Palantir Technologies, one of Silicon Valley’s most highly valued startups, plans to purchase up to $225 million of its own common stock that is owned by current and former employees, in a move that could provide some relief to employees growing anxious over the prospect of turning their shares into cash.
The so-called “liquidity event” will be held at a price of $7.40 per share, Palantir said in a memo to staff that was obtained by BuzzFeed News. Employees — whose compensation is weighted heavily toward stock options — were invited to sell up to 12.5% of their equity, or $500,000 worth, whichever is lower.
The $7.40 price offered for common stock is significantly above the level that several mutual fund investors are currently valuing preferred shares of Palantir — shares that are typically valued higher than common stock. As of March 31, at least three funds — managed or co-managed by Morgan Stanley, Fidelity, and Transamerica — valued Palantir preferred shares at $5.92 each, 48% below the price in a financing round last year.
One fund, managed by Valic, a division of AIG, is valuing its preferred shares at just $3.79, a 67% discount to last year’s valuation. The valuation data was collected by research firm Morningstar.
Representatives of the funds did not immediately respond to requests for comment.
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It could not be determined whether Palantir plans to sell the common shares to outside investors after buying them from employees. That is what the company planned to do after a similar liquidity event last year, according to an internal email at the time.
A Palantir spokesperson, Lisa Gordon, did not respond to multiple requests for comment. The 12-year old data analysis company based in Palo Alto, California, was valued at $20 billion by investors in the 2015 financing round, making it the third most highly valued American tech startup, behind only Uber and Airbnb.
The latest liquidity event is part of a broader effort by Palantir to address unease among its staff. More than 100 employees, including several top managers, left the company this year through mid-April, BuzzFeed News reported earlier this month. On April 22, CEO Alex Karp announced a sweeping 20% pay raise for all employees who had worked there for at least 18 months and canceled annual performance reviews, which he suggested weren’t working, BuzzFeed News reported.
In a response to the article, Palantir co-founder Joe Lonsdale wrote that while many staff work at the company for “mission-driven” reasons, “the financial equation matters a lot 12 years into any company.”
“Salaries have gone up dramatically in our space in the last five years,” wrote Lonsdale, who is now a venture capitalist. “But despite recommendations from senior folks who also asked me about it last year, Palantir never moved its lower salary cap until last month.”
(Lonsdale also described the BuzzFeed News article as “self-congratulatory and negative which is to be expected in the low-paid clickbait environment.")
Before the pay raise, Palantir had capped salaries at levels far below what top engineers can command in Silicon Valley. It made up for this by paying employees largely in stock options, making them sensitive to the perception that the company might not live up to its ambitious valuation.
As Palantir has aged – while avoiding going public – many former employees have grown restless while waiting to cash out. A number have turned to outside brokers in the opaque secondary market, where deals can take months to get done and prices are inconsistent.
Karp addressed this sentiment in his April 22 memo, saying he understood “the need for liquidity” and would aim to hold a liquidity event in the subsequent four weeks.
The terms of the latest liquidity event have changed from last year, Palantir said in the Friday memo. In April 2015, it bought common shares at $6.13 a share and limited employees’ participation to either 10% of their equity or $425,000, whichever was lower.
Last year, Palantir purchased just $50 million of stock from employees, meaning the total planned purchase is 4.5 times higher this time around. The memo said employees have until 9 p.m. on June 17 to decide on their participation in the offer.
Palantir also told staff it may introduce policies that discourage share sales done outside of its official channels. Among possible changes to be incorporated into future offers, the company memo said, is “limiting the eligibility and/or participation of individuals who have sold shares outside of Palantir liquidity events.”