Though usually listed as having been founded in 2004, SEC filings state Palantir's official incorporation to be in May 2003 by Peter Thiel (co-founder of PayPal), who named the start-up after the "seeing stone" in Tolkien's legendarium. Thiel saw Palantir as a "mission-oriented company" which could apply software similar to PayPal's fraud recognition systems to "reduce terrorism while preserving civil liberties."
In 2004, Thiel bankrolled the creation of a prototype by PayPal engineer Nathan Gettings and Stanford University students Joe Lonsdale and Stephen Cohen. That same year, Thiel hired Alex Karp, a former colleague of his from Stanford Law School, as chief executive officer.
Headquartered in Palo Alto, California, the company initially struggled to find investors. According to Karp, Sequoia Capital chairman Michael Moritz doodled through an entire meeting, and a Kleiner Perkins executive lectured the founders about the inevitable failure of their company. The only early investments were $2 million from the U.S. Central Intelligence Agency's venture capital arm In-Q-Tel, and $30 million from Thiel himself and his venture capital firm, Founders Fund.
Palantir developed its technology by computer scientists and analysts from intelligence agencies over three years, through pilots facilitated by In-Q-Tel. The company stated computers alone using artificial intelligence could not defeat an adaptive adversary. Instead, Palantir proposed using human analysts to explore data from many sources, called intelligence augmentation.
Thiel was born in Frankfurt am Main, West Germany, on 11 October 1967, to Susanne and Klaus Friedrich Thiel. The family migrated to the United States when Peter was one year old and lived in Cleveland, Ohio, where his father worked as a chemical engineer. Klaus then worked for various mining companies, creating an itinerant upbringing for Thiel and his younger brother, Patrick Michael Thiel. Thiel's mother became a U.S. citizen, but his father did not.
Before settling in Foster City, California, in 1977, the Thiels lived in South Africa and South West Africa (modern-day Namibia). Peter changed elementary schools seven times. He attended a strict establishment in Swakopmund that required students to wear uniforms and utilized corporal punishment, such as striking students' hands with a ruler. This experience instilled a distaste for uniformity and regimentation later reflected in his support for individualism and libertarianism.
Thiel played Dungeons & Dragons, was an avid reader of science fiction, with Isaac Asimov and Robert A. Heinlein among his favorite authors, and a fan of J. R. R. Tolkien's works, stating as an adult that he had read The Lord of the Rings over ten times. Six firms (Palantir Technologies, Valar Ventures, Mithril Capital, Lembas LLC, Rivendell LLC and Arda Capital) that he founded adopted names originating from Tolkien.