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Lots of happy people as Palantir and Asana spike on first day of trading

The markets are closed and the verdicts are in: investors liked what they saw in Palantir and Asana .

The two companies, which debuted this morning in dual (and duel) direct listings, continued to prove that enterprise tech companies without the brand recognition of Spotify (which conducted its own direct listing back in 2018) can make direct listings work. So far, the evidence is decent that the mechanism isn’t throwing off investors.

Michael Nagle/Bloomberg via Getty Images

Asana closed its first trading day at $28.80 a share — a gain of 37% against its reference price of $21 a share. The company’s first trade was at $27. Meanwhile, Palantir closed the day at $9.73, a gain of 34% against its reference price of $7.25. Its first trade was at $10. Asana is valued at about $4.3 billion at close, while Palantir reached $24.8 billion, based on its fully diluted share count, including recent securities sold.

As an aside, my Equity co-host Natasha Mascarenhas and I did an “Equity Shot” talking more about these early numbers. Tune in if you want to hear our discussion and analysis:

That done, with big bold numbers on the board, there were a number of winners.

First and foremost, Founders Fund, which is the only major investor shared between the two companies, has a lot of capital incoming. The firm owns 5.8% of Asana and approximately 6.6% of Palantir, netting it somewhere around $1.8 billion given today’s valuations (that’s definitely back-of-the-envelope math mind you).

Meanwhile, Benchmark owns 9.3% of Asana, and a number of other investors including Japanese insurer SOMPO, Disruptive Technology Solutions, UBS, and 8VC own significant stakes in Palantir.

The other winners are the founders of these companies. Dustin Moskovitz retains a 36% stake in Asana, while his cofounder Justin Rosenstein holds a 16.1% stake. Over at Palantir, the trio of founders of Alex Karp, Stephen Cohen, and Peter Thiel now have liquid billions at their collective disposal.

Asana founders Justin Rosenstein and Dustin Moskovitz. Photo via Asana

Of course, employees will be happy to get liquidity as well. Asana does not have a lockup period, and so its employees and insiders are free to trade. Palantir coupled a direct listing with a lockup, and so only about 28% of the company’s shares are eligible for sale today. The remainder will be authorized to be sold over the next year.

In an interview with Moskovitz shortly after the markets closed today, he said that “it’s been an exciting morning, but ultimately it’s just one step in a much longer journey towards fulfilling our mission” (you can read more of our interview with Moskovitz on Extra Crunch).

While it’s just one trading day, it was a positive one for both companies, and that provides even more evidence that the classic IPO now has stiff competition from direct listings and other alternative methods like SPACs.

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Asana up 39% and Palantir still holding as both direct listings hit the public markets

Two direct listings in one day. Lots to talk about.

Asana started trading just a bit after noon Eastern today, quickly zooming to roughly $29 a share in early trading this afternoon. We are still waiting for the first trades of Palantir to hit the market.

Asana’s reference price was revealed yesterday by the NYSE, and it was set for $21 a share. The company had roughly 150 million shares of stock outstanding on a fully diluted basis, which gave it a pre-market reference value of $3.2 billion. Palantir for its part was assigned a reference price of $7.25 a share, giving it a $16 billion implied valuation. At its current share price, Asana is valued at roughly $4.4 billion.

The two companies trade on the NYSE, with Asana under ticker ASAN and Palantir under the ticker PLTR.

For both companies, which are well capitalized, a direct listing seemed to be the right approach to give early employees and other insiders a liquidity option while continuing to maintain tight control of the ship. One difference between the two initiatives is that Asana has no lockup for employee and other insider shares as is typically customary with a direct listing. Palantir pioneered a lockup provision with a direct listing that will allow only roughly 29% of the company’s shares to be available potentially for trading today. The remainder of those shares become eligible for sale over the coming months.

As with all direct listings, no shares are offered by the company upon market debut, and the reference prices published by the NYSE are imaginary if important mental benchmarks for where bankers believe a hypothetical price lies for these two companies.

As my colleague Jon Shieber described a few weeks ago, Asana is an interesting entry into the markets as a long-time SaaS company stalwart that continues to lose buckets of revenue. Despite fast revenue growth of roughly 71%, the company lost $118.6 million on revenues of $142.6 million in fiscal 2020 (Asana has a Feb 1 fiscal year calendar, so those figures are for the bulk of 2019).

The company was last valued at $1.5 billion in late 2018. It secured a bit more than $200 million in venture financing since its founding in 2009, and its founders Dustin Moskovitz and Justin Rosenstein hold large stakes in the company of roughly 36% and 16.1% respectively.

Over at Palantir, which we have covered extensively the past few weeks, the company is even more of an outlier, with large-contract government sales that accrue over many years. The company reported a total of 125 customers, losses of $580 million on revenues of $743 million last year, and projected revenues of just above $1 billion for 2020.

While Palantir’s reference price was below the final secondary trades held by the company in early September before it closed the window in the run up to its IPO, that price was well-above the average trading of the past 18 months.

For both companies now, the public markets beckon, and the first public quarterly results are coming due here in a few weeks. You can read more about Asana on the company’s investor relations page. Like so much else at Palantir, it doesn’t have an investor relations page (yet?) as of the time of writing this article, but presumably the company will want to connect with investors at some point in the near future, one would hope.

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Palantir’s reference price values it at roughly $16 billion

Palantir is preparing for its public debut tomorrow morning on the NYSE (after 17 years), and now we are getting some data on how the company’s shares are being valued by investors.

The NYSE announced that the company, which will be traded under the ticker PLTR, will have a reference price of $7.25 per share. Palantir is pursuing a direct listing, and so a reference price is merely a guide from the market to investors, and does not represent an actual trading price.

According to Palantir’s after-hours filing with the SEC this afternoon, the company has 1.16 billion Class A shares, 484 million Class B shares and 1 million Class F shares on its cap table outstanding today, or a total of roughly 1.64 billion. Only Class A shares will trade, and Class B and F shares are convertible to Class A shares on a one-to-one basis. On a fully diluted basis, which Palantir says represents 2.2 billion shares total according to its most recent S-1 filing, the company is valued at $16 billion. The difference between those two aggregate numbers comes from outstanding stock performance grants, warrants and other financial instruments.

The company will begin trading tomorrow morning, and as it is pursuing a direct listing, it will raise no primary capital as part of its debut.

We looked at Palantir’s stock price over time based on internal trades, which have gone from around $5 a share at the beginning of January 2019 to $9.17 a share earlier this month as the company prepped its prospectus to go public. A reference price of $7.25 is below those last trades, and also below a $10 price point that The Wall Street Journal reported on last week from Palantir bankers.

Of course, a reference point, much like an IPO price, is a mostly made-up number, and the real value of these shares will emerge from the market tomorrow as traders buy up shares from insiders.

In its afternoon filing today, Palantir said that approximately 475 million shares will be available for trade, with the remainder of the company’s shares locked up. Palantir pioneered a direct listing with a lockup, and so we will also see how this configuration affects its share price in the coming months as more shares hit the market.

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Following TechCrunch reporting, Palantir rapidly removes language allowing founders to ‘unilaterally adjust their total voting power’

Well, that was fast.

This morning, I analyzed Palantir’s newly published fifth amendment of its S-1 filing with the SEC as it pursues a public direct listing on the NYSE. I called the company “not a democracy” after it added new provisions to create a special mechanism called “Stockholder Party Excluded Shares” that would, in the language of Palantir, allow the company’s trio of founders to “unilaterally adjust their total voting power” at will, now and into the future.

Well, Palantir has now filed a sixth amendment with the SEC just a few hours after it filed its previous amendment, and the company has removed all references to this special mechanism from its SEC filing.

The 19 mentions of “Stockholder Party Excluded Shares” and multiple sections where the mechanism were discussed and explained have now been entirely excised. In addition, the company’s line about its founders having the capability to “unilaterally adjust their total voting power” has also been similarly removed.

Outside of those changes, the two different versions of the company’s S-1 filing are essentially identical. And for those keeping score from this morning, in this tenth rendition of the company’s public offering documents including its previous draft registration statements, the latest filing includes 168 mentions of “voting power” — identical to the number this morning. Here’s an updated chart:

It’s a quick about-face for the enterprise software company, which has spent weeks prepping for its direct listing, originally scheduled for September 23 and which has since been moved back to September 29. While corporate governance has certainly gotten weaker over the past few years, Palantir’s newly introduced language this morning stretched the definition of shareholder governance quite frankly to its breaking point. Walking back those changes was the right call.

There’s no telling whether the SEC, NYSE, potential investors in the direct listing, executives or insiders pushed for these changes. However, companies rarely make such rapid changes with their SEC filings (then again, I’ve never seen an IPO with so many amendments in the first place, so we are in uncharted territory). Palantir remains in an SEC-mandated quiet period.

We’ll continue to monitor developments as Palantir heads to the public markets, presumably next week.

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As direct listing looms, Palantir insiders are accelerating stock sales

According to Palantir’s latest S-1 amended filing published this morning, the company intends to start trading in two weeks on September 23 under the ticker PLTR.

That gives us a bit of time to speculate about how the company will perform on the public markets, particularly given Palantir’s unusually shareholder-hostile governance structure, which was a topic at today’s Investor Day event.

The good news: Palantir gave us the latest secondary sale trading data for shares traded by insiders before the company starts trading publicly. We also now know how insiders are going to register their shares, giving us some hints about who is excited to double down and who is looking to move on from the company.

Palantir has a large number of insiders today compared to other tech companies that recently filed to go public. According to its S-1, the company has 2,794 owners of its Class A stock, and 738 of its Class B stock. While there is almost certainly overlap between those two groups, it indicates that there are thousands of owners of Palantir shares today. Compare those figures to Snowflake, which had 1,026 owners, or Sumo Logic, which had 473 owners.

Palantir has more shareholders since it has been around longer (it’s approaching two decades), many early and even some recent employees would have had to exercise their stock options by now lest they expire, and there has been a robust secondary market for shares that has allowed new investors to buy into the company.

Given the number of people involved and the number of shares bought and sold over the past 18 months, we can get some insight regarding how insiders perceive Palantir’s value.

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In amended filing, Palantir admits it won’t have independent board governance for up to a year

When we leaked Palantir’s S-1 IPO filing a week and a half ago, one of the more bizarre components that came out of that document was the company’s corporate governance. In a unique three-class voting structure, Palantir founders Alex Karp, Stephen Cohen and Peter Thiel will be given a special “Class F” share that will ensure they hold 49.999999% of the ownership of the company in perpetuity — even if they sell the underlying shares.

While founders of startups in recent years have often had special shares with extra votes (typically 10 votes for their special shares compared to one vote for standard shares), those votes dissipate if the underlying shares are sold. Palantir’s model is unique in allowing founders to have a commanding vote even if they were to sell their shares — in other words, voting power without underlying shareholder power, in direct contradiction to modern shareholder theory.

That strange controlling provision has clearly caught the attention of the SEC and the NYSE. In an amended S-1 filing with the SEC submitted this afternoon, Palantir made changes to its documents that made clear that its corporate governance will be more opaque far after its public debut.

First, Palantir has added a new risk factor to its original prospectus, which we will copy here in full because it really tells you a lot about where the company is headed on corporate governance:

Although we currently are not considered to be a “controlled company” under the NYSE corporate governance rules, we may in the future become a controlled company due to the concentration of voting power among our Founders and their affiliates.

Although we currently are not considered to be a “controlled company” under the NYSE corporate governance rules, we may in the future become a controlled company due to the concentration of voting power among our Founders and their affiliates resulting from the issuance of our Class F common stock. See “—The multiple class structure of our common stock, together with the Founder Voting Trust Agreement and the Founder Voting Agreement, have the effect of concentrating voting power with certain stockholders, in particular, our Founders and their affiliates, which will effectively eliminate your ability to influence the outcome of important transactions, including a change in control.” above. A “controlled company” pursuant to the NYSE corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group, or another company. In the event that our Founders or other stockholders acquire more than 50% of the voting power of the Company, we may in the future be able to rely on the “controlled company” exemptions under the NYSE corporate governance rules due to this concentration of voting power and the ability of our Founders and their affiliates to act as a group. If we were a controlled company, we would be eligible to and could elect not to comply with certain of the NYSE corporate governance standards. Such standards include the requirement that a majority of directors on our board of directors are independent directors and the requirement that our compensation committee and nominating and corporate governance committee consist entirely of independent directors. In such a case, if the interests of our stockholders differ from the group of stockholders holding a majority of the voting power, our stockholders would not have the same protection afforded to stockholders of companies that are subject to all of the NYSE corporate governance standards, and the ability of our independent directors to influence our business policies and corporate matters may be reduced.

In other words, public shareholders in the company will likely legally have zero input into the governance of the company. The key line here is “If we were a controlled company, we would be eligible to and could elect not to comply with certain of the NYSE corporate governance standards.”

Will Palantir be a controlled company? The answer is almost certainly yes, given another subtle change the company made in its amended filing today.

In its original filing, the company wrote that the Class F stock given to Karp, Cohen and Thiel “will give these Founders the ability to control up to 49.999999% of the total voting power of our capital stock” (emphasis mine). Now in its restated filing, the company notes that the shares “will give these Founders the ability to control up to 49.999999% of the total voting power of our capital stock, and the Founders may, in certain circumstances, have voting power that, in the aggregate, exceeds 49.999999%” (emphasis again mine).

The reason of course is that Karp, Cohen and Thiel own other classes of shares that when added to these special Class F “founder” shares, will give them a controlling stake in the company.

According to the filing, these new Class F shares were approved by existing shareholders on August 24. In the company’s prospectus sent to existing shareholders (a leaked copy of which was obtained by TechCrunch), the company explained across more than a dozen pages the rationale and the timeline for why existing shareholders should approve not having any further say in their company’s governance.

Given the diminished voting power of employee and investor shares, it is possible that these voting provisions will negatively impact the final price of those shares.

The company in its amended filing noted that it has finally determined that Alexander Moore, Spencer Rascoff and Alexandra Schiff, who were recently hired as new independent directors of the company, are in fact independent.

That said, Palantir also admitted that it doesn’t intend to have independent governance for a while at the company. From its amended filing and changed from its original filing:

Certain phase-in periods with respect to director independence will be available to us under the applicable NYSE rules. These phase-in periods allow us a period of one year from our listing date to have a Board of Directors with a majority of independent directors. Our Board of Directors will have a majority of independent directors within one year of our listing on the NYSE.

It also won’t have independent board governance of its audit committee either:

We intend to rely on the phase-in provisions of Rule 10A-3 of the Exchange Act and the NYSE transition rules applicable to companies completing an initial listing, and we plan to have an audit committee comprised entirely of at least three directors that are independent for purposes of serving on an audit committee within one year after our listing date.

Currently, the company has only two independent directors on its audit committee: Moore and Rascoff.

The SEC and NYSE seem to be pushing back against Palantir on its corporate governance, but let’s just be clear: We have never seen anything like this before with a startup IPO.

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What’s a Palantir? The Tech Industry’s Next Big I.P.O.

About a month before he became president, Donald J. Trump met with the leaders of the country’s top technology companies at Trump Tower in Manhattan.

The meeting included the chief executives of Amazon, Apple, Google and Microsoft and other household names like Tesla and Oracle. And then there was Alex Karp, chief executive of a company called Palantir Technologies that few outside Silicon Valley and government circles had heard of.

Palantir, the only privately held company represented in the room, had become a major player among government contractors. And, indicative of its growing prominence, one of its founders, the venture capitalist Peter Thiel, had supported Mr. Trump during the 2016 election and had helped set up the meeting.

Now, as Palantir prepares to go public in what could be the largest stock market listing of a tech start-up since Uber last year, many are wondering: What exactly does this influential but little-known company do?

Offering software — and, crucially, teams of engineers that customize the software — Palantir helps organizations make sense of vast amounts of data. It helps gather information from various sources like internet traffic and cellphone records and analyzes that information. It puts those disparate pieces together into something that makes sense to its users, like a visual display.

But it can take plenty of engineers and plenty of time to make Palantir’s technology work the way customers need it to. And that mix of technology and human muscle may lead to some confusion on Wall Street about how to value the company. Is Palantir a software company, which is traditionally a very profitable business, or is it a less-profitable consulting firm. Or is it both?

“For investors, it is a bit of a Rubik’s Cube,” said Daniel Ives, managing director of equity research at Wedbush Securities.

Palantir, which was founded in 2003, has long described its technology as ideal for tracking terrorists, often embracing an unconfirmed rumor that it helped locate Osama bin Laden. The name Palantir is a nod to spherical objects used in “The Lord of the Rings” books to see other parts of fictional Middle-earth.

Funded in part by In-Q-Tel, the investment arm of the Central Intelligence Agency, the company built its flagship software technology, Gotham, with an eye toward use inside the C.I.A.

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Credit…Christophe Petit Tesson/EPA, via Shutterstock

Palantir’s technologies can also help track the spread of the coronavirus, as it is now doing for the Center for Disease Control. And they can help locate undocumented immigrants, which is how U.S. Immigration and Customs Enforcement, under orders from the White House, is using these technologies, according to recently released federal documents.

The company is deeply wedded to its work inside the government. Though some Palantir employees have protested its work with ICE and other parts of the government, it has not backed off.

In a letter to potential investors, included in a filing with the Securities and Exchange Commission on Tuesday, Mr. Karp pointedly jabbed at fellow Silicon Valley companies and said he was proud of Palantir’s work with federal agencies.

“Our company was founded in Silicon Valley. But we seem to share fewer and fewer of the technology sector’s values and commitments,” he wrote, adding that “software projects with our nation’s defense and intelligence agencies, whose missions are to keep us safe, have become controversial, while companies built on advertising dollars are commonplace.”

In recent years, Palantir has tried to expand its work in the private sector, serving big-name businesses like JPMorgan Chase, Airbus and Ferrari and offering new software tools that businesses can use on their own. A little more than half of Palantir’s revenue now comes from commercial businesses, according to the S.E.C. filing.

The 2,500-employee company holds about a 3 percent share of what has become a $25 billion “data analytics” market, according to PitchBook, a firm that tracks the performance of private companies. “That is a small but significant share,” said a PitchBook analyst, Brendan Burke.

Palantir has raised more than $3 billion in funding and is valued by private market investors at $20 billion, but it has not turned a profit since it was founded in 2003. In 2019, Palantir’s revenues topped $742.5 million, a nearly 25 percent increase over the previous year. But it lost more than $579 million, about the same as it lost in 2018, according to the financial documents made public on Tuesday.

The company recently announced that it was moving its headquarters to Denver, which could cut expenses.

A Palantir spokeswoman declined to comment for this article.

Though the company has won an impressive array of federal contracts — in the last four years, it landed at least $741 million in guaranteed money and potentially as much as $2.9 billion, according to the documents — it has also stoked controversy among competitors and federal employees.

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Credit…Shannon Stapleton/Reuters

In 2016, the company sued the Army over the procurement process for a new version of an intelligence analysis system, claiming the process was unlawful and wasteful. Palantir ended up winning the contract, which accounts for $1.7 billion of the $2.9 billion in potential federal contract money it has won since 2016.

In April, an anonymous government official sent a lengthy memo to Joseph D. Kernan, the under secretary of defense for intelligence, describing the inner workings of a flagship Pentagon operation called Project Maven.

An effort to remake American military technology through artificial intelligence, Project Maven has drawn on the expertise of more than 20 American companies, including Palantir.

The project points to how Palantir works with customers. It often deploys specialists, called “forward deployed engineers,” who spend weeks, months or years customizing and expanding its software for the task at hand. The company builds whatever data software that needs building — databases and software connections and on-screen visual displays that help people get their work done.

The details of Palantir projects can vary. It usually connects different sources of data and provides a way for everyday employees to search through it. But in Project Maven, it is offering tools that help seasoned, artificial intelligence specialists build complex mathematical systems, called deep neural networks, that can recognize objects in images.

Inside Project Maven, Palantir provides software that holds enormous amounts of video footage captured by flying drones operated by the Army and the Air Force. A.I. specialists then use this software to build systems that can automatically identify buildings, vehicles and people in the footage.

The memo, obtained by The New York Times, said that although Palantir had come late to Maven, the company had grown to “touch almost every aspect” of the project through contracts worth approximately $40 million a year. The document accused Maven leadership of skirting Pentagon rules and ethics in giving preferential treatment to the start-up, whose employees had developed unusually close relationships with their partners inside the military.

The memo and related emails showed the company’s considerable influence inside the government.

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Credit…Andrew White for The New York Times

Among other complaints, the memo to Mr. Kernan claimed that a Palantir employee had sat in on a meeting where government officials — some of whom did not know the Palantir employee was in the room — discussed future contracts and their dollar amounts, which could give the company an “astounding” advantage when bidding for new work.

After the memo, the Defense Department began a formal inquiry into Project Maven, according to two people familiar with the matter who were not allowed to speak about it publicly. The outcome is not yet known. A Defense Department spokesman for Project Maven declined to comment.

Palantir’s unusual business model is not always a perfect fit for military contracts. Though Palantir sells a combination of software and consulting services, all costs are folded into a single software license negotiated with the customer. In other words, the consulting work done by its engineers is layered into the software licensing fees, according to company financial documents. Typically, the government pays for consulting work separately from software licenses.

This means customers often pay for technology that is not yet built. “It is very unusual,” said Jeff Peters, head of global business development at Esri, a longtime government contractor that competes with Palantir. “The business model is different from almost any other technology company.”

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Credit…Peter DaSilva for The New York Times

VMware Pivotal Labs, a division of Dell, has adopted a similar model to Palantir, saying that it helps customers produce software that actually does what it is supposed to do.

This unusual business model has led to complaints, including in the memo to Mr. Kernan, that Palantir locks customers into its technology. Though the company is in ways building custom software, that software is still owned by Palantir because it is sold under a commercial software license. That means Palantir can sell that customized software to other clients.

All this hangs over the company as it prepares to go public. If Palantir stumbles, many competitors are poised to build similar technology for the government, including traditional government contractors like Oracle as well as Amazon, Microsoft and a growing number of other tech companies.

“There has been an assumption that Palantir is the only major player in this space,” said Jack Poulson, executive director of Tech Inquiry, which tracks the government work of tech companies. “But it is clear that is not the case.”

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Palantir, Tech’s Next Big I.P.O., Lost $580 Million in 2019

SAN FRANCISCO — Palantir, a Silicon Valley company with strong links to the defense and intelligence communities, is poised to be the latest in a string of tech companies to offer shares on Wall Street well before turning a profit.

The company sent financial documents to its investors on Thursday night, ahead of its planned debut on the public markets this year. The documents, obtained by The New York Times, offer the first full look into the company’s financials and operations and show growing operating expenses as well as deep losses.

Palantir’s revenue in 2019 was $742.5 million, nearly 25 percent more than the year before. Its net loss of $580 million was about the same as 2018. And expenses were up 2 percent in 2019 to a little more than $1 billion.

The company, which has raised more than $3 billion in funding and is valued by private market investors at $20 billion, has not turned a profit since it was founded in 2003. As early as 2014, Palantir had fanned expectations that it would soon hit $1 billion in revenue. Six years later, it appears to be closing in on that goal. In the first six months of this year, Palantir’s revenue was $481 million.

A Palantir spokeswoman declined to comment. Details from the financial documents were reported earlier by the tech news site TechCrunch.

Palantir was founded by an eclectic group of Silicon Valley entrepreneurs, including Peter Thiel, who helped create PayPal before making an early investment in Facebook, and Alex Karp, Palantir’s chief executive and a former classmate of Mr. Thiel’s at the Stanford University Law School.

The company gained notoriety for its secrecy and government ties, spurred by an investment from In-Q-Tel, the investment arm of the Central Intelligence Agency and encouraged by cryptic comments from Mr. Karp about Palantir’s counterterrorism work.

But Palantir has recently been the subject of sustained protests over its government contracts, particularly its work with Immigration and Customs Enforcement, and critics have called on the company to stop assisting the agency with deportations.

The company licenses two pieces of software, Gotham and Foundry, and provides cloud-computing services and in-person technology support. Its software is designed to aid in data analysis and is widely used by government agencies for tasks like managing complex supply chains or tracking terrorism suspects.

Despite efforts to land more commercial customers, Palantir earned $345.5 million from its work with government agencies in 2019 and $397 million from commercial entities, the documents said. It had 125 customers in the first half of 2020, but did not name them in descriptions of its work.

Mr. Karp had been vocal in the past about his aversion to going public, citing the secret work of Palantir’s customers. An initial public offering “is corrosive to our culture, corrosive to our outcomes,” he said in 2014.

The documents describe Palantir’s plan to go public via a direct listing, in which no new shares are issued and no new funds are raised. This nontraditional method of going public has become more popular among large, high-profile tech companies in recent years, because they can easily raise money from private investors. The direct listings of Slack, the work collaboration software company, and Spotify, the music streaming company, helped popularize the strategy.

In most direct listings, shareholders are not bound by a traditional lockup period before they can sell their stock. But Palantir has imposed a 180-day lockup period. It will allow shareholders to sell 20 percent of their common stock immediately, but they must wait for the lockup to expire to sell more.

The company submitted its confidential filing to go public via direct listing on July 6.

Palantir has arranged a structure to ensure that its founders retain power. They have a special class of shares, Class F, that will have a variable number of votes to ensure the founders control 49.999999 percent of the company’s voting power, even if they sell some of their shares. The company argued to its investors that this structure would allow it to stay “Founder-led” after it went public.

In the documents, Palantir made the case that its strong ties to government contractors were an opportunity, citing the “systemic failures of government institutions to provide for the public.”

“We believe that the underperformance and loss of legitimacy of many of these institutions will only increase the speed with which they are required to change,” the document said.

But the documents also list many risks, including privacy and data protection laws, negative media coverage, the potential loss of Mr. Karp, and customer concentration — 28 percent of Palantir’s revenue came from its top three customers in 2019.

Mr. Karp, who received roughly $12 million in compensation last year, controls 8.9 percent of the company’s voting power. Mr. Thiel controls 28.4 percent of voting through various entities with titles often borrowed from “The Lord of the Rings,” like Rivendell and Mithril.

The name Palantir refers to spherical objects used in “The Lord of the Rings” to see other parts of fictional Middle-earth.

Other stockholders that own more than 5 percent of the company are Founders Fund; Sompo Holdings, the Japanese corporation that operates a joint entity with Palantir in Japan; and UBS. Smaller investors, according to PitchBook, include Fidelity, RRE Ventures, Morgan Stanley and Tiger Global Management.

Cade Metz contributed reporting.

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Palantir targeting 3 class voting structure according to leaked S-1, giving founders 49.999999% control in perpetuity

We are continuing to make progress through Palantir’s leaked S-1 filing, which TechCrunch attained a copy of recently. We have covered the company’s financials this morning, and this afternoon we talked about the company’s customer concentration. Now I want to talk a bit about its ownership and stock valuation.

First, let’s talk about ownership. Having read through our leaked copy of the S-1 the past few hours, I can only summarize the situation as: wow, this is a really complicated ownership structure.

At the highest level, the founders of the company — Peter Thiel, Alex Karp, and Stephen Cohen — own 30.2% of the stock of the company as of the end of July of this year. Thiel controls much more than that though through his myriad investments made through Founders Fund, Mithril Capital, Clarium Capital, and quite literally dozens of other investment management funds listed in the filing.

In terms of overall corporate voting power today, Thiel has 28.4% at his disposal, Karp 8.9%, and Cohen 3.1% according to the company’s calculation.

This is where things get interesting. As is typical with most modern tech IPOs, the founders of the business are looking to create multiple voting classes of stock in order to protect their voting power even while their total ownership of the company diminishes. It is pretty common today to see a two-class structure where the plebian stock class for retail investors offers one vote, and a special class is offered to founders that has 10 votes. This allows a founder with 5% of the company through these special shares to control a majority of a company’s voting authority.

Palantir wants to push the envelope further though with a three-class structure that would prioritize Thiel, Karp, and Cohen above all others. In Palantir’s model, there would be a Class A share with 1 vote, a Class B share with 10 votes, and a special “Class F” share with variable votes.

Class F shares would share 49.999999% (six 9s in the decimal – I counted twice) of the voting power of Palantir at all times, regardless of the underlying ownership of shares. Important to note that that is not a “majority” and thus they will not have literally a controlling stake in the public company.

In fact, Palantir has spent much of the last few months building the case for why it needs this special tripartite system of corporate governance. It hired several new members to its board of directors including Alexandra Schiff, Spencer Rascoff, and Alexander Moore earlier this year in order to build a “Special Governance Committee” that would make these changes to the company’s Delaware charter. Given that the founders were practically the only directors of the company outside of Adam Ross, it was hard to give themselves control by their own vote.

Palantir’s leaked S-1 has dozens of pages of the timeline and discussions that resulted, and why the committee ended up deciding to go with what can only be described as Byzantine method of voting.

That resolution still has to be supported by shareholders and of course, Wall Street. Much in the way that Palantir is going to have a lockup on its employees in a novel variant of the direct listing model, it seems it wants to pioneer a new model of founder ownership as well.

Stock valuation

Now, let’s switch over to a little chart showing Palantir’s preferred stock prices since inception and the current carrying value of those shares:

Immediately, we can see here that Palantir starting in 2013 really came into its own. The company, which was founded in 2003, showed little sign of deep outside investor interest for much of its early history. Its preferred stock share price grew linearly and slowly from its Series C in 2008 to its Series H in 2013.

Then, something interesting happens. There is almost immediately a radically increasing growth in the value of the stock with new issues in the Series H through K showing quick growth in value.

Recent stock sales have been common shares, and not preferred.

According to the company’s leaked S-1 we attained, only three shareholders passed the 5% threshold required for SEC disclosure. Founders Fund is listed as owning 12.7% of the company’s Class B shares, Japanese insurance giant SOMPO Holdings is listed as owning 20.3% of the company’s Class A shares, and investment bank UBS is at 5.7% of Class A shares. The company said that it had 529 million Class A shares and 1.09 billion Class B shares outstanding as of the end of June this year.

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The Tech I.P.O. Comes Roaring Back in the Pandemic

SAN FRANCISCO — As the coronavirus spread in March, Vroom, a start-up that sells used vehicles online, shelved its plans to go public and rushed to shore up its operations.

But with many dealerships closed under shelter-in-place orders, people started buying more cars online, benefiting Vroom with record sales in March and April, the company said.

“We saw the whole world stabilizing,” said Paul Hennessy, the chief executive. “At the end of April, we said, ‘OK, maybe we should actually go on the offensive here.’”

Vroom, which is based in New York, capped that offensive by going public last week. Its share price more than doubled on the first day of trading as the company raised $495 million from its offering.

Vroom is part of a group of start-ups that have moved quickly to go public as the initial shock of the coronavirus has worn off. The stock market, which plummeted when the outbreak swept the United States, has rallied strongly in recent weeks. Since its nadir in late March, the S&P 500 index has climbed 40 percent.

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As the market has bounced back, SelectQuote, an online insurance provider; ZoomInfo, a sales software data provider; Warner Music Group, a record label; and Vroom have gone public. And more initial public offerings are on the way.

Lemonade, an insurance start-up valued at $2.1 billion, announced last week that it had confidentially filed to go public. DoubleDown Interactive, a mobile gaming company, also filed to go public this month.

Some of the biggest Silicon Valley start-ups are taking steps toward an I.P.O., too. Airbnb, the home rental start-up valued at $31 billion, said it hadn’t ruled out going public this year. Palantir, a digital surveillance company valued at $20 billion, is preparing to file for an I.P.O. in the coming weeks, said a person briefed on the start-up’s plans, who declined to be named because the talks were private.

Palantir declined to comment; Bloomberg reported earlier on its I.P.O. plans.

“The window is open,” said Previn Waas, a partner focused on I.P.O.s at the professional services firm Deloitte. “Everyone has figured out that a virtual I.P.O. is possible. There’s an appetite for companies to go public.”

Jeff Thomas, head of West Coast listings and capital markets at the Nasdaq stock exchange, said, “Everybody who was in process is gearing back up.”

Morgan Stanley had spent the last few months helping companies affected by the coronavirus find financing in every form — except public offerings, said Colin Stewart, Morgan Stanley’s head of technology equity capital markets. The market was too volatile, and companies had to assess how the virus had changed their financial forecasts, he said.

But now with the stock market more stable, the situation has changed. “It’s clear there is a lot of pent-up investor demand to look at I.P.O.s,” Mr. Stewart said.

Wall Street is embracing them even though many of the companies are losing money. Vroom lost $143 million last year on $1.2 billion in revenue, according to its disclosures. The food delivery start-up DoorDash, which filed in February to go public and has seen increased use in the pandemic, has also burned through hundreds of millions in cash and is unprofitable.

Last year, high-profile money losers such as Uber and Lyft also went public — and promptly skidded in the stock market. Their disappointing performances and the failed I.P.O. of WeWork set off a wave of prudence across the start-up world.

But excitement for new listings — especially for fast-growing tech companies — has sidelined the question of profitability. Investors have become more tolerant of money-losing companies because the virus has accelerated the adoption of technology like e-commerce, virtual learning, streaming, telehealth and delivery, said Gavin Baker, chief investment officer at Atreides Management, which invests in private and public companies.

“Covid pulled the world into 2030,” Mr. Baker said.

Not all of the companies that were on track to go public this year may make it, given how the economy is reeling from the pandemic. In early March, EquityZen, an investment service that tracks I.P.O.s, published a list of nine potential candidates for the year. Four — including the home rental company Vacasa, the 3-D printing company Desktop Metal and Velodyne Lidar, which makes technology for driverless cars — have since laid off staff because of the coronavirus.

“If we wrote the list today, it would have a very different set of components,” said Phil Haslett, a co-founder of EquityZen.

Airbnb, which had said it would go public this year, was hit especially hard by the travel shutdown. It raised new funding in April and cut a quarter of its staff. Asked about going public this year, Brian Chesky, its chief executive, said in a recent interview: “You can deal with some volatility, but there is a threshold. We’re kind of feeling out where that threshold is.”

The window for I.P.O.s right now may be small. A second wave of virus-related shutdowns could send the stock market into another tailspin. Companies also need to navigate disclosing their second-quarter financials, as well as holidays like Labor Day and Yom Kippur. Plus there is the November presidential election, which may create volatility in the market.

As a result, more companies than usual are aiming to go public in August, a month they traditionally avoided because people were often on vacation, Mr. Thomas of Nasdaq said. The exchange is telling companies to be ready to go public any time, he said, and to have alternative financing ready in case they can’t.

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Credit…via ZoomInfo

For chief executives trying to take their companies public now, the timing is a nail-biter. Henry Schuck, founder and chief executive of ZoomInfo, had been planning to get his company out to the stock market in late March. But when the virus hit, he started checking the VIX, an index that measures stock market volatility, every day. The index had rarely topped 20 over the past decade, but in March, it topped 80.

“The market was just not in a place to have an I.P.O. come out,” he said.

In May, after the market had stabilized, Mr. Schuck decided to go for it. But there were other challenges. While executives typically go on a “roadshow” to pitch their company’s shares to investors, he was stuck at home.

So he crammed back-to-back virtual meetings with investors into a week. Even though he was at home, he said, he made sure to dress up and even wear shoes. On the morning of ZoomInfo’s I.P.O. on June 4, Mr. Schuck hit a ceremonial virtual button to open trading, alongside his wife and 4-year-old daughter. ZoomInfo’s shares rose more than 60 percent on the first day of trading.

Mr. Hennessy of Vroom also held a virtual roadshow, taking meetings with investors via teleconference from his home in Suffern, N.Y. He said he appreciated the efficiency of the roadshow, which would normally have lasted two weeks across multiple cities.

On the day of the I.P.O. on June 9, Mr. Hennessy and his executive team could not travel to Nasdaq, where Vroom was listing, to press the opening buzzer since the exchange was not open to visitors. Nasdaq provided Vroom’s employees with an app to upload photos of themselves, which the exchange displayed on its tower in New York’s Times Square.

Vroom’s office, nearby at 37th Street and Broadway, remained closed, but a few employees in masks went to see their faces displayed on the tower, Mr. Hennessy said. He said he had preferred it to an in-person ceremony, since people in the whole company got to participate by sending in photos and sharing screenshots of themselves on the tower.

“Those Nasdaq moments are over in a few minutes with some confetti,” he said. “This lasted a couple of hours.”