Can’t stop won’t stop: Social Capital Hedosophia just filed for its fourth SPAC, says new report

According to a new report in Bloomberg, Social Capital Hedosophia has filed plans confidentially with the SEC to raise $500 million for its newest blank-check company.

It will be the fourth special purpose acquisition company, or SPAC, to be raised by the outfit, which is headed up by Chamath Palihapitiya and his longtime investment partner, Ian Osborne.

Astonishingly, dozens more may be in the works. On the “All-In Podcast,” co-hosted by Palihapitiya, he revealed recently that has reserved the symbols from “IPOA” to “IPOZ” on the New York Stock Exchange. He also said he has $100 million of his own involved in each deal to demonstrate his alignment with potential investors.

What’s the play? In the podcast, Palihapitiya pointed to the Federal Reserve’s economic and interest rate forecasts and its plans to keep interest rates at zero for years to come. “I mean, quite honestly,” Palihapitiya said, “there’s no path to any near-term inflation of any kind whatsoever.”

It’s why he thinks investors are going to “get paid to be long [on] equities, because your risk-free rate is zero and will soon be negative. And what are you supposed to do if you’re an asset manager?”

Here’s how he framed it: “Let’s say you’re the California pension system, you have hundreds of billions of dollars, and you need to generate five or 6% a year to make sure that your pension isn’t insolvent, and the government is paying you zero. When everybody is in that situation, you’re overwhelmingly long equities . . .So all of these opportunities are generally buying opportunities, and I’m more bullish now than I was before.”

Indeed, when it comes to private or public market investing, said Palihapitiya, “I think it really is just public companies [that are worth getting behind]. . . I mean like, no offense, but if you’re a very good stock picker in the public markets, you’re generating better returns [than] Sequoia, Benchmark — name your best venture fund.  I see all these people spouting off on Twitter about how good they are in the early-stage markets, but it’s all kind of small dollars and not that meaningful.”

Certainly, he has reasoned to feel emboldened. The first SPAC of Social Capital Hedosophia, raised in 2017, ultimately merged last year with the space tourism company Virgin Galactic, and it’s now valued at slightly more than $4 billion by public market shareholders.

The outfit’s second fund, which was raised in April, announced yesterday that it will merge with Opendoor, a company that buys and sells residential real estate and that might have had trouble going public through a traditional IPO process, given its still-uncertain economics.

Social Capital Hedosophia’s third SPAC, also raised in April, has not yet named its target but the company has said it will use its IPO proceeds to buy a tech company that’s primarily outside of the United States.

Certainly, SPACs — which haven’t had a stellar reputation historically — have a growing number of other investors intrigued. According to SPACInsider, nearly 100 SPACs have been raised in 2020 already up from just 7 a decade ago.

Though Sequoia Capital is having a stellar year — given its stake in Zoom, Bytedance, and Snowflake, among many other headline-leading companies — its U.S. head, Roelof Botha, suggested in an interview yesterday that Sequoia hasn’t ruled out the possibility of forming SPACs, even while he implied that it was unlikely. “I love the fact that there’s more innovation” around the IPO process, he said. “It gives more choice to the companies.”

Opendoor to go public by way of Chamath Palihapitiya SPAC

Today, Social Capital Hedosophia II, the blank-check company associated with investor Chamath Palihapitiya, announced that it will merge with Opendoor, taking the private real estate startup public in the process.

The transaction comes during a wave of market interest in special purpose acquisition companies, or SPACs, often called blank-check companies. They exist as publicly traded entities in search of a private company to combine with, taking the private entity public without the hassle of an IPO.

In this case, the SPAC Social Capital Hedosophia II is combining with Opendoor, a richly-valued private technology company that operates in the real-estate market.

“This is one of many milestones towards our mission and will help us accelerate the path towards building the digital one-stop-shop to move,” Eric Wu, co-founder and CEO of Opendoor said to TechCrunch in a statement. “I am grateful for the continued support from my teammates and shareholders and most thankful for the tens of thousands – and I hope soon to be hundreds of thousands – of families, couples and individuals that trust Opendoor with the largest financial decision of their life.”

Palihapitiya, and his press team did not immediately respond to requests for comment from TechCrunch over phone and e-mail.

Shares of Social Capital Hedosophia II, which trade under the ticker symbol IPOB, were up around 14% in pre-market trading this morning.

According to a notice associated with the transaction, Opendoor will have an enterprise value of $4.8 billion in the deal, including equity value of around $6.2 billion and around $1.5 billion in cash. Social Capital Hedosophia II will provide “up to” $414 million in cash as part of the deal, while a private investment in public equity transaction, or PIPE, will provide another $600 million.

Some $200 million of the $600 million PIPE, or a third, will be funded by investors in the SPAC, with Chamath Palihapitiya himself providing $100 million.

Palihapitiya is not subtle about his plans to use SPACs to pursue his ambitions to be the next Berkshire Hathaway. He famously brought Virgin Galactic to the public markets through a SPAC, which played a role in the $1.7 billion profit that Social Capital made in 2019.

If not acquiring a public through a SPAC, he’s also used personal capital to take majority stakes in businesses. When describing his appetite for acquisitions, he put it curtly to TechCrunch: “I like businesses that build non-obvious data links.”

The rest of the PIPE will be funded by another Palihapitiya group, some private entities like Access Industries, and what a release hyped as “top-tier institutional investors” including Blackrock and a pension plan.

A total of $1 billion in cash is expected to be provided in the transaction. Notably all the cash will flow to Opendoor itself, with shareholders in the company “rolling 100 percent of their equity into the combined company,” per a notice. Along with the transaction, Adam Bain, former Twitter COO and founder of 01 advisors, will join the board, CNBC reports.

Opendoor last raised $300 million at a $3.5 billion pre-money valuation in March of 2019. Of that, $1.3 billion was in equity with nearly $3 billion in debt financing. Investors in the company include General Atlantic, the SoftBank Vision Fund, NEA, Norwest Venture Partners, GV, GGV Capital, Access Technology Ventures, SV Angel, Fifth Wall Ventures, along with others.

DCM has already made nearly $1 billion off its $26 million bet on Bill.com

David Chao, the cofounder of the cross-border venture firm DCM, speaks English, Japanese, and Mandarin. But he also knows how to talk to founders.

It’s worth a lot. Consider that DCM should see more than $1 billion from the $26.4 million it invested across 14 years in the cloud-based business-to-business payments company Bill.com, starting with its A round. Indeed, by the time Bill.com went public last December, when its shares priced at $22 apiece, DCM’s stake — which was 16% sailing into the IPO — was worth a not-so-small fortune.

Since then Wall Street’s lust for both digital payments and subscription-based revenue models has driven Bill.com’s shares to roughly $90 each. Little wonder that in recent weeks, DCM has sold roughly 70 percent of its stake for nearly $900 million. (It still owns 30 percent of its position.)

We talked with Chao earlier today about Bill.com, on whose board he sits and whose founder, René Lacerte, is someone Chao backed previously. We also talked about another very lucrative stake DCM holds right now, about DCM’s newest fund, and about how Chao navigates between the U.S. and China as relations between the two countries worsen. Our conversation has been edited lightly for length and clarity.

TC: I’m seeing you owned about 33% of Bill.com after the first round. How did that initial check come to pass? Had you invested before in Lacerte?

DC: That’s right. Renee started [an online payroll] company called PayCycle and we’d backed him and it sold to Intuit [in 2009] and Renee made good money and we made money. And when he wanted to start this next thing, he said, ‘Look, I want to do something that’s a bigger outcome. I don’t want to sell the company along the way. I just want this time to do a big public company.’

TC: Why did he sell PayCycle if that was his ambition?

DC: It was largely because when you’re a first-time CEO and entrepreneur and a large company offers you the chance to make millions and millions of dollars, you’re a bit more tempted to sell the company. And it was a good price. For where the company was, it was a decent price.

Bill.com was a little bit different. We had good offers before going public. We even had an offer right before we went public.  But Renee said, ‘No, this time, I want to go all the way.’ And he fulfilled that promise he’d made to himself. It’s a 14-year success story.

TC: You’ve sold most of your stake in recent weeks for $900 million; how does that outcome compare with other recent exits for DCM? 

DC: We actually have another recent one that’s phenomenal. We invested in a company called Kuaishou in China. It’s the largest competitor to Bytedance’s TikTok in China. We’ve invested $49.3 million altogether and now that stake is worth $3.8 billion. The company is still private held, but we actually cashed out around 15% of our holdings. and with just that sale alone we’ve already [seen 10 times] that $30 million.

TC: How do you think about selling off your holdings, particularly once a company has gone public?

DC: It’s really case by case. In general, once a company goes public, we probably spend somewhere between 18 months to three years [unwinding our position]. We had two big IPOs in Japan last year. One company [had] a $1 billion market cap; the other was a $2 billion company. There are some [cases] that are 12 months and there are some [where we own some shares] for four or five years.

TC: What types of businesses are these newly public companies in Japan?

DC: They’re both B2B. One is pretty much the Bill.com of Japan. The other makes contact management software

TC: Isn’t DCM also an investor in Blued, the LGBTQ dating app that went public in the U.S. in July?

DC: Yes, our stake wasn’t  very big,  but we were probably the first major VC to jump in because it was controversial.

TC: I also saw that you closed a new $880 million early stage fund this summer.

DC: Yes, that’s right. It was largely driven by the fact that many of our funds have done well. We’re now on fund nine, but our fund seven is on paper today 9x, and even the fund that Bill.com is in, fund four, is now more than 3x. So is fund five. So we’re in a good spot.

TC: As a cross-border fund, what does the growing tension between the U.S and China mean for your team and how it operates?

DC: It’s not a huge impact. If we were currently investing in semiconductor companies, for example, I think it would be a pretty rough period, because [the U.S.] restricts all the money coming from any foreign sources. At least, you’d be under strong scrutiny. And if we invested in a semiconductor company in China, you might not be able to go public in the U.S.

But the kinds of deals that we do, which are largely B2B and B2C — more on the software and services side — they aren’t as impacted. I’d say 90% of our deals in China focus on the domestic market. And so it doesn’t really impact us as much.

I think some of the Western institutions putting money into the Chinese market — that might be decreasing, or at least they’re a little bit more on the sidelines, trying to figure out whether they should be continuing to invest in China. And maybe for Chinese companies, less companies will go public in the U.S., etcetera. But some of these companies can go public in Hong Kong.

TC: How you feel about U.S. administration’s policies?  Do you understand them? Are you frustrated by them?

DC: I think it requires patience, because what [is announced and] goes on the news, versus what is really implemented and how it truly affects the industry, there’s a huge gap.

An IPO expert bats back at the narrative that traditional IPOs are for “morons”

Lise Buyer has been advising startups on how to go public for the last 13 years through her consultancy, Class V Group. She built the business after working as an investment banker, and then as a director at Google, where she helped architect the company’s famously atypical 2004 IPO.

It’s perhaps because Google’s offering was so misunderstood that Buyer has come to think more highly of traditional IPOs over the years, likening herself to a golf caddie who has “played the course a whole lot of times” and can tell a management team what will happen in different circumstances.

Indeed, while Buyer says she is “paid the same regardless” of whether a team chooses a regular IPO, an auction model, a SPAC or a direct listing, she doesn’t believe the world needs direct listings or SPACs nearly as much as the investors forming them have made it seem. Rather, she thinks the traditional IPO process has been unfairly maligned in recent years, helped along by an outraged Bill Gurley.

(If you somehow missed it, the famed VC began pushing back very publicly on IPOs last year, calling them a “bad joke” because of the pre-IPO stakes handed by banks to favored institutional investors, who sometimes reap tens of millions of dollars from a company’s first day on the public market — money that would otherwise go to the issuers themselves. Gurley even hosted an invitation-only event in San Francisco last fall called “Direct Listings: A Simpler and Superior Alternative to the IPO.” )

Certainly, it irks Buyer that companies that choose the traditional route have been made out more recently to be “morons” that are taken advantage of by the investment banks that underwrite their deals.

“It’s so much more nuanced than that,” she says. “It’s a little pathetic that the conversation has evolved the way it has.”

What is it these discussions that do not ring true to her? Primarily, she says, these first-day “pops” are sanctioned by management teams. “It’s not up to Bill Gurley to choose the right price,” she says. It “isn’t just bankers [who] come in and say, ‘We think you’re worth $40 [per share] you’re going to sell at $20 [per share]. Have have it.” It is “up to the management team, which generally has to think about much more than just day one. Some want a pop, some don’t. It’s their call.”

Buyer points to the videoconferencing company Zoom, whose shares soared 72% on the day of its April IPO last year (and have kept surging through this pandemic). CEO Eric Yuan and the executive suite he’d built “knew the stock was going to jump” and agreed to the stock’s pricing anyway, according to Buyer.  They wanted to set realistic, achievable expectations, rather than begin racing to meet inflated ones.

Management “doesn’t want to be on the hook just because the market is temporarily willing to pay something astronomical — by in in many cases, people who really don’t understand the fundamentals,” she says. Otherwise, she continues, “when three months later the company comes out with a forecast that doesn’t match [those] crazy expectations, management has to live with that for very long time.”

Similarly, Buyer highlights the software company Bill.com, which saw its shares jump 60% on the day of its IPO this past December.  While there might have been hand-wringing over money left on the table, she thinks it was the right move and one for which the company was quickly rewarded.

“With Bill.com, management knew that demand dramatically outstripped supply and they could have priced that deal significantly higher,” she says. They didn’t raise their shares pricing because they didn’t want to “message anything unusual about Wall Street,” she continues, but also the company already had in mind its secondary stock sale. Indeed, in June, with Bill.com’s business accelerating and its shares ticking upward, management sold a much larger percentage of the company — at a much higher price.

One could argue the company benefited unexpectedly from the pandemic, as have many software businesses. Buyer sees it differently, though. “Because they’d previously established a good rapport and trust with investors with that lower priced IPO, such that they were able to raise so much more money and take less dilution four months later, who’s to say they made a mistake [on opening day], giving the public pension funds a little bit of a jump?”

Whether one of the most highly anticipated IPOs of the year — Airbnb — chooses a traditional path for some of these same reasons should become apparent soon enough. It was reported by Bloomberg just today that the company rebuffed a takeover by the SPAC of hedge fund billionaire Bill Ackman in favor of a traditional IPO.

In the meantime, the accommodations giant is far from alone in having to decide right now on the best way forward for its business. SPACs in particular right now are capturing the imagination of founders and investors alike. Says Buyer of her own clients, “There are folks who were not considering a SPAC six weeks ago who are getting tapped on the shoulder now and are trying to evaluate the specific terms — and the specific trade-offs — of these potential merger-partner-slash acquirers.”

As for direct listings — which have been lauded as a less expensive way to go public and, as of an SEC order last week, will allow companies to raise money as they are making that shift — Buyer isn’t exactly on the fence when it comes to these, either.

“With a direct listing that includes primary raise, it will be interesting to see if the company engages underwriters as opposed to advisors, and therefore if the expenses are lower – or perhaps even higher – than [with] an IPO. It could be either, we just don’t know yet.

“Again,” Buyer adds, “I have no horse in the hunt. I just see this as a solution desperately in search of an actual, as opposed to drummed-up, problem.”

SaaS stocks survive earnings, keeping the market warm for software startups, exits

We’re on the other end of nearly every single SaaS earnings report that you can name, with the exception of Slack, and shares of software companies are holding onto their year’s gains. Which means SaaS and cloud companies have made it through a somewhat steep gauntlet largely unscathed.

There were exceptions, of course, but when we consider public software and cloud companies, the tale of the tape is somewhat clear. And it appears to indicate that today’s huge revenue multiples will stick around for a while yet.

 


The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


This is great news for startups, given that delivering software as a managed service (SaaS) has become the most popular business model for upstart tech companies. If the set of public SaaS companies are richly valued, it reflects well on their private peers. Warm public markets can help with exit valuations and provide encouragement to private investors to keep investing in SaaS startups.

The most recent earnings reports tell a somewhat simple story: Generally strong growth, and generally good forecasts. A few weeks back, Appian beat on revenue growth and profitability and guided a bit above market expectations. Given the nearly 50% run company’s stock that it has enjoyed in 2020, the results were welcome.

Everyone filed to go public Monday

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

We’re back out of sequence, because literally every company you can name (well, almost) dropped an S-1 yesterday so we had to sit down and parse them out a bit. That so many filings dropped during the same two days when we had Y Combinator’s two-day Demo Day at the same time meant that we were all a bit punch drunk, but we rallied.

Natasha and Danny and Chris and myself all piled back onto the mics to dig through all the numbers. Here’s a rundown of the companies we went through:

  • Palantir, which filed its formal S-1 during our recording session. Danny covered most of the news last Friday, but the public doc is now live, so happy sleuthing.
  • Unity’s huge IPO that shows how big gaming is. Natasha connected it to the broader Apple-Epic dust-up, and we all reviled in its growth results.
  • Snowflake had Danny so excited he was conjuring scripted segues, and we were all impressed at its historical growth. Sure, it lost a lot of money last year, but, hey, Snowflake has dialed that back as well.
  • And then there was Asana, a company I’ve covered quite a lot over the years. Our general take is that the company’s growth has been good, if it is losing more money than we anticipated. Still, Asana could set a neat new precedent of raising debt ahead of a direct listing. This is one to watch.
  • And then we spent a little time on JFrog and Sumo Logic (more here), because we are nothing if not completionists.

Got all of that? It was a lot of facts to get through, but we did our best and we hope this helps. More tomorrow as we talk Y Combinator with a special guest host. Chat tomorrow!

Equity drops every Monday at 7:00 a.m. PT and Friday at 6:00 a.m. PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Sutter Hill strikes ice-cold, $2.5B pre-market return with Snowflake’s IPO filing

Today is the day for huge VC returns.

We talked a bit about Sequoia’s coming huge win with the IPO of game engine Unity this morning. Now, Sequoia might actually have the second largest return among companies filing to go public with the SEC today.

Snowflake filed its S-1 this afternoon, and it looks like Sutter Hill is going to make bank. The long-time VC firm, which invests heavily in the enterprise space and generally keeps a lower media profile, is the big winner across the board here, coming out with an aggregate 20.3% stake in the data management platform, which was last privately valued at $12.4 billion earlier this year. At its last valuation, Sutter Hill’s full stake is worth $2.5 billion. My colleagues Ron Miller and Alex Wilhelm looked a bit of the financials of the IPO filing.

Sutter Hill has been intimately connected to Snowflake’s early buildout and success, providing a $5 million Series A funding back in 2012, the year of the company’s founding according to Crunchbase.

Now, there are some caveats on that number. Sutter Hill Ventures (aka “the fund”) owns roughly 55% of the firm’s total stake, with the balance owned by other entities owned by the firm’s management committee members. Michael Speiser, the firm’s partner who sits on Snowflake’s board, owns slightly more than 10% of Sutter Hill’s stake directly himself according to the SEC filing.

In addition to Sutter Hill, Sequoia also got a large slice of the data computing company: its growth fund is listed as having an 8.4% stake in the coming IPO. That makes for two Sequoia Growth IPOs today — a nice way to start the week this Monday afternoon.

Finally, Altimeter Capital, who did the Series C owns 14.8%, ICONIQ owns 13.8%, and Redpoint, who did the Series B, owns 9.0%.

To see the breakdown in returns, let’s start by taking a look at the company’s share price and carrying values for each of its rounds of capital:

On top of that, what’s interesting is that Snowflake broke down the share purchases by firm for the last four rounds (D through G-1) the company fundraised:

That level of detail actually allows us to grossly compare the multiples on invested capital for these firms.

Sutter Hill, despite owning large sections of the company early on, continued to buy up shares all the way through the Series G, investing an additional $140 million in the later-stage rounds of the company. Adding in the entirety of its $5 million Series A round and a bit from the Series B assuming pro rata, the firm is looking on the order of a 16x return (assuming the IPO price is at least as good as the last round price).

Outside Sutter Hill, Redpoint has the best multiple return profile, given that it only invested $60 million in these later-stage rounds while still maintaining a 9.0% ownership stake. Both Sutter Hill and Redpoint purchased roughly 20% of their overall stakes in these later-stage rounds. Doing some roughly calculating, Redpoint is looking at a return of about 12-13x.

Sequoia’s multiple on investment is capped a bit given that it only invested in the most recent funding rounds. Its 8.4% stake was purchased for nearly $272 million, all of which came in these late-stage rounds. At Snowflake’s last round valuation of $12.4 billion, Sequoia’s stake is valued at $1.04 billion — a return of slightly less than 4x. That’s very good for mezzanine capital, but nothing like the multiple that Sutter Hill or Redpoint got for investing early.

Doing the same back-of-the-envelope math and Altimeter is looking at a better than 6x return, and ICONIQ got 7x. As before, if the stock zooms up, those returns will look all the better (and of course, if the stock crashes, well…)

One final note: The pattern for these last four funding rounds is unusual for venture capital: Snowflake appears to have “spread the love around,” having multiple firms build up stakes in the startup over several rounds rather than having one definitive lead.

Palantir targeting 3 class voting structure according to leaked S-1, giving founders 49.999999% control in perpetuity

We are continuing to make progress through Palantir’s leaked S-1 filing, which TechCrunch attained a copy of recently. We have covered the company’s financials this morning, and this afternoon we talked about the company’s customer concentration. Now I want to talk a bit about its ownership and stock valuation.

First, let’s talk about ownership. Having read through our leaked copy of the S-1 the past few hours, I can only summarize the situation as: wow, this is a really complicated ownership structure.

At the highest level, the founders of the company — Peter Thiel, Alex Karp, and Stephen Cohen — own 30.2% of the stock of the company as of the end of July of this year. Thiel controls much more than that though through his myriad investments made through Founders Fund, Mithril Capital, Clarium Capital, and quite literally dozens of other investment management funds listed in the filing.

In terms of overall corporate voting power today, Thiel has 28.4% at his disposal, Karp 8.9%, and Cohen 3.1% according to the company’s calculation.

This is where things get interesting. As is typical with most modern tech IPOs, the founders of the business are looking to create multiple voting classes of stock in order to protect their voting power even while their total ownership of the company diminishes. It is pretty common today to see a two-class structure where the plebian stock class for retail investors offers one vote, and a special class is offered to founders that has 10 votes. This allows a founder with 5% of the company through these special shares to control a majority of a company’s voting authority.

Palantir wants to push the envelope further though with a three-class structure that would prioritize Thiel, Karp, and Cohen above all others. In Palantir’s model, there would be a Class A share with 1 vote, a Class B share with 10 votes, and a special “Class F” share with variable votes.

Class F shares would share 49.999999% (six 9s in the decimal – I counted twice) of the voting power of Palantir at all times, regardless of the underlying ownership of shares. Important to note that that is not a “majority” and thus they will not have literally a controlling stake in the public company.

In fact, Palantir has spent much of the last few months building the case for why it needs this special tripartite system of corporate governance. It hired several new members to its board of directors including Alexandra Schiff, Spencer Rascoff, and Alexander Moore earlier this year in order to build a “Special Governance Committee” that would make these changes to the company’s Delaware charter. Given that the founders were practically the only directors of the company outside of Adam Ross, it was hard to give themselves control by their own vote.

Palantir’s leaked S-1 has dozens of pages of the timeline and discussions that resulted, and why the committee ended up deciding to go with what can only be described as Byzantine method of voting.

That resolution still has to be supported by shareholders and of course, Wall Street. Much in the way that Palantir is going to have a lockup on its employees in a novel variant of the direct listing model, it seems it wants to pioneer a new model of founder ownership as well.

Stock valuation

Now, let’s switch over to a little chart showing Palantir’s preferred stock prices since inception and the current carrying value of those shares:

Immediately, we can see here that Palantir starting in 2013 really came into its own. The company, which was founded in 2003, showed little sign of deep outside investor interest for much of its early history. Its preferred stock share price grew linearly and slowly from its Series C in 2008 to its Series H in 2013.

Then, something interesting happens. There is almost immediately a radically increasing growth in the value of the stock with new issues in the Series H through K showing quick growth in value.

Recent stock sales have been common shares, and not preferred.

According to the company’s leaked S-1 we attained, only three shareholders passed the 5% threshold required for SEC disclosure. Founders Fund is listed as owning 12.7% of the company’s Class B shares, Japanese insurance giant SOMPO Holdings is listed as owning 20.3% of the company’s Class A shares, and investment bank UBS is at 5.7% of Class A shares. The company said that it had 529 million Class A shares and 1.09 billion Class B shares outstanding as of the end of June this year.

Leaked Palantir S-1 shows company has 125 customers after 17 years

We are still walking through Palantir’s leaked S-1, which as of the time of this writing, hasn’t yet been filed and published by the SEC. This morning, we discussed some of Palantir’s financials, including its revenues, margins, and net losses.

The company’s customer base — and it’s high-degree of concentration — is a recurring theme in the leaked S-1 filing that TechCrunch has been reading all day.

Palantir has precisely 125 customers as of the end of the first half of 2020. Palantir notes that customers from different parts of the same government department or company are considered separately (Palantir’s example is that the CDC and NIH are both part of the Department of Health and Human Services, but would be billed separately and are thus considered separate customers for the purpose of its calculation).

As of the end of 2019, the average revenue per customer for Palantir was $5.6 million. In comparison to many other SaaS stocks, that is a gargantuan number, but mostly driven by the fact that Palantir doesn’t have the soft onboarding strategies of products like Slack or Amazon Web Services, where small organizations can start using a product even though they aren’t massive moneymakers.

Palantir notes that over the past decade, average revenue per customer has increased 30%.

What’s perhaps more worrying though is the sheer revenue concentration of Palantir. The company’s top three customers — which aren’t disclosed — together represented 28% of the company’s revenue for 2019. Its top twenty customers represented 67% of total revenues, with each one of those customers averaging $24.8 million in revenue.

As we reported this morning, 53.5% of the company’s revenue is derived from government contracts, with the balance from commercial clients.

Palantir’s filing says that 40% of revenue is generated in the U.S., with 60% generated internationally. The company says that it has clients in 150 countries (of course, reconciling 150 countries with 125 customers is left as a math exercise for the reader).

Palantir sees great growth opportunities in both its government and commercial businesses. On the government side, the company said in its note to shareholders that:

The systemic failures of government institutions to provide for the public — fractured healthcare systems, erosions of data privacy, strained criminal justice systems, and outmoded ways of fighting wars — will continue to require both the public and private sectors to transform themselves. We believe that the underperformance and loss of legitimacy of many of these institutions will only increase the speed with which they are required to change.

Palantir argues that its total addressable market is $119 billion.

Leaked S-1 screenshots show Palantir losing $579M in 2019

Palantir filed an S-1 confidentially to the SEC in early July, but we have so far been waiting for the final doc to be published for weeks now with nary a murmur. Now, thanks to some leaked screenshots to TechCrunch from a Palantir shareholder, we might have some top-line numbers.

In screenshots of a draft S-1 statement dated yesterday (August 20), Palantir is listed as generating revenues of roughly $742 million in 2019 (Palantir’s fiscal year is a calendar year). That revenue was up from $595 million in 2018, a gain of roughly 25%. That’s growth, although not particularly great given some of the massive SaaS growth we have seen in recent IPOs like Datadog.

The company’s revenue is a disappointment, after the company was reported to have been on the cusp of $1 billion in revenue for years. Private companies, of course, do not normally disclose their financial results, but the company’s size falls far short of expectations, leaks, and other reports.

The real shocker though in these numbers is when you head to the bottom of the company’s revenue statement. In the screenshots of the company’s financials, Palantir lists a net loss of roughly $580 million for 2019, which is almost identical to its loss in 2018. The company listed a net loss percentage of 97% for 2018, improving to a loss of 78% for last year.

The company’s $580 million loss during the period shows at once why the company has needed to raise billions to-date, and how far it has yet to go until it can self-sustain.

Gross profit for 2019 was roughly $500 million in 2019, slightly higher than in 2018. The company’s big expense is around sales and marketing, which was roughly $450 million for both years and represented 61% of revenue in 2019.

More interesting has to do with the company’s revenue breakdown. Palantir is widely known for its government contracting, but in recent years, the company has tried to expand its data products into the private sector.

According to the leaked screenshots shown to TechCrunch, Palantir disclosed its revenue breakdown for the first six months of 2019 and the first six months of 2020. For the first half of this year, Palantir generated $258 million in government-derived revenue (53.5%), compared to $224 million in commercial revenue (46.5%). In 2019, government revenue was $146 million (45%) and commercial revenue was $177 million (55%).

That’s actually quite out-of-sync with some of the public comments the company has made about reducing reliance on government contracts for its revenues. The company’s government revenues are higher today both in absolute totals and relatively speaking, begging the question whether its products are competitive in the enterprise space outside of its traditional bastion in government services.

While there is no firm date for the Palantir S-1 that we know of, given the financials are apparently floating around out there, expect it to come sooner rather than later.

We have reached out to a Palantir PR contact for comment, who declined to comment.