In April while Spotify technology went public, Goldman Sachs Group Inc was on a stake, worth more than $350 million in the music-streaming startup, and eventually got seven times return on the 2012 investment.
The gains achieved by the company were not the handicrafts of any of the Goldman professionals whose day jobs were to invest in companies. Instead, it was from the firm’s bankers who were moonlighting as a venture capitalist.
According to the people, these corporate members come with pieces of advice on mergers and underwrite securities, overseeing a venture-capital portfolio worth several hundred million dollars. Goldman just like the typical big bank investors, investing in promising startups has that too but is distinct from the portfolio maintained by its investment bankers.
The early backers of now-household names, including Uber Technologies Inc., online storage vault Dropbox Inc. etc. were the bankers and their recent investments include Ripple Foods Inc. and Beyond Meat; as the name suggests, one that makes meatless burgers.
Everyone finds it interesting interest to be a venture capitalist due to the high start-up valuation; even celebrities like Kobe Bryant and Jared Leto have invested in private companies. The news that broke out last week that, members of Dutch Royal family has also held a stake in payments firm Adyen NV.
Dan Dees, remarks that they are proud to bring such creative solutions along with good execution.
In certain unique situations, small, passive capital investments to further our client’s goal. – Dan Dees, Goldman’s top technology banker
Goldman’s dual roles on the chosen work could pose conflicts as its bankers advise startups on deals that could result in big profits or losses on the stakes owned by the investment bank, moreover, Goldman has raised billions of dollars from outside investors for its private-equity funds.
“The bank’s investment in Square showed they wanted to build a relationship more long-term in nature.” – Sarah Friar, Square’s chief financial officer, and a former Goldman research analyst. She continues that much of its deal work internally, without hiring bankers from other sources.
Investments are still believed to be risky especially due to the exuberance that propelled valuations sky-high. When Square went public in 2015, its lower-than-expected IPO price triggered a provision in Square’s shareholder agreements that required the company to give its investors, including Goldman, additional shares.