Ex-Palantir Employees Are Struggling To Sell Their Shares

by William Alden on October 28, 2016

C Flanigan / Getty Images

Former employees of one of Silicon Valley’s most valuable startups are struggling to cash out of the stock options that formed a major part of their pay packages.

As it grew into a $20 billion company, Palantir Technologies convinced top-tier engineers to accept salaries considered meager by Silicon Valley standards, pairing the relatively low wages with generous stock option grants. But some former employees who accepted this bargain, banking on a future windfall, are now complaining that the market for their stock has gone “completely dead.”

The complaints add to pressure on Palantir CEO Alex Karp, who has long contended that the company would avoid the public markets. This week, Karp acknowledged publicly that he was “positioning” Palantir for an initial public offering, as part of efforts to reward cash-starved employees.

This reversal didn’t come out of the blue. A chorus of complaints has arisen in a private Facebook group for Palantir alumni, with many former employees expressing concern and regret over their inability to sell their shares. In September and October, two former employees promoted possible opportunities to join together to sell a block of shares, including an unsuccessful attempt to organize a sale in China.

Numerous other former employees shared personal stories: Some said they needed the cash to buy a house or pay down debt, while another said they took out a loan to fund the process of turning the options into shares. One said it was “infuriating” trying to sell their shares in a “crap” market.

If you have information or tips, you can contact this reporter over an encrypted chat service such as Signal or WhatsApp, at 310-617-1302. You can also send an encrypted email to will.alden@buzzfeed.com, using the PGP key found here.

Compared with last year, when the stock was highly sought after, demand among big investors for Palantir shares has recently gone cold, two brokers who specialize in startup shares told BuzzFeed News.

This chill reveals more about the fickle and sometimes inscrutable nature of markets for startup stock than it does about the business health of Palantir, which makes money by analyzing data for government and corporate clients. But it has stirred frustration among current and former employees.

A complaint about Palantir’s below-market compensation was the most upvoted question in an internal question-and-answer session in the first part of this year, with 259 votes from employees, an internal document reviewed by BuzzFeed News shows. “Our cash compensation + bonuses are below the market for tech and our equity growth has slown significantly,” the question, posed anonymously by an employee, said. “The total comp is not competitive; even more so due to the illiquidity.” The questioner continued, “Are we planning to change our compensation model?”

Palantir did move to address such concerns in April, announcing it would raise salaries for many employees by 20% and offer to buy back a portion of employee shares.

But on Wednesday, Oct. 26, in another move that seemed aimed at placating employees and investors, Karp gave the strongest indication yet that an IPO could be on the horizon — though it is hardly a certainty. “We’re now positioning the company so we could go public,” he said from the stage of a tech conference hosted by the Wall Street Journal in Laguna Beach, California. “I’m not saying we will go public, but it’s a possibility.”

An IPO would provide a payday to major investors, including Palantir co-founder and chairman Peter Thiel. “Of course I want my investors to be happy,” Karp said, “but the primary people I care about are the wide-eyed people at Palantir who are working day and night.”

A Palantir spokesperson declined to comment.

With a $20 billion valuation, Palantir is the third biggest American tech startup, behind only Uber and Airbnb. It is also by far the oldest of that elite group, meaning its workers have waited a long time for their stock-option payday. Founded in 2004, Palantir is as old as Facebook — which went public in in 2012. In tech years, it is a generation older than Airbnb, founded in 2008, and Uber, which was founded in 2009. The much younger Snapchat, which was founded in 2011, is reportedly laying plans for an IPO early next year that could cause its valuation to leapfrog Palantir’s.

Stock options have long been central to compensation at Palantir. A 2015 template for a Palantir offer letter gave new hires the ability to choose among three different pay packages, with lower cash salaries corresponding to higher amounts of stock options. “It is our hope and belief that these options will ultimately constitute the bulk of your overall compensation,” says this internal Palantir document, which was reviewed by BuzzFeed News.

To illustrate the potential value of the options, the offer letter template invites new hires to imagine a scenario in which Palantir’s valuation were to grow to $50 billion, or $100 billion — or even $200 billion. “Although the values in the table below are hypothetical and inherently uncertain, we want to emphasize our belief in Palantir’s potential to become a $100 billion company,” the letter says.

While it waits for this dream to materialize, the company has sought to ease financial angst among its employees. It held a “liquidity event” this year that gave current and former employees an opportunity to sell a fraction of their shares. But Palantir also indicated it wanted to curb share sales done outside of its official channels, warning that selling to outsiders could make staff ineligible for future liquidity events.

That outside market hasn’t exactly been humming with deal activity anyway. Trading in private company shares is opaque and fragmented, and data is hard to come by. But the two brokers who spoke with BuzzFeed News said Palantir’s prolific fundraising — the company has raised more than $2.5 billion in capital, according to data provider PitchBook — may have dampened investor appetite. A number of big investors who would want a piece of Palantir already have one, they said.

In May, BuzzFeed News revealed some of the setbacks Palantir has experienced as it seeks to expand beyond its roots as a government contractor and woo major corporations. The article, based on internal documents and insider interviews, reported that Palantir had lost some blue-chip corporate clients, was struggling to stem staff departures, and had recorded revenue that was a fraction of its customer bookings.

At the conference Wednesday, Karp was asked about those customer losses, which included Coca-Cola, American Express, and Nasdaq. “We date heavily before we marry,” he answered.

Even before the article was published, members of the private Facebook group for Palantir alumni voiced concern about selling their shares in the so-called secondary market. BuzzFeed News is withholding the names of former employees to protect their privacy.

“Any 2nd market shares going on right now? My broker disappeared,” one former employee posted in April.

“There are still periodic deals happening,” another replied. “One that I know of right now, but it’s full already.”

“Yeah, the demand has evaporated,” another said.

More recently, however, some of the posts took on an urgent tone, as sales appeared to grow scarcer. Options are contracts to buy shares at a certain price; to use them, the owner must pay this price in addition to applicable taxes — which can amount to a large bill. What’s more, options expire at a certain point if they’re not used, adding time pressure to the equation.

In the public market, owners of options can easily sell a portion of their holdings to cover the tax bill and the exercise price. But this strategy is much trickier in the private market, and there was some debate in the Facebook group over whether Palantir would even allow it.

In September, one former employee asked the group whether anyone was “coming up on their 3-year expiration,” soliciting advice on “approaches people are taking given the less-than-stellar private market.”

Among the replies, one former employee reported taking out “a personal loan to meet my exercise deadline.”

Another wrote: “I’m in the same boat: 3 years coming up in April, market is crap, and I probably don’t have the resources available for a loan. The fact that it’s so difficult to sell is infuriating and I’m wishing that I’d taken the ‘high’ salary option (which TBH wasn’t that high to begin with).”

“On the same boat,” wrote another. “Hoping to buy a house next year and really couldn’t wrap my head around throwing so much money in addition to the stress and work needed to process.”

The former employee who started that thread apparently didn’t receive much solace. In response to a later post, which asked whether there were “any secondary market sales brewing,” this former employee wrote, “Sorry to be the bearer of bad news, but the market is completely dead at the moment.”

This person then quoted an unidentified broker as saying, “There is absolutely nothing moving in Palantir. People who have bought through us are trying to sell now. I don’t see it changing without the company changing their tone on an IPO.”

Others in the thread shared snippets of information they said they had heard from brokers. According to one, a broker “told me that there are a few ‘price insensitive’ sellers satisfying what little demand exists.”

Another former employee wrote: “I’m interested in joining any sales going down too, I’ve got a year to pay off a hefty debt with the proceeds.” The person added a neutral face emoji.

With buyers scarce, one former employee tried looking across the Pacific.

“I spoke to someone that brokers sales in China, they said they might be willing to get something together if there’s enough of us,” they wrote above a link to a Google Doc that asked others to report information about their holdings.

One of the repliers questioned whether this process would actually turn into a sale — potential investors might just be “fishing for information on prices” — and another cautioned the original poster against “acting as an agent for a group of sellers.” (The poster said the query was “just intended as an interest check.”)

In the end, none of that mattered. “Not likely to go anywhere in the next couple of months,” the former employee who posted the opportunity wrote later. “Sorry if I got anyone’s hopes up.”

Early this month, another member of the group posted about an opportunity to sell options through EquityZen, a startup that arranges small transactions of private company shares. This former employee advised others to contact the EquityZen CEO, providing the CEO’s email address. But less than 12 hours later, another former employee replied to say that the deal “has been already submitted,” meaning the opportunity had passed.

“Dang,” another member wrote.

Discussions in the group about news related to Palantir often come back to a familiar theme. In September, for example, the Department of Labor accused Palantir of discriminating against Asian job applicants, a claim Palantir later rejected as “flawed and illogical.” In a thread discussing the allegations, one former employee found a financial angle.

“I sure hope this isn’t an expensive lawsuit for them to defend,” this person wrote. “I don’t claim to understand how the legal system works in cases like this, but geeeeez this doesn’t bode well for any of us looking for liquidity at a fair price over anytime soon.”

If you have information or tips, you can contact this reporter over an encrypted chat service such as Signal or WhatsApp, at 310-617-1302. You can also send an encrypted email to will.alden@buzzfeed.com, using the PGP key found here.

Originally Posted By BuzzFeed - Tech

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