Detective work is as often as much about looking for patterns in a crime’s cover-up to then target ways to capture or prevent future ones. So when the anti-fraud team at online payments provider PayPal noticed that Russian criminals trying to break their way in were using multiple servers to bounce the internet packets around the world and so hide the original it became the signal for how to block them – if a message came in with more than 15 of these jumps then it was flagged.
This relatively simple step helped moved cyber-security to real-time rather than identifying the loss, working out what was taken and plugging gaps through updates to the software several months later. It also marked the evolution of cyber-security from, in the jargon, point-based to user-based, ie from protecting a device, such as personal computer, to looking at the person using the device and their relations with others, even if these links are not immediately obvious to be signs of potential fraudulent or otherwise interesting behaviour. And one of the biggest start-up companies targeting this space is Palantir, created a decade ago by the folks who first noticed the criminal patterns at PayPal and after their graduation from US-based Stanford University.
After three years without significant revenues but eating up lots of corporate, angel and government funding to develop its platform to help customers examine their data, Palantir has exploded to what investors on background said was a valuation of at least $9bn in its latest $196.5m round that provisionally closed in September, according to its regulatory filing.
This would imply a so-called up round from the valuation a year earlier when employees and early investors sold some stock at a $4bn valuation, insiders said.
In online forum Quora, a question was posted: what is the current valuation of Palantir Technologies? Co-founder Joe Lonsdale answered: “It’s higher, but there is no official valuation. There have been trades of common between $4[bn] and $5bn on the secondary markets, and these occurred before the end of a very strong year. I am not fully in the loop [Lonsdale left in 2009 and is now a partner at VC firm Formation8] but I know that some groups have shown interest between $7[bn] and $8bn.”
The company raised $50m in May 2011, which valued the company at $2.5bn to $3bn, according to a source talking to the New York Times.
In June 2010, Palantir raised $90m in its series D round at a $735m valuation, according to news provider TechCrunch.
Prior to the latest investment, which could reportedly exceed $200m when finally closed, Palantir’s funding totalled about $500m according to Alex Karp, chief executive of Palantir in an article by news provider Forbes. Karp was also co-founder of Palantir alongside Lonsdale and fellow Stanford computer sciences alumnus Stephen Cohen (who remains as an executive vice-president), Nathan Gettings and Peter Thiel.
In an interview with Forbes for its September story, Thiel, co-founder and CEO of PayPal until its purchase by online auction company Ebay for $1.5bn in 2002, said Palantir could be worth as much as Facebook, a Nasdaq-listed social network he had privately funded and that now has a market capitalisation of more than $100bn, but it would take time to get to a similar valuation: “Enterprise software companies always grow much more slowly at first. You can’t always get the viral growth like those consumer companies like Google or Facebook.”
Behind this dry statement lies some irritation. When Karp and Thiel were co-founding Palantir in 2003/2004, they visited venture capital firms, such as Kleiner Perkins Caufield & Byers, that had backed search engine provider Google and Facebook, but were ill-treated – “made sport of,” according to two investors. According to Karp in the Forbes profile, Michael Moritz, Sequoia’s chairman, doodled through an entire meeting and a Kleiner Perkins executive lectured the Palantir founders on the inevitable failure of their company for an hour and a half.
Of the two, known venture capital firms invested in Palantir, Ulu Ventures and Glynn Capital, both represent specialist models and came in in later rounds. Ulu concentrates on spin-outs from Stanford University (Palantir’s main office is in Palo Alto on the other side of the underpass to the university’s main campus and its technology was developed by its alumni,) while Glynn specialises in employee stock sales.
As a result, the funding for Palantir has been drawn from angels and Wall Street financiers, such as hedge fund Tiger Global, and strategic investors able to bring an edge to the company, as well as reportedly more than $40m from Thiel’s Founders Fund. Investment bank Morgan Stanley, for example, brokered Palantir’s latest round.
Angels have reportedly included PayPal ex-employees Jeremy Stoppleman, chief executive of search platform Yelp, Keith Rabois, former executive at professionals network LinkedIn, and Ben Ling, former executive at Google and Facebook now a partner at Khosla Ventures; Matthew Michelsen, founder of data analysis provider Backplane; and billionaires Kenneth Langone, co-founder of retailer Home Depot and financial services firms such as Invemed and Vantis Capital, and hedge fund manager Stanley Druckenmiller.
The strategic backers have provided support to get into the target customers. In-Q-Tel (IQT), the venture investment unit funded by the US government’s intelligence agencies, backed Palantir’s series A round with a reported $2m. Anglo-Dutch publisher Reed Elsevier’s corporate venturing unit joined in Palantir’s B round having co-invested with IQT on an earlier iteration of Palantir, Systems Research and Development (SRD), before its sale to computer company IBM in 2005 for about $100m, according to an investor.
This investor said when he saw Karp present “it was like looking at the front-end to SRD” and that the two companies, which had both been backed by IQT, were introduced to each other so Palantir could learn how to sell into governments and large corporations.
Another investor described IQT as being “all over” Palantir from its earliest days and PayPal’s work tacking the Russian gangsters, while a third said it had provided money in the A round when the VCs had cold feet.
Harsh Patel, the former In-Q-Tel executive who invested in Palantir and is now an entrepreneur-in-residence at VC firm Foundation Capital, told Forbes for its Palantir profile: “They were clearly top-tier talent. The most impressive thing about the team was how focused they were on the problem … how humans would talk with data.”
In return, Karp put it in an email published by Defense News: “In-Q-Tel introduced the early team at Palantir to the intelligence community, which helped us a great deal in understanding their technical needs.”
IQT took Palantir’s black box platform that helps customers visualise what their data can mean into its clients, such as the Central Intelligence Agency, to look for patterns from people’s online and private activities and potential terrorist or
criminal activities.
The company is named after one of the Palantiri, the so-called seeing stones in author JRR Tolkien’s fantasy books.
And by building a platform that can tackle any big data set to help, Palantir has been farsighted and is now seeing revenues take off. Palantir was expected to post revenue bookings of more than $400m last year, according to a source aware of its financials, and is expected to reach $1bn in new, long-term contracts next year, according to Karp in the Forbes profile.
A push into finance has been partly driving this revenue growth.
An investor said its revenues from financial services customers in its Metropolis business unit went from zero to $100m in about 18 months as it helps uncover and prevent alleged fraud.
One investor said: “Customers reckon for every dollar they spend they save $10 and Palantir really is a general case platform that can be deployed anywhere and has an easy interface. There is nothing it cannot do in large-scale data.”
The Forbes profile eloquently described its tools as allowing “a Palantir user at a bank can, in seconds, see connections between a Nigerian internet protocol address, a proxy server somewhere within the US and payments flowing out from a hijacked home equity line of credit, just as military customers piece together fingerprints on artillery shell fragments, location data, anonymous tips and social media to track down Afghani bomb-makers”.
Another investor was even more excited about Palantir’s push into healthcare, calling it “huge”, both for preventing insurance fraud and analyzing data on potential new drugs and treatments.
In a press release in mid-2010 Palantir said it was integrating US community health data into AnalyzeThe.US, its analysis platform applied to Data.Gov and other public data sets in order to “identify vulnerable/at-risk populations, the services currently in place to provide them care, and the impact the federal government has on these communities”.
AnalyzeThe.US also feeds into Palantir’s government-focused data analysis platform, called Gotham.
But concerns about the implications for such data analysis have been growing, with news provider Frankfurter Allgemeine Zeitung asking Why We Are Allowed to Hate Silicon Valley.
Palantir marries both attention to individual user rights and their access to data with a detailed log book showing what steps they took, as well as aggregating data records for analysis to avoiding violating an individual’s privacy.
In his Forbes interview, Karp, tackled the issue on how much data can be included and the conclusions drawn from the “black box” algorithms that even some of his investors have no insights on. He was quoted: “I didn’t sign up for the government to know when I smoke a joint or have an affair,” and added in a company address published by Forbes saying: “We have to find places that we protect away from government so that we can all be the unique and interesting and, in my case, somewhat deviant people we’d like to be.”
A version of this article was first published by sister title Global Corporate Venturing
