We're continuing to make progress through Palantir's leaked S-1 filing, a copy of which theinformationsuperhighway recently received. We covered the company's financials this morning and talked about the company's customer concentration this afternoon. Now I'd like to talk a little about ownership and stock valuation.
First, let's talk about ownership. After reading our leaked copy of the S-1 for the past few hours, I can only sum up the situation like this: Wow, this is a really complicated ownership structure.
At the highest level, the company's founders – Peter Thiel, Alex Karp and Stephen Cohen – held 30.2% of the company's shares at the end of July this year. Thiel controls much more than that, despite investing through his myriad of investments through the Founders Fund, Mithril Capital, Clarium Capital, and literally dozens of other investment management funds listed in the filing.
With regard to the company's current voting rights, Thiel has 28.4%, Karp 8.9% and Cohen 3.1% according to the company's calculations.
This is where things get interesting. As is common with most modern tech IPOs, the company's founders seek to create multiple voting share classes to protect their voting rights, even as their overall stake in the company decreases. It's pretty common these days to see a two-tier structure, with the Plebian share class offering one vote for retail investors and a special class being offered to founders with 10 votes. This enables a founder with 5% of the company to control the majority of the voting rights of a company through these special shares.
Palantir would like to push forward the handling with a three-class structure in which Thiel, Karp and Cohen have priority over everyone else. In Palantir's model, there would be a Class A portion with 1 vote, a Class B portion with 10 votes, and a special Class F portion with variable votes.
Class F Shares would share 49.999999% (six nines in the decimal – I counted twice) of the voting rights of Palantir at any one time, regardless of the underlying ownership of the Shares. It is important to note that this is not a "majority" and therefore you will literally not have a majority stake in the public company.
In fact, over the past few months, Palantir has highlighted much of the reasons why this particular tripartite system of corporate governance is needed. Several new members were added to the Board earlier this year, including Alexandra Schiff, Spencer Rascoff and Alexander Moore, to form a Special Governance Committee to make these changes to the company's Delaware Charter. Given that the founders were virtually the only directors of the company outside of Adam Ross, it was difficult to put themselves in control by their own voice.
Palantir's leaked S-1 includes dozens of pages of the timeline and the ensuing discussions and why the committee ultimately opted for what is known as the Byzantine voting method.
That decision has yet to be supported by shareholders and, of course, Wall Street. Similar to how Palantir will lock its employees up in a new variant of the direct listing model, it also seems to be developing a new model of the founder ownership.
Now let's switch to a small chart that shows Palantir's preferred stock prices since inception and the current book value of those stocks:
We can see right away that Palantir really came into its own from 2013 onwards. Founded in 2003, the company showed little sign of deep outside interest during much of its early history. The price of the preferred shares rose linearly and slowly from Series C in 2008 to Series H in 2013.
Then something interesting happens. There is a radical surge in value for the stock almost immediately, with new issues in Series H through K showing rapid growth in value.
The most recent stock sales were common stocks and were not favored.
According to the company's leaked S-1, only three shareholders have exceeded the 5% threshold required for SEC disclosure. Founders Fund holds 12.7% of the company's Class B shares, Japanese insurance giant SOMPO Holdings holds 20.3% of its Class A shares, and investment bank UBS holds 5.7% of its Class A shares To have 529 million Class A shares and 1.09 billion Class B shares outstanding at the end of June this year.