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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When David Solomon publicly downplays the value of companies going public, it might sound like a turkey voting for Christmas. The Goldman Sachs boss said on Wednesday that the reasons for start-ups to consider an initial public offering “are getting pushed out”. He is right. Fortunately banks like Goldman can still mint plenty of fees.
The trend for start-ups to stay private longer has been building for a decade or so. Deep pools of venture capital were not so readily available for companies seeking cash and liquidity in the noughties.
Social media forum Reddit waited almost two decades to go public, which it finally did last year. Buy-now-pay-later company Klarna, also founded in 2005, will have hit the 20-year milestone even if its IPO comes this year, as is expected. Compare that with Google — now Alphabet — which listed just six years after its genesis, or Facebook — now Meta Platforms — which went from dorm-room project to Nasdaq constituent in eight.
Despite some ebbing over the past decade, VC remains buoyant. Tiger Global, Sequoia Capital and Andreessen Horowitz lead the pack. But corporates are in on the act too. Google Ventures has a $10bn-plus portfolio composed of over 400 companies. Chipmaker Nvidia invested over $1bn across 50 funding rounds for AI start-ups alone last year. That money is worth more to a start-up — in terms of patient capital, expertise and potential marketplace — than ringing the Nasdaq bell.
Where bankers can’t serve as IPO underwriters, they can still be matchmakers. They have access to the VC arms, institutions, sovereign wealth funds and family offices whose funding late-stage start-ups covet. The universe of potential backers could expand, regulation willing, as mom and pop get in on the act. Modest perhaps but even Twitter’s $1.8bn IPO left underwriters sharing a $68mn fee pool.
Another role comes from facilitating exits, including secondary sales for current or former employees. These tender offers are popular with later stage start-ups, including financial payments group Stripe, which appointed Goldman Sachs to steer its offer last year. In Europe, Morgan Stanley acted on fintech Revolut’s share sale for employees last year. Exchanges for private shares — Nasdaq’s SecondMarket or the London stock exchange’s upcoming PISCES market — will still require banker input.
In one way, the bigger the hype around companies staying private, the more Goldman stands to distinguish itself as a provider of so-called alternative investments to its clients, on which it charges handsome fees. Those now make up $333bn of its assets under supervision — and their 20 per cent growth rate over the past year is almost twice the increase in Goldman’s overall AUS. The music hasn’t stopped for banks; it’s just that the tune is changing.
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