By Peter Rudegeair
Goldman Sachs Group Inc. wants to help its clients get a piece of the next big startup.
GS Growth, a unit of the bank that buys stakes in maturing startups around the world with the firm's money, spent recent months courting outside investors, according to people familiar with the matter. Its first client fund, West Street Global Growth Partners, raised more than $3 billion by early May, capital that will be invested in fast-growing closely held companies in the financial-technology, business-software, consumer and healthcare sectors, the people said.
Recent investments earmarked for the fund include British digital bank Starling Bank Ltd., Indian food-delivery startup Swiggy and regulation-technology company ComplyAdvantage, the people said.
The demand could be huge: Endowments, family offices and other institutional investors, tired of low interest rates, are anxious to get an early slice of the next potential Robinhood Markets Inc. or Roblox Corp. And Goldman, which has long relied on businesses such as trading that have high highs and low lows, is eager for the steadier revenue streams that come from earning management fees on clients' money.
The category that GS Growth plans to focus on, growth equity, includes startups that have rapidly expanding customer bases and revenue but aren't quite ready for an initial public offering. The asset class is becoming an investor favorite, with more than $200 billion flowing into growth-equity funds since 2019, according to data provider Preqin Ltd.
An earlier effort to invest Goldman clients' money into startups had mixed results. A growth-equity fund from Goldman Sachs Investment Partners, run out of the bank's asset-management division, had some notable winners, such as an early bet on fintech startup Plaid Inc. There was also at least one high-profile loser: Outcome Health, whose founders were criminally charged with running a $1 billion fraud scheme. They have pleaded not guilty and are awaiting trial.
The competitive challenges have only grown greater since then. In recent years, private-equity firms such as Blackstone Group Inc., hedge funds like Tiger Global Management and venture firms such as Sequoia Capital have each raised multibillion-dollar growth funds. And while the Goldman name might go far with fintech players, especially because the bank could become a major customer for many of those companies, it is often outshined in Silicon Valley. There, founders of nonfinancial startups are often more likely to have Peter Thiel, Marc Andreessen and other venture capitalists at the top of their funding wish lists, and Goldman is less able to play kingmaker.
Some of the firms that GS Growth will have to compete with, like Tiger Global and SoftBank Group Corp., have distinguished themselves on both the speed at which they deploy capital and the size of the checks they are willing to write. Goldman employs a more regimented due-diligence and approval process than other firms and has historically been constrained in the amounts it is willing to invest, some of the people said.
Where GS Growth hopes to have an advantage is in its global footprint and relationship network. The more than 75 investment professionals in the group are fanned out across the Americas, Europe and Asia to connect with startup chief executive officers at a local level. Its three leaders -- Darren Cohen, Nishi Somaiya and Stephanie Hui -- are based in New York, London and Hong Kong, respectively. The bank can also leverage the connections of Goldman's investment bankers and private wealth managers for introductions to under-the-radar entrepreneurs.
"Where capital is abundant, having that edge in sourcing is what allows you to be one of the world's best," Ms. Somaiya said.
Investing in private companies isn't a new business for Goldman. What has changed is that Goldman, under CEO David Solomon, is increasingly looking to put clients' money behind those positions instead of the firm's.
Goldman formed GS Growth two years ago. The idea was to bring together the separate fiefs within Goldman that used the bank's balance sheet to invest in startups. Each had slightly different mandates but didn't clearly broadcast them or their holdings to the general public. Most didn't even have websites.
That occasionally led to mission creep. Entrepreneurs were confused, and Goldman portfolio managers were annoyed, when different teams at the bank contacted the same company, with seemingly no coordination, some of the people said. Goldman hoped that creating the new group would also help it attract outside money.
More broadly, Goldman wants to invest clients' money in any number of so-called alternative assets, such as leveraged buyouts, distressed debt and other hard-to-access deals. The bank said in a recent filing that it had raised about $53 billion in investor money for alternative assets, well on its way toward a goal to raise $150 billion by 2024.
That number doesn't include GS Growth's contributions. The $3 billion the client fund raised beat Goldman's target and it is continuing to raise money, some of the people said.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires