Palantir Technologies Inc. helped fuel the SPAC boom with an unusual strategy. The data-analysis company invested more than $400 million in startups that simultaneously signed deals to buy Palantir’s software. Palantir got a surge of revenue growth that it trumpeted to investors.
The bets have backfired.
Palantir’s 20 startup investments, which include a flying-taxi company and numerous electric-vehicle startups, are down more than 80% on average. One has gone bankrupt and one has been delisted from the New York Stock Exchange. More than half are warning they may go bust.
Palantir, co-founded by Peter Thiel in 2003, has stopped doing such investments. Growth has slowed and its stock is down more than 60% this year.
The results make Palantir a high-profile casualty of the boom-turned-bust in special-purpose acquisition companies, which surged as an alternative public-listing technique the past few years. They are now dealing losses to a wide range of investors including venture capitalist Chamath Palihapitiya and BlackRock Inc.
“The market has turned and it is now clear that these investments were unsuccessful," a Palantir spokeswoman said in a statement. “It was a bet on a group of early stage companies that, with the benefit of hindsight, we wish we did not make."
Palantir’s approach is inviting particular criticism. It often made investments in companies then signed revenue contracts similar in size. Some deals called for the startups to pay Palantir back large chunks of the investment within days of receiving the money.
“It seems to be a pay-for-revenue strategy that’s not only not working but like there maybe should be some more regulation around this," said Matt Simpson, managing partner at Wealthspring Capital and a SPAC investor who typically pulls money out before deals are completed. He said Palantir’s participation in some deals gave investors confidence to back the startups and could have contributed to others losing money.
Short sellers betting on Palantir shares to fall have made more than $1 billion in paper profits this year, according to data-analytics company S3 Partners.
The company’s activity took off in early 2021, when it began writing checks to companies merging with SPACs as part of private investments in public equity, or PIPEs, associated with the deals. The idea for a startup is to raise more money from professional investors to add to the cash held by the SPAC so it can grow the business as a public company.
Palantir had a typical game plan for its SPAC portfolio. It agreed to invest between $10 million and $40 million. In turn, the startup committed to a multiyear contract of a similar or higher dollar value. The arrangement gave Palantir more than $700 million in total contracts.
Those signing up included Lilium NV, a flying taxi company with no revenue that was at least three years away from starting production. Palantir invested $41 million in Lilium and Lilium signed a five-year contract that paid Palantir $50 million. In another deal, online grocery-delivery company Boxed Inc. received $20 million and signed a five-year, $20 million contract. Days after receiving Palantir’s money, Boxed paid $15 million to Palantir as part of the contract, securities filings show.
A contractor for the U.S. government as well as companies like Airbus SE and United Airlines Holdings Inc., Palantir often charges tens of millions of dollars a year to provide software that aims to sort through pools of data and organize it for the businesses.
Palantir has said the SPAC investment effort was part of an attempt to bet on fledgling companies that could become big customers in the future. At the time, Palantir was awash in cash, holding more than $2 billion at the end of 2020—an amount that has since grown to more than $2.4 billion.
“These are folks that are focused on winning," Palantir Chief Operating Officer Shyam Sankar said on a May 2021 earnings call.
Many companies invest in startups that are also customers, but it is unusual for that arrangement to play out on such a large scale in publicly traded firms, analysts say. Palantir’s contracts represented a large expense for most of the companies it backed, RBC Capital Markets analysts estimate.
“If Palantir’s software is so good, then I don’t know why you have to pay customers to use it," said Rishi Jaluria, a managing director at the firm.
While the contracts were a tiny amount of Palantir’s $1.5 billion in revenue last year, they were a large chunk of the company’s revenue growth, a particularly important figure for investors. Strong revenue growth helped push Palantir’s market value above $50 billion in 2021, when the SPAC deals were at their peak, analysts said.
The deals represented at least a quarter of the $925 million in contracts signed in the second quarter of 2021, filings show. RBC estimates the contracts signed in 2021now bring in roughly $30 million a quarter and early this year represented roughly one-third of the company’s revenue growth. The figure is expected to drop if more startups file for bankruptcy.
The arrangement failed for both sides for companies like digital-manufacturing firm Fast Radius Inc., which reached a SPAC deal that valued it at as much as about $1.4 billion last summer.
Palantir agreed to invest $20 million in the company, and at the same time, Fast Radius agreed to a six-year, $45 million contract.
That expense represented a substantial chunk of the roughly $100 million in cash that Chicago-based Fast Radius got from the merger when it closed in February. That sum was much smaller than expected after most SPAC investors pulled their money out before the deal.
As part of the deal, Fast Radius paid Palantir about $10 million, a large up-front payment.
The stock crashed. By early November, Fast Radius had filed for bankruptcy protection. Palantir was listed as its largest unsecured creditor that is owed $2.9 million in the bankruptcy filing. Its $20 million investment is now essentially worthless.
Fast Radius recently said it would be acquired by a technology company for about $16 million after a bankruptcy sale process.
At least 11 companies backed by Palantir have issued notices to investors saying they had “substantial doubt" about their ability to survive another year without raising more money.
Those include electric-vehicle-data company Wejo Group Ltd., electric-car startup Faraday Future Intelligent Electric Inc. and scooter firm Bird Global Inc.
RBC’s analysis shows that many of the companies have months left of cash.
“A lot of these are not good-quality businesses," Mr. Jaluria said.
This story has been published from a wire agency feed without modifications to the text
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