The bankers at Goldman Sachs have been moonlighting as venture capitalists, investing in many startups that eventually became household names and overseeing a portfolio worth several hundred million dollars.
According to The Wall Street Journal, the employees were early backers of companies including Uber, online storage vault Dropbox, and payments company Square. Sources said that recent investments include Ripple Foods, which makes milk from peas, and credit card startup Marqeta.
And when music streaming startup Spotify Technology went public in April, Goldman Sachs held a stake worth more than $350 million — a sevenfold return on a 2012 investment.
The company’s bankers hope that by investing in these startups, it might lead to them hiring Goldman Sachs for an IPO or sale. The bank calls it “relationship equity.” For example, it made about $15 million advising Spotify on its IPO.
“We are proud to provide creative solutions, excellent execution and in certain unique situations, small, passive capital investments to further our client’s goals,” Dan Dees, Goldman’s top technology banker, said in a statement.
But as WSJ points out, Goldman’s dual roles could pose conflicts as its employees counsel startups on deals that could lead to potential profits or losses on the stakes owned by the bank. In addition, Goldman also runs the risk of being accused of picking the best deals for itself.
Sarah Friar, Square’s chief financial officer and a former Goldman research analyst, said the financial institution’s investment in Square “showed they wanted to build a relationship more long-term in nature.”
And as for any potential conflicts, she said Square does much of its deal work internally, and is “not short of advice” from other sources.
Still, venture investing isn’t without its risks: Sources pointed out that Viddy, a startup called “the Instagram for video,” raised money from Goldman in 2012 but shut down its smartphone app two years later. In addition, investments in ZocDoc, an online appointment and ratings system for doctors, and eCommerce firm BeachMint haven’t performed as expected.