Here’s what a Palantir Technologies direct listing could look like

  • Palantir Technologies plans to go public using a direct listing in late September, according to Bloomberg. 
  • It would make Palantir the third technology company to do a direct listing, a alternative public listing process pioneered in the industry by Spotify in 2018 and Slack in 2019.
  • Spotify and Slack both hired Goldman Sachs, Morgan Stanley, and Allen & Company as financial advisors on their direct listings. It’s unclear who Palantir will work with.
  • Visit Business Insider’s homepage for more stories.

It’s a truth universally acknowledged among technology bankers that only one company a year will have the right financial situation to skirt the more traditional IPO in favor of a direct listing.

In 2020 that designation was supposed to be left to Airbnb – then Palantir stepped up to the plate. 

Palantir, the secretive data analytics firm founded by Peter Thiel, has spent nearly two decades running on venture capital, and eventually, on revenue. The company plans to go public through a direct listing in late September,  Bloomberg reported Wednesday.

The company announced last month that it had confidentially filed draft paperwork to go public, but so far none of its financial information has been made public. Still, the direct listings of Spotify in 2018 and Slack in 2019 give some clues as to what is to come for Palantir.

Direct listings, the most exciting trend to hit investment banking until SPACs came onto the scene, enable companies to trade publicly without floating any new shares. Instead, the company simply begins trading on an exchange and existing shareholders (private market investors and employees) are free to sell their stock to public market investors. 

A company doesn’t lose any of it ownership in a direct listing but it also doesn’t get to raise any new capital. This makes Palantir an unexpected candidate for a direct listing since, unlike its predecessors, Palantir actually needs the cash.

Palantir has made up for this need by turning to the private markets. A public filing from early July shows the company is in the process of raising $961 million in private capital. So far it has raised $550 million, mostly from the Japanese holding company Sompo Holdings. 

Why would a company raise private funding when it could just raise that cash in an IPO? Sam Dibble, a San Francisco-based partner at the law firm Baker Bott, isn’t surprised. He said that speed and a guaranteed valuation both make private fundraising more attractive than that initial IPO float. You also don’t have bank underwriting fees, which cost a company around 7% of what it raises in a traditional IPO.

“Most companies, if they can get all the money from one ATM as opposed to hundreds or thousands, would rather go to one or two big investors,” Dibble told Business Insider.

Once Palantir has been public a year, it will be eligible to raise additional funds through the public markets in a process that’s much faster than an IPO.

“The key from a securities law perspective is to buy one year’s worth of runway,” Dibble said. “After that, you’re eligible and able to raise quickly from the private markets, and usually at a reduced underwriting cost.”

Spotify and Slack led the way

The direct listing processes for Spotify and Slack closely mirrored one another, and while nothing is certain, they could shine light on what is to come for Palantir.

It’s unclear which banks Palantir will work with on its upcoming public listing. But unlike with traditional IPOs, direct listings don’t require dozens of underwriters to finance the IPO.

Both Spotify and Slack direct listings relied on the same three financial advisors: Goldman Sachs, Morgan Stanley, and Allen & Company.

Slack actually listed 10 different banks on its S-1 but the rest of the banks just provided research on the company, sources told Business Insider at the time. Those three banks split around 90% of the $22 million in banker fees, Bloomberg reported.

It’s also not clear which exchange Palantir will list on, but both Spotify and Slack listed on the New York Stock Exchange.

As for timing, Bloomberg reported that Palantir’s direct listing is planned for late September, which means the S-1 could come out any time now. Spotify filed its public registration on February 28, 2018 and listed five weeks later on April 4, 2018. Slack filed its S-1 on April 26, 2019 but didn’t list until June 20, 2019.

Disclosure: Palantir Technologies CEO Alexander Karp is a member of Axel Springer’s shareholder committee. Axel Springer owns Insider Inc, Business Insider’s parent company.

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