Goldman Sachs Aims Smaller to Bring in Future Fintech Clients

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(Bloomberg) -- Brandon Krieg’s startup was barely two years old when he was invited to a Goldman Sachs Group Inc. innovators conference in Santa Barbara, California. Brandon Watkins, the bank’s head of digital finance investment banking, had heard about Krieg’s investing app, Stash, from an early-stage venture capital investor and wanted to get to know the company better.

Three years on, when Krieg and Stash co-founder Ed Robinson decided for the first time to hire an adviser to help them raise new funding, Watkins’s invitation paid off.

“Brandon is just so plugged in and really understands the trends of what’s going on,” Krieg said. “We didn’t ultimately have to use a banker but I wanted to make sure I had time to run the business rather than spending it on fundraising -- and they made some great intros.” Among them were LendingTree Inc. and T. Rowe Price Associates Inc., two of the big investors that contributed to Stash’s latest funding round, which values the company at more than $800 million.

Goldman Sachs, which built its reputation advising corporate heavyweights and courting the likes of Rupert Murdoch and Jeff Bezos, has lately been focused on the less established end of the market when it comes to financial technology.

Stash’s modest $112 million fundraising this week is the 12th fintech transaction this year for the bank, which, led by Watkins, also advised on three big mergers and acquisitions in the industry in 2020. It worked with Plaid Technologies Inc. on its $5.3 billion sale to Visa Inc., advised Credit Karma Inc. on its $7.1 billion purchase by Intuit Inc., and Social Finance Inc. on its $1.2 billion deal for Galileo Financial Technologies Inc.

Globally, Goldman Sachs says it has worked on 14 fintech deals valued at more than $500 million since the beginning of last year, worth a total of more than $128 billion.

“It’s been about creating opportunities with these private fintech companies first and foremost. We want to be the core adviser to the next generation of companies, those who will be the next PayPal or Square,” Jeff Gido, global head of Goldman Sachs’s financial technology group, said.

The definition of fintech can vary across banks, in part highlighting the depth of an industry that can include everything from credit card companies, payments processors and financial data services to e-commerce and investing apps. Just as digital content providers such as Netflix Inc. and Amazon.com Inc. upended the way people have traditionally consumed media, so new and nimble fintech companies are disrupting banking and finance.

In a year in which M&A volumes have been hammered by market turmoil stemming from the coronavirus pandemic, fintech is seen as a relatively insulated sector and one that could even grow more important as people and companies look for ways to conduct life digitally.

Although industries like health-care and energy continue to dominate the market for advisory fees, there’s still a pot of several hundred million dollars a year up for grabs for banks courting fintech deals -- and that pot is growing quicker than almost any other sector. Competition between the investment banks is fierce, with Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co. consistently claiming the top three spots in the sector.

JPMorgan worked opposite Goldman Sachs on Global Payments Inc.’s $21.5 billion acquisition of Total System Services Inc. last May, and says it has advised on 10 fintech deals worth $105 billion since the start of last year, including in health-care information technology, according to Dealogic data.

Gido said the longevity and global approach of Goldman Sachs’s fintech team have helped cement its position. The bank has run a unit dedicated to the sector since 2000, with a presence in London, Sao Paulo, Hong Kong and New York. The average tenure of its senior fintech bankers is 12 years.

The team has also hosted a fintech conference for a decade, drawing young entrepreneurs to the bank and introducing them to potential investors. “We have formatted the agenda of our annual conference to focus on these up and coming companies,” Gido said.

Credit Karma, Plaid and Stash have all been on stage at the conference, with representatives of some being interviewed by Watkins. At 32, Watkins, who typically sports a blazer and jeans with sneakers, has shown he can relate to young founders. At the conference, he says he usually goes for a 10-mile beach run with clients and jokes that he makes sure to “maybe let them win by a footstep.”

For Watkins, getting to know a company and its founders early, sometimes years before they are ready to do any type of transaction, is key. He also spends a lot of time with venture capital investors and was introduced to Plaid via New Enterprise Associates and Spark Capital in 2015 -- and the bank sometimes makes direct investments in these tech startups.

With Stash, it was about getting to know the company over Italian dinners. “We just love geeking out over fintech and I found that we were both very aligned on what does a digital finance company look like in the future,” Krieg said of Watkins.

Mega-cap technology companies and old-school financial players are among those keen to get in on fintech acquisitions, which could help bring some of the smaller, upstart platforms to a broader audience.

“Last year the trend was large-cap consolidation,” Watkins said. “This year the trend is high growth, next-gen acquisitions and we expect this trend to continue.”

©2020 Bloomberg L.P.

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