Space Florida's Rivian Stake: A Shrinking Investment

A Lost Fortune: The Curious Case of Space Florida’s Rivian Investment

A substantial return on investment was once within reach for any investor, particularly a public entity: exchanging a non-functional vehicle for a significant equity position in a promising new electric vehicle (EV) company.

Until recently, Space Florida, the state’s aerospace economic development agency, operated under the belief that it held a 3% ownership stake in Rivian, stemming from a strategic lease-back arrangement established a decade prior. Following Rivian’s successful initial public offering (IPO) in November, this stake was projected to be valued at approximately $3 billion, based on Rivian’s current market capitalization – representing a return exceeding 1,000 times Space Florida’s initial investment.

This initial investment encompassed the acquisition of Rivian prototypes in exchange for warrants, alongside the direct cost of stock purchases.

The Vanishing Equity

However, through a process that remains unexplained by both the agency and Rivian, Space Florida now possesses only 60,000 shares in the company, currently valued at under $7 million, as indicated by public agency records.

The central question arises: how did a commercial space agency become involved with an EV manufacturer, and how did its anticipated ownership stake diminish so drastically?

From Gas-Powered Coupes to Electric Dreams

Space Florida’s engagement with Rivian predates the company’s current name and its focus on electric vehicles. In 2009, RJ Scaringe founded Mainstream Motors as a spin-off from his father’s research and development firm located in Rockledge, Florida.

The initial objective was to develop an exceptionally fuel-efficient gasoline-powered coupe, targeting 60 miles per gallon, and to establish production in Florida utilizing lightweight materials and modular manufacturing techniques, all by the end of 2013.

The Florida Energy and Climate Commission provided $2 million in seed funding, enabling Scaringe to assemble a small team to design a prototype. This funding is distinct from the subsequent deal between Rivian and Space Florida.

According to a Bloomberg report, the team dedicated themselves to creating plans for the vehicle, excluding the engine. Once finalized, these plans, along with a Mini Cooper for its powertrain, were shipped to a contract manufacturer in Detroit.

The Prototype Sale

Scaringe then executed a strategic maneuver. In June 2010, while the company’s first prototype was still largely assembled from custom and salvaged components in Detroit, he sold it to Space Florida for $500,000.

“Initially, the possibility of establishing an automobile manufacturing plant in Florida was considered,” explained Dale Ketcham, VP of Space Florida, in a recent TechCrunch interview. “However, it was the potential applications beyond Earth, such as on the moon or Mars, that truly captured our interest.”

Upon arrival in Florida in October 2010, Space Florida leased the prototype, nicknamed “The Blue Thing,” back to Scaringe for $100 annually. The vehicle was not road-legal, nor was it production-ready, but it could be utilized for testing and demonstrations.

This included a proposed speed test at NASA’s Shuttle Landing Facility at the Kennedy Space Center, as documented in records obtained through a Freedom of Information Act request. Following the 10-year lease, Scaringe had the option to repurchase the vehicle from Space Florida for a final payment of $100.

Warrants and Ownership

In addition to the lease arrangement, Space Florida documents indicate that the startup would issue a warrant to acquire 100 shares of its common stock, redeemable at any time within the next decade, for $1,000 per share.

“This was one of several similar arrangements we had with other organizations,” Ketcham stated. “It provided us with a small stake in the company and them with some capital.” Space Florida also offered business guidance to the fledgling company.

Scaringe rebranded Mainstream Motors as Avera. In March 2011, he renamed it again – to Rivian – and persuaded Space Florida to replicate the agreement. The agency would purchase three additional vehicles for $1 million, leasing them back to Rivian for $100 per year. Rivian, in turn, issued Space Florida a warrant for an additional 200 shares, priced at $1,843 each, requiring a $368,600 investment to redeem.

A Shift in Focus

Rivian faced a challenging period. Scaringe actively sought investors and operated with a minimal staff. It took until June 2014 to complete the three promised vehicles, with the lease commencing months later.

Following a significant investment from Saudi Arabia, Scaringe relocated Rivian to Michigan, acquired a factory in Illinois, and effectively moved Florida out of its operational scope.

However, a portion of the company remained in Florida. Space Florida recorded the Rivian warrant agreements in its 2013 financial statement, estimating the first warrant for 100 shares to represent a “1% ownership interest” and the second, for 200 shares, a “2% ownership interest.” Space Florida therefore believed its 300 shares equated to a 3% stake in the young company.

“We have an investment fund for these types of investments,” Ketcham explained. “Not every investment will succeed. If a company fails, you’re left with nothing, like everyone else.”

Exponential Growth and a Discrepancy

Rivian did not fail. Its progress was remarkable, attracting hundreds of millions in funding from Amazon, Ford, and Cox Automotive, followed by billions from T. Rowe Price, Amazon’s Climate Pledge Fund, and Ford, among others.

Rivian CEO RJ Scaringe speaks in November 2018 before unveiling the company’s two first electric vehicles at an event at the Griffith Observatory in Los Angeles. Image Credits: Getty/Phillip Faraone

In 2018, Scaringe told TechCrunch: “We have a strong relationship with Space Florida. They had hoped we would be able to manufacture there, but as the company grew, the lack of automotive infrastructure became a problem. They hold a substantial number of warrants, and I imagine they are pleased with the company’s progress, given the increasing value of those warrants.”

But how valuable were they precisely? Between 2013 and 2020, Space Florida valued its 300 warrants at their original cost of just under $1.5 million. Simultaneously, Rivian’s valuation surged from the $10 million implied by the 2010 Space Florida transaction into the billions, and its stock underwent multiple splits.

(A stock split means that even a small number of shares acquired in Rivian’s early stages as a private company could have multiplied into thousands as the company matured and went public).

Throughout this period, Space Florida continued to believe it owned 3% of Rivian, as reflected in its public financial statements as late as October 2020.

The Final Calculation

The warrants were executed in late 2020. Space Florida’s most recent financial statement, issued in October, now reveals the agency holding only 60,000 Rivian shares, worth less than $7 million. This represents approximately 500 times less than a 3% stake and less than half of what Space Florida would have earned by investing in the Nasdaq instead of Rivian a decade ago.

“Something seems amiss here,” commented Scott Orn, COO at Kruze Consulting, an accounting firm specializing in funded early-stage companies. He noted that early ownership can be diluted by larger investors or through recapitalization. “But you wouldn’t go from, say, 10% to 1% ownership. You wouldn’t completely eliminate it.”

Rivian declined to comment on Space Florida’s warrant agreements or ownership stake, citing shareholder confidentiality. Space Florida acknowledged the figures in its financial statements but refrained from commenting on the investment’s value “pending board review of policy for these issues.”

Ketcham anticipates that “it will still prove to be a very beneficial investment for the state.”

No Legal Action Planned

Despite the significant and puzzling discrepancy, Space Florida has no intention of pursuing legal action against Rivian. “Our relationship with Rivian has been and remains excellent,” Ketcham stated. “They did what they needed to do. And we want them to succeed.”

Adding another layer of mystery, neither organization could provide information regarding the whereabouts of the four original prototype Rivian vehicles that played a role in this unusual investment story.