
How Goldman Sachs Became a Tech-Investing Powerhouse - adventured
http://www.bloomberg.com/news/features/2015-07-28/how-goldman-sachs-became-a-tech-investing-powerhouse
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chollida1
My take is that this is a reaction to companies staying private longer, and
its not very surprising that GS is taking the lead in wall street as they are
usually on the ball.

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.

~~~
Osmium
> 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).

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.)

~~~
sarwechshar
Almost! People are worried about another tech bubble bursting because of
things like overvaluation of companies and the frequency of unicorns (private
companies valued over $1bn) appearing on the scene (which gives perhaps an
illusion that VCs are funding left, right and center).

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 ;)).

~~~
gmarx
You do realize that one of the classic signs of a bubble is people explaining
"...this time it's different".

~~~
sarwechshar
Haha. It's difficult to say for sure but those are just the main contrast
points. Things could very well turn out badly.

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mathattack
Goldman Sachs is a complex place, with lots of competing interests inside. I
see a few things going on here...

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.

~~~
ionforce
The one thing I remember about Goldman Sachs is that they have their own
collections library for Java.

~~~
mseebach
They do, and it's pretty cool: [https://github.com/goldmansachs/gs-
collections](https://github.com/goldmansachs/gs-collections)

~~~
KennyCason
I can confirm it's awesomeness and high performance!

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jackgavigan
This is a logical progression. The Wall Street and Silicon Valley cultures are
converging.

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.

~~~
patio11
_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._

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.

~~~
adventured
Many of the best VCs are easily distinguishable from Wall St bankers in
another critical way: they're _very_ competent when it comes to technology.
Understanding it, seeing where it's going, and knowing where it has been. They
also often have a very different background vs bankers: degrees in engineering
and computer science.

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.

~~~
tptacek
That's certainly the mythology behind Valley venture capital, but we needn't
stipulate that it's true for Patrick's argument to remain plausible.

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.

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mcv
Why does Goldman Sachs still exist? Shouldn't they be in prison or something?
How do they still have customers after they were so proud of screwing their
own customers?

~~~
atmosx
I feel you. For those who don't, here are a few relevant readings:

[http://www.rollingstone.com/politics/news/the-great-
american...](http://www.rollingstone.com/politics/news/the-great-american-
bubble-machine-20100405)

[http://economistsview.typepad.com/economistsview/2009/10/how...](http://economistsview.typepad.com/economistsview/2009/10/how-
paulson-gave-goldman-the-lehman-headsup.html)

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.

~~~
philfrasty
We should not forget about GS, Greece and the EU....

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pbreit
How to become a tech investing powerhouse: start by being an investing
powerhouse. Seems like it was theirs to lose. And they nearly have several
times.

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HockeyPlayer
I'm surprised and impressed that they were in Uber's B round. It isn't
uncommon for firms to invest in late stages of huge successes so they can list
the firm as an investment; but B round is actually taking risk.

~~~
dylanjermiah
Same. At the point they invested IIRC Uber was only doing 12m/year. Very
impressive investment.

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mcintyre1994
Can anyone explain what's going on in that chart at the Uber b round [0]? It
states their valuation at 50m and says Goldman invested 37m - how would that
ever happen? Also Angellist says that round was 32m and Goldman were 1 of 4
parties in it. [1]

[0]
[http://assets.bwbx.io/images/irAfvE0DI.rE/v1/488x-1.jpg](http://assets.bwbx.io/images/irAfvE0DI.rE/v1/488x-1.jpg)
[1] [https://angel.co/uber](https://angel.co/uber)

~~~
foobarqux
It could be debt.

~~~
mcintyre1994
I really don't know much about these things so you might well be right - but
it's labelled an equity deal and they explicitly point out that the series e
was debt.

Also would it be typical to do 30m+in debt for a 50m company (typical is
probably the wrong word given Ubers trajectory)?

