Palantir’s SPAC Bets Backfire, Hitting Company Growth

Investments in Palantir’s 20 startups, which include a flying taxi company and several electric-vehicle startups, are down more than 80% on average. One occurred and one was delisted from the New York Stock Exchange. More than half are warning. They may become frustrated..

In the year Palantir, founded by Peter Thiel in 2003, has stopped making such investments. Growth has slowed. And the stock is down more than 60% this year.

The results make Palantir a high-profile victim of the boom-and-bust boom in special-purpose buyout companies that has emerged over the past few years as an alternative public listing technique. They are now. Dealing with losses Venture capitalist Chamat Palihapitiya and a wide range of investors including

Blackrock Inc.

“The market has changed and it is now clear that these investments have failed,” a Palantir spokesperson said in a statement. “It was a bet on a group of early-stage companies, with the benefit of awareness, even if we didn’t do it.”

Palantir’s approach is inviting particular criticism. He often invests in companies and then signs similar income contracts in size. Some deals require startups to pay Palantir a large investment fee within days of receiving the money.

“Not only does this not work, it looks like an income payout strategy that probably needs more regulation around this,” said Wellspring Capital Management partner and SPAC investor. They are finished. He said that Palantir’s participation in some deals gave investors the confidence to back the startup and contributed to others losing money.

Short sellers betting on Palantir stock have made more than $1 billion in paper profits this year, according to data analyst firm S3 Partners.

The company’s activity started in the year It was in early 2021, when private investments related to the deal began to be written off as private investments for companies merging with SPACs. The idea of ​​a startup is to raise a lot of money from professional investors. To add cash Held by a SPAC to grow the business as a public company.

Palantir had a typical game plan for its SPAC portfolio. It has agreed to invest between $10 million and $40 million. In turn, the startup executes a multi-year contract for the same or higher dollar value. The event gave Palantir more than $700 million in total contracts.

Those listed include Lilium NV, a flying taxi company with no revenue at least three years away from production. Palantir invested $41 million in Lilium and Lilium signed a five-year contract that paid Palantir $50 million. In other words, an online grocery-delivery company

Boxed Inc.

He received $20 million and signed a five-year, $20 million contract. Days after receiving Palantir’s money, Box paid Palantir $15 million as part of the deal, securities filings show.

A contractor for the US government as well as companies such as Airbus SE and

United Airlines Holdings Inc.,

Palantr It costs a lot of time Tens of millions of dollars a year to provide software aimed at sorting and organizing data pools for businesses.

Palantir says the SPAC investment effort is part of an attempt to bet on new companies that could become big customers in the future. At the time, Palantir was flush with cash, holding more than $2 billion at the end of 2020 — a figure that has since grown to more than $2.4 billion.

“These are people who are focused on winning,” Palantir Chief Operating Officer Shyam Sankar said on a May 2021 earnings call.

Many companies invest in startups that are customers, but that arrangement is unusual for publicly traded companies, analysts say. Analysts at RBC Capital Markets estimate that Palantir’s contracts represent a major expense for most companies.

“If Palantir’s software is so good, I don’t know why customers should pay to use it,” said Rishi Jaluria, the company’s managing director.

While the contracts were a small fraction of Palantir’s $1.5 billion in revenue last year, they were a big part of the company’s revenue growth, a particularly important component for investors. Strong revenue growth has helped push Palantir’s market value above $50 billion by 2021, at a time when SPAC deals are at their peak, analysts say.

The deals represent at least a quarter of the $925 million in contracts signed in the second quarter of 2021, records show. RBC estimates the contracts signed in 2021. It now generates nearly $30 million in revenue per quarter and represents a third of the company’s revenue growth earlier this year. The figure is expected to fall if more startups file for bankruptcy.

The arrangement failed for both parties, for companies such as digital-manufacturing firms.

Fast radius Inc.,

which one They have reached a SPAC agreement He valued it at around $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 cost represents nearly $100 million in cash that Chicago-based Express Radius received from the merger when it closed in February. That sum was much lower than expected, after most SPAC investors pulled out their money before the deal.

As part of the deal, FastRadius paid Palantir $10 million, a large upfront fee.

The stock has crashed. At the beginning of November, fast radius Provides bankruptcy protection. Palantir is listed as the largest unsecured creditor in the bankruptcy filing, owing $2.9 million. The $20 million investment is now worthless.

Fast Radius recently said it will be bought by the technology company for $16 million in a bankruptcy sale.

At least 11 companies backed by Palantir have warned investors that they are “highly doubtful” they can survive another year without raising more money.

These include electric-vehicle-data company

Wejo team Ltd

electric-car launch

Faraday Future Intelligent Electric Inc.

and scooter company

Bird Global Inc.

RBC analysis shows that most companies have months of cash left.

“Many of these are not good quality businesses,” Mr. Jaluria said.

Write to Amrith Ramkumar [email protected] and Eliot Brown at [email protected]