September 30, 2020 | technology | No Comments
After nearly two decades as one of Silicon Valley’s most closely guarded companies, data mining company Palantir Technologies finally went public on Wednesday in an unusual direct listing process. After an expected delayed first trade, Palantir opened at 1:40 pm Eastern trading at $10 a share, up from the $7.25 reference price the company set on Tuesday night. It hit $11 at 1:50PM Eastern.
In a direct listing, the company does not raise funds for itself. Instead, existing shareholders get a chance to sell.
Controversial investor Peter Thiel, who cofounded Palantir in 2003 and bankrolled the company in its early years, will be the biggest winner today as company chairman and its largest individual shareholder.
Thiel and three investment firms he founded, Founders Fund, Clarium Capital and Mithril Capital, owned a total of 17.7% of the company before the offering, according to a regulatory filing. Forbes estimates that Thiel owns an 8% stake directly and through the funds, worth $1.9 billion at $11 a share. Thiel and the funds he runs registered to sell as many as 62 million shares in the offering, or 15.8% of their stake. It’s not clear yet whether all 62 million shares will be sold on Wednesday.
Palantir CEO Alexander Karp, who has called wealth “culturally corrosive,” owned 5.6% of the company before the offering, including vested options. Karp registered 20.5 million shares in the offering, which means he may sell some or all of them in the offering, bringing in as much as $200 million or more, before taxes. Forbes estimates that Karp is now worth $1.1 billion.
Forbes first called Karp a billionaire in 2015, when Palantir raised $400 million at a $15 billion valuation; Karp owned an estimated 8% of the company at that time.
Palantir did not answer questions from Forbes regarding Karp’s and Thiel’s ownership stakes, citing regulations with the SEC.
From its genesis in 2003 until this summer, Palantir’s business has been shrouded in secrecy. Created in the aftermath of 9/11, Palantir initially only served government clients, like the Department of Defense and the U.S. Army (its first outside investor was In-Q-Tel, the CIA’s venture arm). Its products allow agencies to securely share, sort and interpret sensitive information from different sources in an efficient way. The company also employs human analysts to help interpret the information; this hybrid model has made the company more difficult for investors and banks to value through the years. It shifted from working for government customers to take on corporate clients in 2010, including BP, Airbus and Credit Suisse.
Once one of the world’s most valuable startups — fetching a $20 billion valuation in 2016 — Palantir Technologies disclosed 2019 revenues of $742.6 million, a 25% increase from the previous year. So far it’s been a strong 2020 for Palantir: the company generated $431 million in revenues from 125 clients in the first six months, up 49% from the same period last year. But the company has yet to turn a profit. In its regulatory filing, it disclosed a net loss of nearly $580 million in 2019. The company reported a net loss of $164.7 million in the first half of 2020, down from a loss of $280.5 million in the first six months of 2019. Bottom-line: it is another money-losing technology company.
The company documents filed with the Securities and Exchange Commission also reveal a complicated arrangement among Thiel, Karp and Palantir President Stephen Cohen, giving the three executives an aggregate minimum of 49.9% voting control, even if they sell a significant amount of shares. Critics have been quick to lambast this form of corporate governance, calling its structure “egregious” and “an oligarchy of three.” One person who is not concerned: Joe Lonsdale, a Palantir cofounder who left the company in 2009 but remains a significant shareholder through his venture capital firm, 8VC.
“If it was me, I might have changed [the rules] slightly [with] how much they could sell while still being fully in charge of it,” Lonsdale tells Forbes. “But Stephen, Alex and Peter are all very different people with strong principles. They disagree with each other sometimes. The fact that there’s three of them is a really positive sign.”
Palantir has also gotten in hot water in the last few years over its work with government agencies, particularly its contracts with the Department of Homeland Security (DHS) and Immigration and Customs Enforcement Agency (ICE). Critics claim that these agencies have used Palantir technology to conduct raids on migrants and, in some cases, forcefully separate parents from their children. Days before its direct listing, Amnesty International, a human rights organization, published a report detailing the company’s involvement in problematic immigration incidences, and stated that Palantir “has a responsibility to avoid causing or contributing to human rights.”
But Lonsdale says that it is not Palantir’s role to change policy or dictate what kind of work a government agency performs. “We can argue all day long on what the policy should be, and maybe there should be certain things that intelligence people can’t see,” Lonsdale explains. “That policy argument is one that should go on between our government and our populace. But once you have the rules, you should do it efficiently and not waste billions of dollars.”
Thiel cofounded Palantir in 2003, one year after selling PayPal to eBay for $1.5 billion, with Lonsdale, Cohen (both recent Stanford computer science grads at the time) and PayPal engineer Nathan Gettings. Named after a fictional mysterious orb in J.R.R. Tolkein’s Lord Of The Rings that can see into the past and future, the company’s goal at its founding was to build a product that could be used by the government to reduce terrorist attacks.
The founding team, who grew up hearing stories of the National Security Agency’s unparalleled technological sophistication in the ‘70s and ‘80s, realized in the aftermath of 9/11 that “the government had gotten way behind Silicon Valley,” says Lonsdale. “From the beginning, it was an unusual company, and we had big ambitions to build something that was very important for Western civilization.”
The young team had trouble getting investors and customers to take them seriously, so Thiel, who knew Karp from their days together at Stanford Law School, brought Karp on in 2005 as acting CEO. Though Karp didn’t have the technical background (he has a Ph.D. in social theory), the founders liked his ability to understand Palantir’s complex technology and explain it to nonengineers. He also had connections to wealthy Europeans from his earlier experience managing assets for high net worth individuals in London.
As the company continued to grow, its culture began to mirror Karp’s iconoclastic image — and that culture will likely stay. From the nickname for its Palo Alto headquarters — the Shire, another Lord of the Rings reference to the homeland of the hobbits — to Karp’s introductory video during Palantir Investor Day in early September, which featured him in dry land cross-country training gear, the company has made it crystal clear that it will go its own way.
Karp, who once had a 24/7 security detail when rumors began circulating that it was Palantir’s technology that helped locate Osama bin Laden (a rumor that remains unconfirmed), also made clear — as part of Palantir’s registration documents—, his view that Silicon Valley was too disconnected from the real needs of the country. “The engineering elite of Silicon Valley may know more than most about building software,” Karp writes. “But they do not know more about how society should be organized or what justice requires.”
Palantir moved its headquarters from Palo Alto to Denver earlier this year. Karp, meanwhile, has been conducting media interviews from a barn in New Hampshire, while Thiel moved to Los Angeles two years ago, citing Silicon Valley’s monocultural issue. “It’s actually a little bit said,” says Lonsdale, during an interview on Tuesday. “I have a party tonight for some people to celebrate, and half the people I built the company with have already moved.”