SPAC Backfire – Palantir’s Big Mistake, a Year Later
Data analysis company Palantir made over $400 million in investments in 20 start-ups as part of an unusual strategy to fuel the SPAC (Special Purpose Acquisition Company) boom; in which the start-ups simultaneously signed deals to buy Palantir’s software. However, the investments have primarily backfired, with the start-ups experiencing an average decline of over 80%. One start-up has gone bankrupt, another has been delisted from the NYSE, and more than half are warning they may go bankrupt. Palantir’s stock is down over 60% this year, and the company has stopped making such investments. Palantir’s approach has faced criticism, as it often made investments in companies and then signed revenue contracts of similar size. Some deals called for the start-ups to pay back large parts of the investment within days of receiving it.
Palantir’s activity in the SPAC market increased in early 2021 when it began investing in start-ups merging with SPACs as part of PIPEs (private investments in public equity) associated with the deals. Palantir’s typical strategy involved investing between $10 million and $40 million in a start-up in exchange for a similar or higher value multi-year contract. This gave Palantir over $700 million in total contracts. The company has said the SPAC investment effort was part of an attempt to bet on fledgling companies that could become big customers in the future.
What do you think of Palantir’s position with SPACs? And could they ever make a comeback as an alternative to IPOs?
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
