Palantir is among the world’s most richly valued and most powerful tech startups, after spending 15 years on the private markets and amassing more than $2 billion in funding. It’s also one of the most hotly anticipated IPOs of this year. But while the data-mining company has told some investors it could go public in the second half of 2019, that now appears unlikely, according to people familiar with the company, who say that next year is a more realistic date.
Among the issues holding it back: Palantir still only has one independent board member, has yet to build out its nascent sales team, and will need to find enough seasoned finance employees to handle a public debut.
The people who spoke to Bloomberg asked not to be identified because the company is private, and closely guards details about its business. A spokeswoman for Palantir declined to comment.
By some measures, things are going very well for the company right now. Its software integrates and analyzes data for a client list that includes dozens of global government agencies, including the U.S. Department of Defense and the Department of Homeland Security, along with an increasing number of private sector giants like Merck KGaA and Airbus SE.
Last year, Palantir increased its annual revenue by roughly 40%, to nearly $1 billion, and reduced losses to roughly $30 million, people close to the company told Bloomberg. Palantir Chief Executive Officer Alex Karp congratulated his team for having “crushed it” in 2018 during an upbeat year-end video featuring footage of Karp cross-country skiing.
But that revenue surge has been a long time coming. Part of the reason for the uptick, company insiders have said, is Palantir’s decision to build a private enterprise sales team for the first time last year. Karp was famously resistant to hiring pitchmen, favoring engineers instead. Now that sales are up, the company wants to show prospective IPO investors two consecutive years of growth. It’s on track to achieve this in 2019, the people said.
Palantir’s eventual public offering will be a major event in Silicon Valley. Though just how major is a subject of some debate. In 2015, private investors valued the startup at $20 billion. Since then, Palantir’s stock has tumbled on secondary markets, prompting the company to re-price employee stock options and value itself late last year at about $11 billion. Meanwhile, the half-dozen mutual funds that are holding Palantir shares have valued the company anywhere from $4.4 billion to $14 billion. Morgan Stanley’s investment banking group, which is vying to lead the IPO, pegged the company’s value at $41 billion.
Besides proving to investors it can sustain strong sales growth, another hurdle standing between the startup and the public market is the makeup of its board. Palantir will need to bring on independent advisers to show it has matured since its early years as a tightly held startup, and become a transparent company prepared for public investors.
Both the Nasdaq and the New York Stock Exchange require that independent directors make up the majority of companies’ corporate boards. Each company must also have separate audit, compensation and corporate governance committees comprised exclusively of independent directors, with a minimum of three members on the audit committee.
Of Palantir’s four board members, three are co-founders, and just one could be considered independent. That’s Adam Ross, partner at Texas-based Goldcrest Capital and a longtime acquaintance of Thiel’s who served as one of the early editors-in-chief of the Stanford Review, a conservative publication that Thiel founded while a student at the university. He and Thiel were also both early investors in Yammer Inc., a startup that Microsoft Corp. purchased for $1.2 billion. All four board members, including Thiel, are Stanford University graduates. Ross did not respond to a request for comment.
Ensuring that a board has a diversity of skills and perspectives is a basic step leading up to an IPO, said Steven Walker, managing director and general counsel of the National Association of Corporate Directors. And it’s hard to do fast: “It can take more than a year to find the right candidate,” Walker said, adding that directors want to get to know a company before joining because, under current regulations, they are personally liable for ensuring the accuracy of a company’s financials.
At Palantir, financial management is another still-evolving department. The Delaware Supreme Court earlier this year found that Palantir’s record keeping fell short as it had failed to include financial records in any formal board resolutions or minutes. The company also doesn’t list a chief financial officer on its website, a practice that’s not uncommon among late-stage private startups. But in its most recent filing, the company does list Colin Anderson as its CFO. According to his LinkedIn profile, he worked as an analyst at Morgan Stanley and did a stint at Clarium Capital Management, Thiel’s hedge fund. The only education listed is a Stanford undergraduate degree awarded in 2005.
Earning either a CPA or an MBA isn’t a requirement for being a public company’s CFO, but it’s unusual not to have either one or both, said Nada Usina who co-leads the technology sector for executive recruiting firm Russell Reynolds Associates. One way to bolster financial reporting in advance of going public, Usina said, might be to “bring other experts on,” adding that it would be rare not to. But while Palantir has more than 100 job postings on its company site; only three are in finance, and just one suggests a preference for a candidate with a CPA.
Palantir’s very slow progress toward a public offering may be because, after well over a decade in the private markets, its leaders believe they have the luxury of setting their own pace. The company doesn’t need to raise capital, since it isn’t a heavy acquirer. All it needs is for the market not to implode—as some economists fear could happen after 2019, a sentiment that has helped fuel the larger rush out the 2019 “IPO window.”
But at least for now, Palantir investors don’t seem to be clamoring for an exit. “I’ve waited this long,” said one investor. “Another year doesn’t make a difference.”