Goldman Sachs and Startups
Goldman Sachs (GS) is one of the most famous investment banks of the world. In the last 50 years the bank has led the financial industry with some of the most important (and profitable) deals of the history, such as the IPO of Ford and Microsoft, or the acquisition of RCA by General Electric.
In recent years something else is
attracting GS bankers: Startups.
Since 2010 Goldman Sachs made hundreds
of investments in Startups such as Uber,
online storage cloud Dropbox, and
payments company Square and music
Startups investments could provide two main benefits to Goldman Sachs: returns on the invested capital and future IPO advisory services.
In general company’s bankers hope that by investing in startups might lead founders to hire Goldman Sachs for an IPO or sale. The bank calls it “relationship equity”. For example, it made about $15 million advising Spotify on its Direct Public Offering in 2018.
However, this relationship with startups may point out a possible conflict of interest for GS, since bankers counsel startups on deals that could lead to potential profit or losses on the stakes owned by the bank.
Other advantages granted by startup investments are open innovation solutions. For instance, in November 2018 Goldman Sachs acquired ClearFactr, a New York-based financial modelling software firm to boost the firm capabilities in this field.
Still, venture investments are not without risks: Goldman Sachs invested in Viddy, a platform similar to Instagram, that failed after two years from the investment. Other unsuccessful investments have been ZocDoc and BeachMint. But probably it is not a real issue after you have successfully bet on some of the most successful unicorns of ever.