Data-mining company Palantir is set to go public on Wednesday when its shares start trading on the New York Stock Exchange. Dubbed the “most secretive” Silicon Valley startup, it has faced criticism for its ties to the Department of Homeland Security and has been accused of complicity in human rights abuses, while other critics have raised concerns that insiders will have excessive control once the company is public.

Here’s why Palantir is attracting investors’ attention.

1. It’s valued around $16 billion, but isn’t profitable

Palantir has never turned a profit, its securities filings show. But the company has reduced its losses over the years. In 2019, it generated revenue of about $743 million, a 25% jump from the previous year. In the first half of 2020, Palantir’s loss shrank to $110 million, from $285 million in the year-before period.

Of course, it’s not unusual for a technology company to continue to lose money when it goes public, and Palantir’s losses don’t appear to have hurt its valuation. The company’s shares are expected to start trading at around $10, which would give it a market value of nearly $16 billion. A funding round in 2015 valued Palantir at $20 billion.

The market “obviously thinks there will be profits, and those profits will last a long time,” said Michael Weisbach, a professor of finance at Ohio State University. “The reason why it’s got value is not whatever profits there are now, but because the market is thinking they’ll earn a lot of profits in the future.”

2. It’s not raising new money

Palantir isn’t going public through an initial public offering, but rather in what’s known as a direct listing. That process doesn’t raise any new money because the company does not issue new shares. On Wednesday, Palantir’s existing shareholders will simply be able to sell some of their holdings on the New York Stock Exchange.

In a traditional IPO, a company enlists an investment bank to underwrite its new shares and court new investors, typically paying the bank a roughly 7% commission.

“For most companies, you simply couldn’t sell your shares without going through this process,” Weisbach said. “It’s not really worth it for Palantir to pay those costs. On Wall Street, everyone knows about it. It makes total sense; they don’t have to pay a commission to the brokers, and they don’t have to underprice their stock.”

Bypassing a conventional IPO could save Palantir between $20 million and $40 million, estimates Dave Hendricks, co-founder of Vertalo, a digital trading platform. “By doing this direct listing, the company is controlling the price and they’re not allowing banks to distribute shares to their favored clients,” he said.

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3. Serving the U.S. government is key to its business

Palantir’s strategy involves becoming indispensable to the U.S. government. Rather than act as a neutral provider to any customer who comes calling, Palantir is explicit about working only with U.S. allies.

“We have chosen sides,” the company said in a regulatory filing. “Some companies work with the United States as well its adversaries. We do not. We believe that our government and commercial customers value this clarity.”

The Central Intelligence Agency, through its venture-investment arm, In-Q-Tel, was an early investor. Today, Palantir’s largest government customer is the Department of Defense, followed by the Department of Homeland Security and the Department of the Treasury, government spending data show. Other customers include the U.S. Air Force, Army and Navy; U.S. Special Operations Command; and the Department of Veterans Affairs.

The Latinx rights activist group Mijente last year pegged the total worth of Palantir’s government contracts at $1.5 billion.

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4. It sued the Army to get an in for its software

A lawsuit Palantir led in 2016 has played a major role in the government’s willingness to use private software. In the complaint, Palantir challenged the Army’s development of its own intelligence software system, successfully arguing that the law required the Defense Department to use private-sector products before attempting to develop its own systems.

According to Palantir, prior to the suit the company struggled to sell its software to the military. “Soldiers from more than half of the Army’s brigades asked for our software, but their requests were often delayed or denied by the government,” the company said in its filing with the Securities and Exchange Commission.

Shortly after the suit, the Army chose Palantir’s software to use in the field. Since an appeals court upheld Palantir’s win in 2018, other federal agencies have also shown more openness to using commercial products.

“Our victory in federal court is transforming the procurement of goods and services across the U.S. federal government,” Palantir said in its filing. “We are working towards becoming the central operating system for all U.S. defense programs.”

Today, slightly less than half of Palantir’s revenue — 47% — comes from government clients, the filing said.

5. The founders are in charge

Like its Silicon Valley peers, Palantir has multiple classes of shares, allowing its three founders to call the shots at the company despite technically owning just a small portion of it.

These so-called Class F shares, given only to founders Peter Thiel, Stephen Cohen and Alex Karp, will initially control just under 50% of the shares’ voting power, and possibly more, the company said. While the exact voting share the founders have will vary, they will “exercise effective control over all matters submitted to a vote of our stockholders,” the company said. That’s despite owning just 4.5% of Palantir’s total outstanding stock.

Thiel, Palantir’s largest shareholder, has courted controversy for his conservative views — a rarity in the tech world. The billionaire investor and PayPal co-founder endorsed President Donald Trump in 2016 and worked on his transition team. That year, Thiel reportedly hosted a known white nationalist at a dinner party, according to BuzzFeed. Thiel already exerts tremendous power from the board of Facebook, and critics partly blame him for Facebook’s failure to crack down on far-right disinformation on the platform.

Founder control has become the norm among tech companies. Facebook, Google, Lyft and WeWork all give founders more voting rights than the public. Snap has gone further, offering its public shareholders no voting rights.

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