Let's talk business here, because I find the numbers behind Palantir both astonishing and fascinating.
Their burn rate looks to be around $275m/yr based on employee head count and they've received ~$900m in funding:
- Seed - In-Q-Tel (~$2m)
- Debt Financing - $8.3m
- Series C - $35m
- Series D - $90m
- Secondary Market (unk amount, 137 investors)
- Series E - $50m
- Series F - $70m
- Series G - $56m
- Secondary Market (unk amount, 137 investors)
- Private Equity - $196.5m (Founders Fund)
- Private Equity - $390.4m (Feb 2014)
Their last round was almost $400m in Feb of 2014. That's almost as big as all other rounds combined. Their "valuation" (for whatever that's worth) based on the last investment round is ~$9billion.
As of August 2013 they were not yet profitable but estimates for 2013 revenue were around $450m and <$300m in 2012.
Other revenue estimates (they're all over the place honestly it seems like every time they give an interview it's a different number)
They've publicly announced several time they have no interest in being acquired or go public. Yet one of their investors claims on Quora that they'll probably go public in 2015 or 2016.
Some questions for people who understand this mess better than I.
- What's their exit strategy honestly look like? At $9b valuation, I can't imagine too many companies who might be interested in buying them.
- All the private equity investment tells me they're burning money faster than they can find investors, keeping it private keeps their financials private, which smells like trouble to me if they were to go public. Am I right in this analysis or wrong?
- Does dilution basically make everybody who has shares or options through 11 (eleven!) rounds of investment basically holding onto worthless paper? Even if they go public? A review of glassdoor on the company says that people are underpaid and salary capped, they must be holding on for a big payday somewhere. Are they going to end up disappointed?
Anything else that might be interesting to discuss? Their fundraising seems really crazy and unusual from anything I've seen before.
Here's a longform history [1] of the company which shows they spend over $1m/yr on lobbying (IBM spent $6m, Raytheon $7.5m, Lockheed Martin, $14.5m, Boeing, $15m). To put that in percentage terms, if Palantir is worth $9b
Palantir spends .012% of their value on lobbying
IBM spends .003%
Raytheon .026%
Lockheed Martin .027%
Boeing .017%
This article also lists 16 distinct financing events, bringing dilution of early investor shares even more to mind.
Some people want to build actual sustainable businesses. Why are you assuming they have a secret exit strategy when they've stated they're not interested in exiting?
If you switched to the bull side, you would basically have the opposite article and it would likely have as much merit or more.
They are obviously going to IPO at some point. With the hassle of IPOing, the nature of their business and the easy access to private capital, they'd be dumb to IPO sooner than later.
The secondary market for shares is extremely active and employees can sell a limited number. So almost anyone has probably cashed out as much as desired at this point.
The secondary market for shares is extremely active and employees can sell a limited number. So almost anyone has probably cashed out as much as desired at this point.
That's an interesting point. Can you go into more about how that might work? I had assumed they were just internally selling shares to other employees, but could it be they're selling shares to external buyers? I'm not clear on how that works.
Employees typically would not buy other employees' (or investors') shares.
Basically buyers and sellers need to find each other, agree on terms, send it to the company for right of refusal and then transact (and pay a large legal fee).
Different companies have different degrees of willingness to entertain the secondary market. With a stated desire to remain private for an extended period, Palantir may be more amenable than most to secondary.
I would imagine they are probably operating like Amazon: spending all their money on growth, mainly on acquiring talent. If they get big enough, they will be able to close huge deals with the government. Maybe the investors see this as a safe bet to hedge their portfolio, kinda like a value investment. My 2 cents..
Palantir is a govt contractor. They need to be big to be heard and be in charge. They want to be Lockheed, Raytheon and Boeing. They can't be big without hiring tons of employees so they are hiring tons of employees.
Exactly. Government contracts don't require the number of people to get the job done. They require the number of people they SPECIFY are required (whether or not that number is correct) to get the job done. Translation: Government contracts are by their very nature overstaffed as fuck.
One of the things I've been reading is that quite a bit of their business seems to be shifting to their financial product from their government product. So I'm not sure how much their government business is still a major part of the company.
I don't think it's exactly that, but vaguely I get the same feeling. It's like if they are in the big league. Not being public IMHO it's a way of keeping a discreet profile more than anything else.
Raytheon, Lockheed, and Boeing all hire ex-Pentagon/Defense officials as well so the official "lobbying #s" are probably low for all of them. ;)
I think Palantir's goal is to burn as hot as it can for as long as it can, then coast on the residuals of its government contracts. [e.g. Make the kind of "open bid contacts" that require automatically fails anyone not Palantir]
Plus, it's not that helpful to look at lobbying spend as a percentage of revenue. It takes a certain amount to be in the game. Then you get some decreasing returns.
Easy but wildly incorrect due to the exponential factor.
For example, if you assume a 15% dilution over 11 fundraising rounds, then it's 0.0167% which is +$1.5MM at a $9B valuation.
at 20%: +730k
at 25%: +$380k
I picked 15% because it seemed a good middle ground. Seed rounds are often <15%, Series A/B is around 20-30%, and later rounds target <5-10%. Because Palantir did so many rounds, I would guess only a few were significantly (> 15%) dilutive.
Comments
Let's talk business here, because I find the numbers behind Palantir both astonishing and fascinating.
Their burn rate looks to be around $275m/yr based on employee head count and they've received ~$900m in funding:
Their last round was almost $400m in Feb of 2014. That's almost as big as all other rounds combined. Their "valuation" (for whatever that's worth) based on the last investment round is ~$9billion.As of August 2013 they were not yet profitable but estimates for 2013 revenue were around $450m and <$300m in 2012.
Other revenue estimates (they're all over the place honestly it seems like every time they give an interview it's a different number)
They've publicly announced several time they have no interest in being acquired or go public. Yet one of their investors claims on Quora that they'll probably go public in 2015 or 2016.Some questions for people who understand this mess better than I.
- What's their exit strategy honestly look like? At $9b valuation, I can't imagine too many companies who might be interested in buying them.
- All the private equity investment tells me they're burning money faster than they can find investors, keeping it private keeps their financials private, which smells like trouble to me if they were to go public. Am I right in this analysis or wrong?
- Does dilution basically make everybody who has shares or options through 11 (eleven!) rounds of investment basically holding onto worthless paper? Even if they go public? A review of glassdoor on the company says that people are underpaid and salary capped, they must be holding on for a big payday somewhere. Are they going to end up disappointed?
Anything else that might be interesting to discuss? Their fundraising seems really crazy and unusual from anything I've seen before.
Here's a longform history [1] of the company which shows they spend over $1m/yr on lobbying (IBM spent $6m, Raytheon $7.5m, Lockheed Martin, $14.5m, Boeing, $15m). To put that in percentage terms, if Palantir is worth $9b
This article also lists 16 distinct financing events, bringing dilution of early investor shares even more to mind.1 - http://www.mausstrategicconsulting.com/topical-analysis-blog...
Some people want to build actual sustainable businesses. Why are you assuming they have a secret exit strategy when they've stated they're not interested in exiting?
A billion dollars in investment so far.
If you take on funding, let along through multiple rounds, your backers are going to want an exit. That's VC-101.
If you switched to the bull side, you would basically have the opposite article and it would likely have as much merit or more.
They are obviously going to IPO at some point. With the hassle of IPOing, the nature of their business and the easy access to private capital, they'd be dumb to IPO sooner than later.
The secondary market for shares is extremely active and employees can sell a limited number. So almost anyone has probably cashed out as much as desired at this point.
That's an interesting point. Can you go into more about how that might work? I had assumed they were just internally selling shares to other employees, but could it be they're selling shares to external buyers? I'm not clear on how that works.
Employees typically would not buy other employees' (or investors') shares.
Basically buyers and sellers need to find each other, agree on terms, send it to the company for right of refusal and then transact (and pay a large legal fee).
Different companies have different degrees of willingness to entertain the secondary market. With a stated desire to remain private for an extended period, Palantir may be more amenable than most to secondary.
I would imagine they are probably operating like Amazon: spending all their money on growth, mainly on acquiring talent. If they get big enough, they will be able to close huge deals with the government. Maybe the investors see this as a safe bet to hedge their portfolio, kinda like a value investment. My 2 cents..
Palantir is a govt contractor. They need to be big to be heard and be in charge. They want to be Lockheed, Raytheon and Boeing. They can't be big without hiring tons of employees so they are hiring tons of employees.
Exactly. Government contracts don't require the number of people to get the job done. They require the number of people they SPECIFY are required (whether or not that number is correct) to get the job done. Translation: Government contracts are by their very nature overstaffed as fuck.
Butts in seats baby, butts in seats.
One of the things I've been reading is that quite a bit of their business seems to be shifting to their financial product from their government product. So I'm not sure how much their government business is still a major part of the company.
I don't think it's exactly that, but vaguely I get the same feeling. It's like if they are in the big league. Not being public IMHO it's a way of keeping a discreet profile more than anything else.
That said, only time will tell.
Raytheon, Lockheed, and Boeing all hire ex-Pentagon/Defense officials as well so the official "lobbying #s" are probably low for all of them. ;)
I think Palantir's goal is to burn as hot as it can for as long as it can, then coast on the residuals of its government contracts. [e.g. Make the kind of "open bid contacts" that require automatically fails anyone not Palantir]
Plus, it's not that helpful to look at lobbying spend as a percentage of revenue. It takes a certain amount to be in the game. Then you get some decreasing returns.
Yep. It is more about who you know and the ability to pay people to talk to "those people" full time.
Re: dilution. If you started with 0.1% of $2m, that's $2000. If each round diluted by half, your 0.00005% of $9b is $4500.
FYI: it would be crazy if each round diluted you by half. I've never heard of that happening.
Worst case. Also made the math easy.
Easy but wildly incorrect due to the exponential factor.
For example, if you assume a 15% dilution over 11 fundraising rounds, then it's 0.0167% which is +$1.5MM at a $9B valuation.
at 20%: +730k
at 25%: +$380k
I picked 15% because it seemed a good middle ground. Seed rounds are often <15%, Series A/B is around 20-30%, and later rounds target <5-10%. Because Palantir did so many rounds, I would guess only a few were significantly (> 15%) dilutive.
Thanks for the explanation, I hope that's worth it for the folks who've been hanging on there for years and years.
You might find interesting that Palantir is basically an extension of the CIA and NSA.