Shitcos, Griftcos, and alignment versus enrichment at $IREN
IREN's board handed its Co-CEOs ~$800m of stock right before some big new contracts landed
One of the best pieces of fintwit slang is a “shitco”1. It’s just so all encompassing and so perfect.
Some stock you’re short is getting squeezed higher? Shitco
Want to complain about a stock you own that’s done nothing for two years while the market has ripped higher? Shitco
Talking to a friend about a company you hate, a business you don’t like, or a management team you distrust? Shitco
Again, the description can be pretty all encompassing, and that is perhaps the only drawback of the term. It just gets applied to too broad a swath of companies.
There’s one particular set of companies that I often hear called “shitcos” that I think are much different. These are “businesses” that aren’t really businesses at all. They’re companies built on the promise of a future that need to raise a ton of money at huge valuations in order to justify that future…. and, along the way, they pay their executives a fortune. These businesses are also often dependent on big government contracts or regulatory support in order to survive. I’ve taken to calling these businesses “griftcos”.
Note that’s not to say that the griftco can’t be insanely valuable. Griftcos are often playing on reflexivity; if the stock price is high enough, they can raise enough money to create their own future. Consider perhaps the GOAT of griftcos, Tesla. For over a decade, Tesla painted pictures of a rosy future where the car you bought today would soon operate as part of a self-driving fleet of robotaxis that earned you money while you slept. While that future has yet to come to pass, Tesla used those promises to boost their stock price and raise an enormous amount of money…. and that money (plus a whole lot of regulatory subsidies) has created a trillion dollar business that earns billions every year.
Perhaps labeling them griftcos carries some negative connotations, and I will admit that, on the whole, griftcos aren’t really my cup of tea. But I also find griftcos fascinating: a lot of investing is exposing yourself to positive right tail optionality, and the reflexivity and opportunistic nature of griftcos often mean they’re the best companies for capturing right tails.
I also find griftcos interesting for another reason: griftcos are not shy about paying their insiders, and they’re often not shy about playing on the edge of the rules as it relates to comp. Given that combo, when a griftco decides to make a “dark arts” style big grant of equity to their executives, it’s generally worth taking note.
So today I wanted to dive into a recent griftco case that made a very interesting dark arts style grant. Not because I think it’s crazy undervalued or actionable (though, as I’ll note in the PS, I’m long a similar one in small-ish size due to a very skewed risk/reward IMO!), but because I think it’s a super interesting case study worth thinking on / using to sharpen the corporate governance toolkit.
Let’s dive right into the company / setup. IREN2 is a former bitcoin miner turned AI cloud powerhouse. They’re a perfect company to highlight in a “griftco” article because no group of companies has better exemplified the griftco model than the bitcoin miners. Almost across the board, the bitcoin miners rode inflated valuations and a promise of a rosy future mining bitcoin to build out massive bitcoin mining projects that would have been way overvalued and destroyed massive amounts of value…. until the rising demand from AI computing created a squeeze on power that the same projects were perfectly situated to fill. Overnight, projects that would have been nearly worthless were worth fortunes!
IREN has handled the pivot better than perhaps any other bitcoin miner; they’re a preferred partner for NVDA and landed a massive contract with Microsoft, and the stock has been on a magnificent run since the pivot started.
But what caught my eye with IREN is the timing of their recent equity grants. On June 30, IREN gave their Co-CEOs ~9m RSUs each. That is a massive grant; IREN has ~360m shares outstanding, so the grant effectively hands each Co-CEO 2.5% of the company. It’s also a lot of money; IREN’s stock closed at ~$45/share, so it represented a ~$400m windfall for each of them. Quite the payday!!!… but what’s more interesting is that the 8-K announcing the grant specifically notes that the grants were made to cover ~five years’ worth of grants and that the co-CEOs would not “receive a further equity incentive grant until the Company’s 2031 fiscal year.”
So I think there are two ways of looking at that grant. Perhaps the grant is just griftcos grifting and giving management massive paydays…. or perhaps the grant represented the company rewarding and incentivizing management right before some inflection point for the company unlocked value. Or perhaps it was some combination of both!
Regardless, it’s hard not to look somewhat skeptically on that grant given it came in front of IREN announcing $2.8B of new customer contracts and then delivering Horizon 1 to MSFT while achieving NVIDIA exemplar cloud status. Does the timing of that grant raise all sorts of corporate governance and ethics questions? Yes, absolutely (in my opinion!). Remember: a big grant like this (that pulls forward five years of equity comp) is supposed to be done to ensure and encourage alignment between a management team and investors. It's supposed to be something the management team has to work for, and something that pushes them to maximize value along the way. When a board and management team are willing to give out a massive package right before some unlock comes out, you have to wonder if they’re really aligned and focused on creating shareholder value or enriching themselves at shareholders’ expense. The CEOs already owned ~14m shares each, so it’s not like they weren’t already large shareholders who’d want the stock to go higher. Here, the board just gave them a bunch more stock right before some big new deals were announced.
Ethics and governance questions aside, what’s more interesting (again, at least to me) is how actionable that grant was from an investor / trader perspective. I consider “actionable” grants to be big equity grants that signal a company is about to have some major value inflection moment. Generally, those grants have some type of price or performance hurdle associated with them that gives alignment between the CEO and shareholders (i.e. the company gives the CEO 10m shares, but the stock is trading at $10 and the shares only vest if the stock hits $20 in three years, so it’s a ton of money but shareholders need to make out well for the CEO to get paid). Here, the co-CEOs got paid no matter what they did3; their only give was this was their only grant for the next few years (though I’ve certainly seen companies say “this is our only grant for five years” and then find other ways to reward executives when the stock tanks).
So my question is: was there signal in this grant? And does the company’s history as a “griftco” in my telling make that signal stronger or weaker?
No good answers here; just something I’ve been mulling over!
PS- IREN is obviously the focus of this article, but I’ll note they’re far from the only power shell griftco to hand out juicy awards. FRMI (disclosure: long) is a very controversial power shell company that handed out a bunch of torqued awards to their whole C-Suite in late July that would grant them millions of dollars if they landed a big customer (I wrote about it in real time on the premium side). Sure enough, within a month FRMI had landed their first large customer. Nice work if you can get it!
I almost never curse and try to keep this blog family friendly, so pardon my proverbial French. However, the term “shitco” is so popular on fintwit and among investors I talk to and is such light cursing that I doubt I will be offending anyone’s delicate sensibilities by dropping it here!
Provided they don’t leave the company (the only vesting requirement is continued employment).