Palantir's SPAC Mistake
More than $400 million dollars was invested into 20 different SPAC investments on behalf of Palantir. SPAC being an acronym for Special Acquisition Purpose Companies, ‘SPAC Company’ is a term used for any company that chooses to go public on the stock market through this unique acquisition route.
Palantir at the height of the tech bull market decided to make a series of investments into many of these newly public companies. On average the investments are down 80% at the time of writing this.
While this may have looked good at the time given the sentiment in the market was all around exciting stories, it wound up backfiring now that the global economy is being shaken up. Resulting in significant destruction of shareholder value for PLTR investors.
Alex Karp, CEO of Palantir at the World Economic Forum admitted that this approach was a mistake:
“We are the world's best at building software before people need the software. You make mistakes along the way. We made a mistake, we corrected it, we've moved on.”
On our Palantir Weekly podcast we discussed our frustrations and admirations over the current state of Palantir’s $400,000,000 investment.
Palantir Weekly's Take
“I love that he was transparent about it and said it was a mistake, but you know what, it's a risk that he had every right to take. I'm not mad that he took the risk. He had the cash on hand, it wasn't a huge amount of money [for them]. And there were some of those platforms that maybe it was too early for them, but they could still be a very large part of society in the future.”
“Chris any thoughts on what he said about SPACS?”
“Whoever suggested the idea to him [Alex Karp] should be fired immediately, and my guess is that it was probably Shyam [COO].”
“I think actually, so I'll join the dark side with you guys. I think Karp is one of the most cockiest arrogant businessmen on the planet, and that's why I like him. I think he willingly admitted that the SPACs were a mistake because he made the mistake.”
“Not to cut you off, but, taking ownership is very important. The fact that the buck stops with him because he's a CEO, regardless of who made the decision the buck ends with him. So I'm glad he took ownership either way”
“Yeah well I agree, but I do think it was his mistake because there was a moment. Actually I should probably find this video, It's like a 30 second clip. There was a moment where he was talking about why they invested in the SPACs and the argument was that they need to give their product different platforms, electric vehicles, electric airplanes, and robots, all this stuff to see if the product can be like a case study in all those Industries. And then if those companies become really big they're built on top of Foundry.”
“A bet that hasn't paid off that's all.”
“I think it's funny that one of the best capital allocators in the world, Peter Thiel, couldn't guide this guy away from these SPACs. Considering they were all burning cash and you were literally dumping more cash into them. They had literally some of them had little to no hopes of ever making any money. One, who did the due diligence? Two, who let Karp make this decision without challenging it? And technically speaking, this is why you need to have a board of directors that isn't just a bunch of cronies that you hired 20 years ago and have been self-promoting from inside. Any board member from an outside would have said hey this is a stupid strategy let's not go there…”
“Okay let's take a look at what Karp said about SPACs and how he justified it in 2021”
“You know the SPACs things as an example, I think um, there's a lot of attention on the SPACS because obviously we're investing in some of the most interesting creative companies in the world. And they're relying on Foundry to, you know, get the business to a point where it can really be even more disruptive. One of the coolest things obviously, that it would be hard to notice externally is these people are going to push our product.
“These small companies are, they're inspirational. They really push us to build things, to do things that we hadn't done before, in ways we hadn't thought about and like to deliver value that is not you know maybe not in a way that we had preconceived.”
What is your take?
Was this a risk worth taking back in 2021, to facilitate the expansion of Palantir’s software? Obviously a risk that has not been working in favor of Palantir investors.
Did this decision change your investing thesis for Palantir? Or is this the first time you’re hearing about this $400M loss?
Let us know on Twitter!
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