How Goldman Sachs Became a Tech-Investing Powerhouse
bloomberg.com
bloomberg.com
Having said that, all they are doing is providing the same Investment banking services to companies that they always have, just now, they are offering it to private companies.
Think of it as a cover your ass approach, if companies decide not to go public, GS still gets a piece of the action, and if they do go public then its an easy pick for GS to lead their public IPO's as both sides already know each other.
They are also trying to lead the charge in allowing people to invest in private companies through investment vehicles that look similar to funds( ie pooled capital that they raise and invest for share holders).
With companies staying private for so long some people, and I'm starting to become one, now think that the day of the publicly traded growth company are coming to an end and that companies will go public once they have matured into value stocks.
This is evidenced by the markets are loosing patience with companies like Groupon, Zinga, Yelp and my personal whipping boy Twitter. Come on twitter, get your act together, you wont' be around much longer if you continue on like this.
It's like the company had a huge push to go public and then everyone was so tired that they just stopped working once they got public.
I understand that it's a company full of great people and I don't want to shit on someone's hard work but when they went public the deal they struck was
- the markets gave them a huge valuation and in return the market expected big things from them.
So what great new things has twitter done since going public to earn their huge valuation? I think even the most ardent twitter supporters would have to agree that they have disappointed as a company since going public.
As an aside, I don't think this post IPO lull is limited to twitter, with longer cycles before going public I expect alot of companies to show this type of burnout after going public.
Good companies will get this and give their employee's a way of getting liquidity from their options before IPO. I think this will become a new recruiting tool for the best companies.
Something along the lines of if we don't go public in 7 years from the companies founding then we'll provide a liquidity event for employee's who have been here longer than 4 years.
GS will play a roll in this I'm imagining.
On your last point - a private liquidity event, AKA raising an investment round and offering employees the option to sell back equity? Or, could the company step out of the way completely and let banks buy equity directly from employees? (I've never worked for a company in this situation so I have no idea what the laws would allow)
https://www.google.com/finance?q=NYSE%3ATWTR&ei=z5q3VdHiDon3...
I was just reading in another thread about how a new hypothetical tech crash wouldn't be as bad as the dot com crash for precisely the reason that all these new, 'over-valued' companies are private rather than public. In this context, isn't this kind of investment vehicle dangerous?
(I don't pretend to understand this kind of thing and would be glad to be made a little wiser.)
There may be some reason to be concerned otherwise -- pensions and endowments are often customers for this sort of thing -- but they have risk managers that hopefully know what they're doing. Which may not give you warm fuzzies, given recent history, but in general these are not the people losing their shirts and affecting the economy as a whole.
But you could say that the huge growth we're seeing in investment in tech now is different to 15 years ago because:
- most VCs are funding significant amounts of their capital in later-stage startups and companies that have shown a lot of promise ("private IPOs"), rather than the other way around
- there are more startups now than 15 years ago but the same (or lower) amount of total capital invested, whereas before a smaller number of startups were funded from a huge pot
- generally tech companies nowadays, even those unicorns a few years old, have solid financials and managed to turn a profit. This wasn't entirely the case 15 years ago.
There was a Andreessen Horowitz presentation on this very topic going around a few weeks back - it's worth a read if I can dig it up (or you could be relentlessly resourceful ;)).
Is there a term for this type of fund? "Private equity mutual fund" maybe?
1 - Goldman Sachs wants to be able to offer it's investors access to tech companies. This used to be access to IPOs, and now it's access to pre-IPO.
2 - Goldman Sachs is trading for their own position too.
3 - Goldman Sachs is an IT company at heart. Their IT department is bigger than their Fixed Income department. They write their own databases and programming languages from scratch. (I'm not saying whether this is a good idea or not.) They want to be attached to the bleeding edge of Silicon Valley technology, and money is their way in.
None of this is nefarious or evil.
A significant part of what made a company like Goldman Sachs competitive on Wall Street used to be primarily about "Who you know" (as opposed to "What you know" or "What you can do"). That's changed over the last few decades as the financial markets became less about relationships and more about technology (although relationships still reign in certain areas). Since the dot-com bubble burst, more and more people have been crossing back and forth between investment banks (or hedge funds) and startups. It started with engineers because technology is key to both types of companies, and now it's shifting to financiers because pre-IPO "startups" need those relationships.
Silicon Valley used to be the exact opposite of Wall Street (i.e. totally about "What you know" or "What you can do") but over the last decade, it has been evolving towards a "Who you know"-ocracy. It's no longer enough to have a great product/technology - you need to build your network and get the warm intro, so successful entrepreneurs no longer automatically reject the value of "Who you know", and they're now comfortable exploiting a financiers' connections and relationships to help grow their company by raising money privately.
I respectfully think this is unlikely to be a true reflection of reality. Testable proposition: you survey 50 partners with investing authority at an arbitrary sampling of top Valley VC firm in 1998 and in 2015. Do you believe that the 1998 vintage will include more partners who either a) have ever had an operational role at a technology company other than a VC firm or b) could successfully pass FizzBuzz?
My understanding is that one of the worst-kept secrets in Silicon Valley is that a VC and a banker are distinguishable in exactly one way: bankers don't wear khaki. They come from the same social backgrounds. They study the same things at the same schools. They have strikingly similar career arcs. Their core skill set is identical: convincing wealthy people and institutions to overpay them for financial services.
The newfangled Silicon Valley innovation is that there might actually be a technologist in the room when the adults are talking about money these days.
See: Marc Andreessen, Ben Horowitz, Peter Thiel, Doug Leone, Vinod Khosla, Paul Graham, Bill Gurley, Jenny Lee, John Doerr, and countless other examples - these people get technology in a way your typical banker never will.
Certainly, it seems like an extraordinarily implausible claim that VC in 1998 was better than it is now. I raised mid-7 figures, institutionally, in '99. VC in '99 was atrocious.
I think that's very wrong. A lot of very clever, ambitious people go into high finance, and these people are perfectly capable of "getting it". They may not become expert programmers over night, but they are certainly capable of figuring out how an industry may look with a new startup on the scene.
But at least in Silicon Valley, if you can prove you're valuable to others (Silicon Valley "members"/hackers/users of your product or service) then that's still the best way to stay competitive. And it doesn't matter who you know because if someone else has an inherently better product/company out there that's competing with you and gaining users, they'll win. With Wall Street, I agree, competition is predicated on the friends and contacts you have.
That's just my 2 cents though - unless I misunderstood your point.
http://www.rollingstone.com/politics/news/the-great-american...
http://economistsview.typepad.com/economistsview/2009/10/how...
That said, it's not Goldman's fault as much as it is the US gov's fault... It's failure to regulate that financial industry is humongous.
Each side of business has its own customers who have their own set of motivations.
[0] http://assets.bwbx.io/images/irAfvE0DI.rE/v1/488x-1.jpg [1] https://angel.co/uber
Also would it be typical to do 30m+in debt for a 50m company (typical is probably the wrong word given Ubers trajectory)?
http://fortune.com/2014/06/06/these-are-the-venture-firms-ce...