Goldman Sachs was an early backer of Uber, Dropbox and Spotify—here's what its CFO says the bank looks for in a startup investment (GS, SPOT, DBX)

Marty Chavez

Goldman Sachs is the most active tech startup investor that's not a tech company itself —with venture capital investments in around 640 different tech startups. The investment bank saw big returns on Spotify, and was an early investor in companies like Uber and Dropbox.
Speaking at TechCrunch Disrupt on Thursday, Goldman Sach's Chief Financial Officer Marty Chavez shared what the bank looks for when investing in startups.
In short, it wants companies that are young, inexpensive, and moving the world of finance forward.

Goldman Sachs has emerged in recent years as one of Silicon Valley's most unlikely power investors. The New York City-based investment bank has beeen the most active tech investor that isn't itself a tech company for the past few years, according to CB Insights. Nowadays, Goldman Sachs has stakes in around 640 different tech startups.

In April, the bank made $350 million on a 2012 investment in Spotify — a sevenfold return its investment, according to the Wall Street Journal. The investment team — which, unlike other divisions of the bank, invests Goldman Sach's own money for its own gain, not that of its clients — also invested in Uber and Dropbox.

But those deals weren't typical to Goldman Sachs' overall venture capital strategy, according to chief financial officer Marty Chavez: They only got to those companies late in their existence, when their valuations were already high. And they weren't strictly in the world of finance, which is where Goldman Sachs usually likes to invest. It has some successes there, too — Goldman Sachs was an investor in Square, in its pre-IPO days.

Speaking at TechCrunch Disrupt in San Francisco on Thursday, Chavez shared the key things Goldman Sachs looks for when investing in a tech startup.

Early, cheap, and moving finance forward

Goldman likes early stage companies. Chavez said that Goldman Sachs prefers to invest in the early stages "because we like the valuation. We want to pay an appropriate price." That said, the company has investments in companies "at many stages of the evolution."

The bank prefers to lead rounds. Out of its 643 investments, Goldman Sachs has led 260, according to Crunchbase, including Spotify's $100 million Series E. Most recently, the bank led a $450 million Series D investment in the Chinese fresh produce e-commerce company MissFresh. That round was announced Thursday, separately from Chavez's apearance at Disrupt.

It only wants to own 10% of a company. As a regulated bank, Chavez said, Goldman Sachs faces a lot of regulation that venture capital firms don't have to deal with. For that reason, the bank prefers to own smaller chunks of the startups it invests in. The team looks for 10% ownership, rather than the larger stakes that dedicated venture firms might try to take.

Finance startups have priority. While some of Goldman Sach's most recognizable investments are in the consumer space, Chavez said its investors prioritize companies that are "aligned with the rest of our businesses," in the sense that it has to do with money and the movement therein. "It needs to be part of our world. It needs to have something to do with finance," he said.

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