Goldman Sachs Group Inc. is missing out on leading the hottest IPO in years, Uber Technologies Inc. The consolation: a potential $600 million windfall from a mere $5 million wager that Goldman’s bankers made using the firm’s own money back in 2011, only a year after Uber had started offering rides.
How Goldman lost its edge with Uber, the signature startup of the decade, to Morgan Stanley is just the latest turn in a long-running rivalry. But how Goldman is managing to make a fortune all the same is a whole other story.
The situation leaves Goldman’s chastened bankers in the unusual position of rooting for their traditional nemesis. If Morgan Stanley pitches the stock well and wins a top-of-the-range price for Uber’s stock, Goldman stands to reap a staggering 12,000 percent.
It was a long-shot bet that involved the firm’s most senior executives, some internal bickering and at least one skeptic — David Solomon, according to a person involved in the decision. He was initially unconvinced before ultimately backing the deal.
“I remember a lot of people thought this wasn’t a good investment — a short-lived, localized phenomenon,” said Gary Cohn, Goldman’s former president, referring to the decision to bet on Uber. “There were definitely people who weren’t buyers. I muscled the capital commitment through the firm.”
Cohn didn’t identify those opposed but said the disagreement was a sign of good due diligence. Goldman’s estimated $600 million gain is based on the likely valuation of the 10 million shares it still holds, combined with profits it already realized on a sale of stock to SoftBank
In the years after the financial crisis, Solomon — then Goldman’s co-head of investment banking, and now the firm’s chief executive officer – championed the creation of a fund that drove the investment in Uber, according to Gregg Lemkau, who led the tech, media and telecom group at the time and now leads the firm’s investment banking division.
The fund held a dedicated pool of the bank’s own capital for dealmakers to deploy in promising startups. The idea: Plow the money into fledgling companies and hope their growth simultaneously brings in profits and burnishes the Wall Street firm’s credentials for investment banking mandates.
“David had the foresight to develop an investing platform for his bankers,” said Scott Stanford, a former Goldman Sachs banker who brought Uber to the attention of his bosses. “It’s a win-win for everyone.” Stanford is now with the venture-capital firm ACME (formerly Sherpa Capital), another early backer of Uber.
It was over meat pies and beers in a Dublin pub that Stanford first met Uber founder Travis Kalanick. At the time, Stanford was leading Goldman Sachs’s internet investment-banking practice and had previously secured investments in other companies, such as Facebook Inc. and LinkedIn Corp., from other corners of the bank.
Before long, he had become a trusted counsel to Uber. When the ride-hailing company launched a fundraising round in 2011, Stanford pushed for Goldman to chip in some money. At Goldman, where rule-by-committee is the norm, there were a few unsure of putting the firm’s capital behind such an unproven company. Serendipity helped. One executive, former Chief Financial Officer David Viniar, told colleagues that the first he heard of Uber was from his daughter days before the investment came up for approval. She raved about a new app that brings cabs to your doorstep.
• Goldman lost the Uber IPO, it has a 12,000% consolation prize instead.