Goldman Sachs Group Inc. (GS:US), the bank which last week doubled its money from a 2010 bet on Facebook Inc. (FB:US), is ramping up investments in Web startups, underscoring the allure of high-growth tech companies to financiers far from Silicon Valley.
Goldman Sachs led a $52 million round of funding in AnchorFree, the Mountain View, California-based maker of Internet-surfing software said today in a statement. The bank is also in talks to invest in Spotify Ltd. in a deal that would value the London-based music-streaming service at up to $4 billion, a person familiar with the matter said last week.
Under Chief Executive Officer Lloyd C. Blankfein, Goldman Sachs increased the size of its trading and investing operations before the financial crisis, helping to make it the most profitable securities firm in Wall Street history. The company has funded rising technology startups including Facebook, LinkedIn Corp. (LNKD:US), Dropbox Inc., Gilt Groupe Inc., Uber Technologies Inc., and ZocDoc Inc. In addition to providing quick returns, relationships with these companies could help the bank get mandates to handle their initial public offerings or acquisitions, said Bill Gurley, a venture capitalist at Benchmark Capital in Menlo Park, California.
“They’re active in the private market and they certainly would relish the opportunity to have a relationship with someone who might become a banking client somewhere down the road via an IPO or M & A,” Gurley said in an interview, referring to mergers and acquisitions.
Principal investing -- where Goldman Sachs uses its own money, instead of clients’ capital, to buy stakes in companies or real estate -- has been a significant source of profits for the firm in the past. Investing and lending, the Goldman Sachs segments that records gains and losses from such holdings, produced 7 percent of the bank’s revenue (GS:US) last year.
Goldman Sachs raised $235 million selling its stake in Facebook’s May 18 IPO at a valuation of more than twice the $50 billion level at which the firm made its December 2010 investment. Funds that Goldman Sachs manages for the firm’s clients also raised $855 million in the IPO.
Goldman Sachs, which bought 871,840 LinkedIn shares in June 2008, sold all of them in that company’s IPO, according to LinkedIn’s IPO prospectus (LNKD:US). The IPO was priced at $45, meaning Goldman Sachs collected $39.2 million at the time of the offer. The bank could have more than doubled its money if it had held the shares, which closed on May 18 at $99.02.
Lone Institutional Investor
AnchorFree invited Goldman Sachs to be the only new institutional investor in its recent funding after turning down offers from several venture-capital firms, said David Gorodyansky, the company’s chief executive officer. The Goldman Sachs representatives participating in the deal, who Gorodyansky declined to name, behaved more like Silicon Valley investors than bankers, he said.
“They are investing the same way that any venture capitalist would invest,” Gorodyansky said. “They are very savvy product people.”
Co-founded by Gorodyansky in 2005, AnchorFree provides a so-called proxy service, which lets users connect to the Internet via remote servers so that they can’t be tracked and so residents of countries like China and Iran can skirt censors enforced by governments. With the new cash, the company plans to buy servers and hire engineers to help with its push into mobile Web browsing, Gorodyansky said.
AnchorFree, which previously raised $11 million from Landmark Ventures and others, is profitable and makes money by selling ads to Web surfers as well as premium versions of its software with more capabilities, Gorodyansky said. Goldman Sachs will get a seat on its board of directors as part of the funding agreement.
Goldman Sachs’s potential investment in Spotify could help the bank get access to a fast-growing business which expects to exceed 6 billion kronor ($833 million) in revenue this year, according to an interview its CEO Daniel Ek gave to Dagens Industri. Spotify raised $100 million last year from venture capital investors including DST Global Solutions Ltd., Accel Partners and Kleiner Perkins Caufield & Byers, achieving a valuation of about $1 billion.
As with Facebook, Goldman Sachs’s investments in tech startups may not ensure it a leading spot on any future deals. Gorodyansky has not set plans for a public offering but said that Goldman Sachs’s investment will not give it preference over other banks should that opportunity arise.
“We have got no obligations,” Gorodyansky said. “If we wanted to do an IPO we could do with anyone.”
Goldman Sachs works with clients “as their needs dictate, which can mean providing advice or financing, whether debt or equity,” David Wells, a company spokesman, said in an e-mailed statement.
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