Palantir: $300 Million Not Enough?

June 30, 2013

I spotted a blog post called “Could Palantir Technologies Be Raising Additional Funding?” I have no clue who or what is behind this interesting item. The main idea is that Palantir, a high profile company which has been in the news about litigation and other matters, has been funded already. According to Crunchbase, the company has more than $300 million in funding. For the sake of comparison, Attivio and Coveo — both in the content processing space — have been able to drum up about $30 million in funding. Most of the companies in the search and content processing space — Digital Reasoning, for instance — have garnered a fraction of what long time players Attivio and Coveo have been able to gather. At the time of its sale to Oracle, Endeca — another content processing and intelligence vendors — was generating an estimated $150 million in revenues. At the time of its sale to Hewlett Packard, Autonomy was nosing into the $800 million range. But the key figure for Autonomy is that it sold to the prescient managers at HP for more than $10 billion.

Let’s assume that Palantir has received funding in the $300 million range. Let’s assume that the company is not raising any additional funding. Let’s assume that the company, founded in 2004, is going to pay back its investors, operate at a profit, and fund necessary research to keep the content processing system in step with competitors like Cybertap, among others.

So what does the gargantuan funding suggest to me, this fine, humid Sunday morning in rural Kentucky?

First, revenue in the Endeca range or even the Autonomy range, may not be enough to meet investors’ targets. Expectations for big plays are rarely in the credit union savings account range. To hit a 10x return, Palantir has to be in the $3 billion per year range. That works out to 3X the revenue of Autonomy and 30X plus Autonomy’s revenue? How may companies today selling content processing are in this $3 billion club? According to my data, not too many. Based on the information I monitor, no search or content processing company has hit this type of revenue goal since I have been monitoring the 200 companies in the Overflight service.

Second, the $300 million funding may be a signal that doing advanced search and content processing is not just expensive. The costs are quite high and may be difficult for Palantir’s senior management to predict. (Perhaps the company needs some of Recorded Future’s technology to get the money thing parameterized?) Will the costs of creating, supporting, and innovating a service like Palantir whet the appetites of big bucks investors for Palantir or stimulate a flow of revenue into one of the dozens of start ups in the space? Will, for example, Quid benefit?

Third, perhaps the massive funding is a form of stage dressing for a high profile, super sized sale of the company. Could large firms be jockeying to bid eBay-style for Palantir. The idea is that if so much smart money has flowed into the firm, a more IBM-style or GM-style management approach can uncork massive revenues and even more gigantic profits? I can formulate this question, “Is the Palantir cash appetite a prelude to the main course; that is, the blockbuster sale later this year or in 2014?”

A Palantir professional asked me recently, “Why do you ping Palantir?”

Answer: Heck, it is an anomaly in funding, in litigation, and in getting media attention. Why wouldn’t I pay attention to Palantir? I have zero interest in writing about the actions of a government entity. Last time I checked, a retired person approaching 70 years of age can do research and summarize it, offer an opinion, and ask questions, right?

I have a goose as a logo. Maybe I am angling for a stand up comedy gig at the local open mike night in a big city not far from Harrod’s Creek? Ever think of that? I don’t think investors who do not get their money back are going to be in a receptive frame of mind for my brand of humor? I did not need Recorded Future to predict that, by the way.

Stephen E Arnold, June 30, 2013

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