To win a place among these dark riders of the end times, it’s not enough to fail publicly and embarrassingly. You’ve got to get the timing right. WeWork’s troubles are in the rearview mirror. Theranos is old news. They tried their best at being the posterchildren of this tech boom’s overreach, but, alas, they weren’t in the wrong place at the right time.

Better luck next cycle.

Now, I want to make it very clear that I don’t predict bubbles. If I were an investor, I would just plug my ears and rap Jay-Z’s “Moment of Clarity” to myself, drowning out anyone who tries to bring up the idea that the good times could ever come to an end. I’d ignore any warning signs and simply raise my next fund.

So I’m not predicting the end times, nor am I telling professional investors to change their behavior to avoid financial ruin. Deploy capital!

BUT. It is fun to read the news of the day as a preamble to the end times — just as an amusing way to pass the time.

So I couldn’t help but read Packy McCormick’s latest piece on electric car company Rivian as a compelling application essay for why Rivian could win a come-from-behind victory in this competition to become a champion for the end times.

McCormick makes a hedged but upbeat case for Rivian at a $55 to $60 billion market cap.

[I]n the market we’re in right now, the $57-62 per share range for Rivian feels fair. It’s spent 12 years completing the really, really hard, question-mark-ridden part of the journey. Now, it has cars on the road. If it hits, or exceeds, near-term production targets, the market will likely respond positively. As the pre-orders grow, the market will likely respond positively. 

There’s a lot about the optics of the piece that scream bubble. The article is sponsored by SoFi, a new age financial institution, that’s advertising the fact that its customers can go to SoFi to buy shares in Rivian into the IPO.

McCormick writes,

I’m writing about Rivian’s IPO, but the piece is sponsored by SoFi.

Before we get to the piece itself, I want to say a few words about why I’m writing it.

SoFi is the only place regular retail investors can buy IPO shares of Rivian at the same time as the institutions. Retail investors getting IPO access is a new phenomenon, so we need new resources.

So McCormick’s essay isn’t just a case for buying Rivian. It’s a case for buying into the IPO pop, brought to you by the folks who would make money off you buying those shares.

McCormick writes,

If you follow Benchmark’s Bill Gurley on Twitter, you know that he thinks the IPO pop, and the whole IPO process, is bad for companies. It means tech companies earn 30% less cash than they could for selling the same number of shares directly to the market. It’s also bad for retail investors, like us. It means that we can pay a 20-30% premium to the prices that well-connected institutions paid just hours earlier! 

(This should go without saying, but not all IPOs pop! Some crash. DYOR.)

But, of course, Gurley has advocated for direct listings, not gaming the IPO system so that consumers can get in on IPO mispricing too.

McCormick is a smart guy. There are some real arguments running through the piece: that Rivian’s valuation is rational if you assume other electric vehicle multiples are rational, that the company has well-reviewed product that people like, and that this is no Nikola — Rivian’s CEO and product are legit.1

Ultimately, McCormick has thought more about Rivian than I have. So maybe he’s right.

A few simple facts give me pause, however2:

This post is for paid subscribers