[HN Gopher] Palantir's SPAC bets backfire
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Palantir's SPAC bets backfire
Author : lxm
Score : 103 points
Date : 2022-12-21 16:41 UTC (6 hours ago)
(HTM) web link (www.wsj.com)
(TXT) w3m dump (www.wsj.com)
| napierzaza wrote:
| oxfeed65261 wrote:
| https://archive.ph/tCUNt
| martynr wrote:
| Serendipity is alive and well it seems :)
| drcongo wrote:
| What a beautifully appropriate URL.
| maxrev17 wrote:
| Hahahaha
| ElfinTrousers wrote:
| A headline guaranteed to make me reach for the world's tiniest
| violin.
| maria2 wrote:
| Investing money in SPACs to boost revenue is like peak ZIR
| environment. Kind of sad to see a lot of net worth obliterated by
| the higher interest rates, but seeing the deflation of this kind
| of wasteful enterprise makes up for it a little.
| rurp wrote:
| So many of these investment amounts were exceeded by the payments
| the company agreed to make back to Palantir. Giving up equity for
| an "investment" that basicaly equals a free trial of some
| Palantir software seems like a terrible deal for the company. Is
| there a valid reason for this aside from the obvious ones of
| corruption and incompetence?
| mmaunder wrote:
| The risk of a snake eating it's own tail i.e. company invests in
| another who has to become a customer as part of the deal.
| Microsoft just did this recently IIRC with Azure - I forget which
| company. If the biz fails you lose your investment and your
| customer. So it's a high risk move.
|
| In general I'd say for growth businesses that this is a red flag
| because it signals how much effort they're prepared to go to to
| increase revenue, and how much risk they're prepared to take on.
| It's worth asking why they can't get customers the traditional
| way, and why they have bandwidth internally to go to this amount
| of effort - bandwidth that should be applied to regular customers
| who want to buy.
|
| From an optics perspective it looks good because the press loves
| transactions. So you get the press around the investment, and the
| knock-on press around gaining a new customer. But the
| fundamentals around this have that not-so-fresh smell.
| phkahler wrote:
| >> It's worth asking why they can't get customers the
| traditional way, and why they have bandwidth internally to go
| to this amount of effort
|
| Those seem like rhetorical questions designed to call them on
| the B.S. My new philosophy is not to ask those kind of
| questions, but instead (optionally) say why it's dumb, and
| (definitely) just don't bother with them.
|
| When you ask those questions it lends legitimacy to what
| they're doing by offering thr chance to justify it. By shooting
| it down directly they would first have to address the dumb
| part.
| credit_guy wrote:
| I'm on the fence on this. From one angle it looks like a
| conflict of interests, from another one looks like the opposite
| of a conflict.
|
| 1. Conflict: Microsoft becomes a large shareholder in company
| X, then uses their seat to steer that company into using Azure
| rather than AWS, despite AWS offering a better deal. Bad.
|
| 2. Alignment: Company X wants to get Azure cloud services. It
| tells Microsoft if their offering is so great, are they willing
| to get paid in stock rather than cash? If Azure lowers the
| company's compute costs by tens of millions per year, then the
| company will show an improved income statement, analysts will
| love that, the stock will skyrocket, and Microsoft ends up
| better with the stock than with cash. Microsoft is incentivized
| to provide the best user experience. Good.
| theIV wrote:
| I think you're thinking of
|
| > Microsoft buys near 4% stake in London Stock Exchange
| https://news.ycombinator.com/item?id=33952824
| mmaunder wrote:
| Thanks.
| lmeyerov wrote:
| Afaict openai too, basically paying themselves for massive
| GPU bills
| martynr wrote:
| Call me old fashioned but I kinda hope that buying a stake in
| the London Stock Exchange doesn't count as a high risk
| investment these days...
|
| Edit: ( though obviously it's not as clear cut as it used to
| be :/ )
| luma wrote:
| LSEG recently used leverage to buy market data firm
| Refinitiv which was somewhere around 5x the size of LSEG
| itself. They are risk averse, but clearly not as much as
| they used to be. That acquisition came with a large amount
| of hardware in DCs around the world which MS has been
| gunning to get into Azure.
| radicaldreamer wrote:
| Illumina often does this with spinoffs and startups. They
| provide a good chunk of the funding for startups which
| primarily use Illumina hardware.
| ljw1001 wrote:
| I suspect it's because they have a near monopoly in high-
| quality, next-gen sequencing. They're trying to grow the
| market for their machines rather than take business from a
| competitor.
| jjslocum3 wrote:
| I've witnessed the reverse happen very successfully:
| Fortune-500 company signs a multi-million-$$, multi-year
| contract with a vendor while at the same time investing in
| them.
| adamsmith143 wrote:
| Some HN poster made a good point about SPACs recently which is
| that the price discovery mechanism present in the IPO process
| turns out to be pretty important and it's likely one of the
| reasons so many SPACs immediately plummet in value when they get
| listed.
| fossuser wrote:
| I don't know if it was me, but I generally agree that SPACs
| seem like a bad idea for everyone except the person dumping the
| result on the public for quick cash.
|
| See: https://news.ycombinator.com/item?id=25900091
| rurp wrote:
| The incentive structure with SPACs is so blatantly perverse,
| I'm shocked they became so prevalent. The sponsor makes a
| boatload of money for _any_ deal, regardless of how terrible
| it is, and always loses money if they don 't make a deal.
| Given that setup, it would be shocking if there weren't a lot
| of bad deals.
|
| The popularity of these vehicles honestly makes me question
| the competence of many supposedly sophisticated investors and
| executives. I get that a lot of this was targetted at taking
| advantage of low information investors, but many professional
| investors dumped money into these things as well.
| lazide wrote:
| It wasn't just homebuyers signing no contingency/no
| inspection deals for fear of losing out the last few years.
|
| When there is a lot of money chasing fewer and fewer deals,
| this is what happens.
| mmaunder wrote:
| It's pump and dump with a fresh coat of paint. In 2005 I ran
| WorkZoo (a job search that competed with Indeed) and we were
| hot stuff just after Google's IPO. Vertical search was going to
| be the 'next big thing'. We had a group approach us wanting to
| reverse merger us onto the public markets clearly to pump the
| stock post the Google IPO hype. We told them what they could do
| with their idea. Honestly I'm far happier being able to look
| myself in the mirror and smile than having potentially profited
| from crap like that.
| SilverBirch wrote:
| Did this unconventional scheme happen just before an going
| public? Did it unravel shortly after the going public? Funny...
| aswanson wrote:
| Sounds like the scheme lucent was using in the late 90s to boost
| revenue. Give clients loans to buy your equipment.
| funstuff007 wrote:
| a lot of shops do this. The most obvious example of this
| practice are car financing companies such as Ford Motor Credit
| and its ilk. I am not aware of how abusive (i.e. terrible
| underwriting standards) Lucent was using for this technique.
|
| The issue with the Palantir strategy is that the borrowers
| weren't actually borrowers, they sold often-times worthless
| equity to Palantir. And now Palantir cannot get its money back.
| Quite frankly, I don't know how Palantir investors were OK with
| the Palantir balance sheet getting loaded up with highly
| speculative investments. Growth at any cost, I guess.
| mikeyouse wrote:
| Mirrors the way that Thiel decided to invest in Palantir in
| the first place... just ignored the fund direction and didn't
| consult LPs before moving the entire thing into a single
| company:
|
| https://www.twitter.com/HarveySawikin/status/158783411778537.
| ..
| stanleydrew wrote:
| > I don't know how Palantir investors were OK with the
| Palantir balance sheet getting loaded up with highly
| speculative investments.
|
| Isn't the way this works that Palantir forms a partnership
| where it is the sole limited partner, hires a general partner
| or two, and then funds it? So the Palantir balance sheet just
| shows a single asset (the partnership interest)?
| ffssffss wrote:
| I think the answer is that the investors aren't OK with this
| and they've all closed their positions! The stock is down 65%
| in TTM.
| Turing_Machine wrote:
| GMAC, Sears, and similar were doing that long before the '90s.
|
| At one point, I believe Sears was making more money from
| financing than from outright sale of merchandise.
|
| Wikipedia says that GMAC was founded in 1919.
| lanstin wrote:
| That reminds me of dot com times when two ad supported businesses
| would trade ads for themselves on each others platform and then
| both book some big and sales without any money changing hands.
| Like yahoo would show AOL ads for $100M and AOL would show Yahoo
| ads for $100M.
|
| I don't know why people can't stop themselves from fraud, but the
| whole auditing/financial controls stuff is proven again and again
| as of vital importance.
| derbOac wrote:
| > I don't know why people can't stop themselves from fraud
|
| In my experience it's because more minor or gray instances of
| it that we never see get swept under the rug or ignored, and
| people get pressured or encouraged into bigger and bigger, more
| clear-cut fraud until it gets caught.
|
| Survivorship bias works with vice like anything else.
| akira2501 wrote:
| > I don't know why people can't stop themselves from fraud
|
| It's clearly a valid strategy that yields some desirable
| results in the short term. From history, it seems people
| usually convince themselves they can come back and fix it if
| they can just make it to the long term.
| lanstin wrote:
| Well in my programming i make similar choices, so I guess
| that makes sense but I always assumed people that went to
| school for business stuff had higher standards. I suppose
| code reviews and release requirements serve a similar
| function.
| TeMPOraL wrote:
| I think business schools teach business ethics just as much
| as tech schools teach engineering ethics. I.e. maybe some,
| sometimes, a little bit, possibly as an add-on course
| people mostly take because they need to take _some_ filler
| classes.
| mertd wrote:
| That scheme isn't necessarily zero sum. If Yahoo simply didn't
| have the inventory to show certain ads but AOL did and vice
| versa then it would be a mutually beneficial deal that fills ad
| slots that would otherwise go unfulfilled.
|
| Say Yahoo gets a lot of queries for plumbers but plumbers for
| whatever reason were using AOL to run their campaigns.
| not2b wrote:
| That's an argument for two companies to show ads on each
| other's platforms, but not an argument for the vastly
| inflated prices they were pretending to charge each other. At
| least for public companies, regulators should crack down on
| that kind of thing.
| mmaunder wrote:
| Lived through that working for eToys.com. The tide continues to
| go out and will be for at least 36 months I'd say. Fun times
| ahead.
| CurtHagenlocher wrote:
| "You have a dog, and I have a cat. We agree that each is worth
| a billion dollars. You sell me the dog for a billion, and I
| sell you the cat for a billion. Now we are no longer pet owners
| but Icelandic banks, with a billion dollars in new assets."
| (via Michael Lewis)
| TeMPOraL wrote:
| Obviously you can't create new money this way (not without
| involving an external substrate for scam, such as crypto
| tokens), but I think if you tried hard enough, you _could_
| create for yourself a tax liability on those billion dollars.
| vlovich123 wrote:
| Huh? Replace dog and cat with "Art piece I had an appraiser
| that I hired claim it was worth this". Happens all the
| time. Monetary value is totally arbitrary. If not, tulips
| in holland wouldn't have been valuable enough to buy a
| house at one point and then moments later been totally
| worthless.
| Waterluvian wrote:
| This reminds me of all the garbage mobile games that advertise
| each other.
| benjaminwootton wrote:
| I know of a few situations where a company valued in the
| $billions are paying a fortune to a company valued in the
| $hundreds of millions for very questionable value.
|
| If the value of the buyer at the top of the food chain crumbles
| then the value of a whole ecosystem of vendors are hurt too.
|
| Large parts of the VC backed software industry are built on a
| house of cards.
| readonthegoapp wrote:
| i long suspected SPACs were a scam, and said as much, but reading
| the details of how this SPAC scam works... smells a lot like
| fraud.
|
| notable that the SPAC market took hits when 1) the government
| merely suggested that maybe SPACs were a scam that needed to be
| regulated (using more nuanced language, of course), and then
| again when 2) the government actually proposed some regulations
| that would prevent the fraud. but maybe that's just the nature of
| business.
|
| how did SPACs work? find some private company A (e.g. Bird -- the
| e-kick-scooter company) with little to no chance of ever making
| it to an IPO by traditional (read: non-fraudulent) means, SPAC
| suitor finds co-conspirator investor company CC (e.g. Palantir)
| to enter fake contract with private company A guaranteeing that
| company tons of revenue over some ridiculously short amount of
| time -- presumably paying for actual goods/services, which allows
| the SPAC (e.g. Chamath) to do his overhyping routine on the
| investor shopping channel, CNBC, to lure in retail investors
| (read: the marks) about the nature of the private company A's
| prospects going forward, consummate the SPAC / IPO, then everyone
| on the take tries to get their money out before the ponzi scheme
| implodes.
|
| good work, if you can get it.
|
| then Chamath out here lecturing everyone about how VC industry is
| a ponzi scheme. presumably, like SBF, he just wanted his cut, and
| then got angry for being called out for it, so went the (Canadian
| sprinter) Ben Johnson route -- yeah, I'm corrupt, but everyone is
| corrupt, so spare me the pikachu face.
|
| i don't know why Coindesk has been so publicly and strenously
| calling for SBF to be jailed, but be interesting to see if
| Chamath gets the same treatment. hopefully for him, his investors
| are/were not rich enough to request prosecution.
| bfeynman wrote:
| Eery if you replace "SPACs" here with Startups and VCs... isn't
| that how YC works as well? They buy revenue for all their
| startups and then offload it on new investors they bring in....
| slowhand09 wrote:
| On FB, Twitler, or reddit, this is where I'd see "Micheal
| Jackson eating Popcorn" memes. Right before you were
| banned/jailed. :-)
| bombcar wrote:
| Then you start noticing how many VC companies are using
| products from other VC companies ...
| PaywallBuster wrote:
| your interpretation of SPACs seem very cynic
|
| In the end it's just a "shortcut" for a private company to go
| public by acquiring an already listed company
|
| Retail investors tend to loose, but just the same as they would
| with a proper IPO or any crypto ICO
| bfeynman wrote:
| Your interpretation of SPACs is very lacking. The shortcut
| they provide is often to circumvent normal due diligence that
| would show probably fundamental problems with companies
| operations. Sure normal companies may go down after IPO - but
| that's after banks perform their own investigation, and most
| importantly line up large institutional buyers that will lock
| up the float and tend to keep price more stable.
| moneywoes wrote:
| Exactly. How many spacs are positive roi since being
| released
| owlninja wrote:
| DraftKings maybe?
| throwaway4736 wrote:
| DraftKings is down bad. They're getting their lunch
| stolen, marinated, barbecued, and eaten by FanDuel.
| [deleted]
| mason55 wrote:
| The way this manifests, and the actual substantial difference
| between an IPO and a SPAC, is that you can't provide forward-
| looking revenue guidance in your S-1 (IPO filing docs). For
| awhile people were saying that an interpretation of the rules
| meant it was ok to provide that guidance if you went public via
| SPAC, and the SEC didn't quickly put a stop to it.
|
| You can't lie about or misattribute past revenue no matter
| what, IPO or SPAC, that would be fraud, but in an SPAC you can
| say "we project that even though we had no revenue this year,
| based on our product roadmap and sales pipeline we will have
| $5B revenue in 2024". In an IPO you can't say anything like
| that.
|
| So, you ended up with a bunch of companies just making up
| future revenue projections and there's nothing holding them to
| it.
|
| In the end the SEC basically said "eh, we're going to provide
| some new guidance on how we're interpreting those rules, you
| probably weren't allowed to do that anyway, but now we're going
| to make it real clear that you're not allowed to do that, and
| maybe we'll go back and say you were never allowed to do that
| in an SPAC and you were all violating securities law."
| qualudeheart wrote:
| > the government merely suggested that maybe SPACs were a scam
| that needed to be regulated
|
| Could the changed interest rate environment have something to
| do with $PLTR`s problels?
| RC_ITR wrote:
| This will likely be remembered as (one of) the peaks of loose
| monetary policy foolishness.
|
| Palantir had _cash_ that it basically chose to turn into
| _revenue_ (plus shares of high risk unprofitable businesses).
|
| That's _the opposite_ of how normal companies work. In any normal
| environment it's an obviously dumb move, but when rates are
| basically 0 and risky assets are worth an insane amount (in cash
| prices) it seems like it makes sense (until the rug is pulled).
|
| Like imagine if a client asked you to put up $100k of _your own
| money_ to be given back $100k in freelancer fees plus some shares
| in their on-demand-X business with -100% contribution margins!
| mistrial9 wrote:
| dark prediction -- "loose monetary policy foolishness" in the
| USA, Australia and a few other western dollar oil economies,
| will _never_ fade for those with security industry ties.
| jessaustin wrote:
| It's been this way for a long time. Tiny tax credits for poor
| malnourished children must be "funded in advance", while
| ridiculous unauditable military spending rains down from
| heaven.
| somethoughts wrote:
| As a side hobby - I enjoy a bit of forensic accounting.
|
| Anyone have any idea where these SPACs were showing up on the
| balance sheet?
|
| I'm not seeing any Goodwill - which is a common location for
| these type of deals.
|
| Were they sticking it under current assets - cash and cash
| equivalents?
|
| Actually I do see marketable securities going from $234M at the
| end of 2021 in their 10K to $57M in November 2022's 10Q.
|
| But that's not near the $400M amount - "The data-analysis company
| invested more than $400 million in startups that simultaneously
| signed deals to buy Palantir's software."
|
| http://edgar.secdatabase.com/1986/132165522000032/filing-mai...
|
| Interestingly I did find the Palantir 13F list of holdings.
|
| http://edgar.secdatabase.com/2477/95012322003032/filing-main...
|
| And it does look like the SPAC investments add up to ~$220M.
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