Palantir Chases Startup Customers in Break With Strategy

(Bloomberg) -- Palantir Technologies Inc. has long pursued some of the largest governments and companies in the world as customers. Now, in a dramatic shift in strategy, it’s chasing startups.

The controversial data integration and analytics company co-founded by billionaire Peter Thiel plans to announce Tuesday it will sell software on a monthly subscription model to smaller companies, starting first with a handful of startups connected to former Palantir employees.

The startup sales push is a break with tradition for the $40 billion company that made its name on large contacts with the U.S. Army, Merck KGaA and a handful of other high-profile organizations -- and is part of Palantir’s larger effort to diversify its sources of revenue away from a few big customers.

The new program, called Foundry for Builders, will start with five startups in fields including robotics, health and fintech. The group will experiment with software that Palantir says functions as an operating system for company data. Palantir chose startups connected to former employees, who are already familiar with how to operate the system, and use their feedback to refine the product for startups before rolling it out more broadly in coming months.

Palantir had 149 customers driving $341 million revenue for the first quarter, with the bulk of sales coming from government contracts. A flurry of deal-making during the pandemic, including agreements with the U.S. Centers for Disease Control and Prevention, pushed the company’s government business to more than 60% of revenue -- an imbalance that unsettled some investors.

Foundry for Builders aims to counteract that disparity by adding a larger number of potentially fast-growing companies to Palantir’s customer base. Developing closer relationships with early-stage companies appears to have been an increasing focus in recent months for Denver-based Palantir.

Besides expanding sales to startups, the company has also been investing in them. Palantir recently made a string of direct investments in companies going public through SPACs totaling more than $130 million. All of those companies also became customers, a practice that has raised some eyebrows.

Palantir Chief Operating Officer Shyam Sankar said the benefits of selling software to startups became clear to the company because of its investing efforts. “In working with younger companies through our SPAC investments we realized that smaller companies are ambitious, nimble and have a need for the best software at the start of their journey,” Sankar said in an email.

Astrocast SA, a Swiss satellite company, is the most recent addition to Palantir’s growing portfolio. Astrocast received $5 million from Palantir in mid-July as part of a $50 million round at a $125 million valuation led by Adit Ventures, also a longtime Palantir investor.

Astrocast -- which is a Palantir customer, though not a member of the Foundry for Builders test group -- announced Monday it would go public through a direct listing on the Oslo Stock Exchange. The company’s chief financial officer, Kjell Karlsen, told Bloomberg the company will file for a direct listing on Tuesday, and that shares could begin trading as early as the first week of August.

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