We live in pretty interesting times. Social media is reshaping our world, our relationships and our businesses. If you think Goldman Sachs (GS) doesn’t realize this, get your head out of the sand. It’s interesting that the firm hasn’t really made too much noise yet in the social media space. But then again, Goldman is the cream of the crop not because they are the first on the train, but because they are never the last off. Above all else Goldman Sachs manages risk well, they just do it right.
Many are speculating as to why Goldman made their 450 million dollar investment into Facebook at a valuation around 50 billion dollars. To be honest, the hell if I know. Just remember that firms the size of Goldman need to take big chunks in order to move the needle. When we think about venture capital investments we normally think small. Digital Sky, the Russians who invested 200 million in Facebook at a valuation around 10 billion, will move the needle on their fund with that investment. They are up 5 fold at this point on their purchase of about 2% of the company.
Goldman won’t really move the needle with this investment in Facebook unless the company’s valuation quintuples again. More likely, Goldman made the investment to get their foot in the door of this trend, kind of as an index investment. They picked the biggest, most liquid name in the space that they could get enough money into right away. It doesn’t hurt that they will probably lead the public offering as well at some point, no small change for sure.
But yesterday we learned via Bloomberg something else about the Goldman Sachs / Facebook tie up. Goldman Sachs employees are now allowed on Facebook, they were not previously. The managers of Goldman’s private wealth management division were given an introduction to the platform by Facebook’s CFO himself. Why the private wealth management division? Because Goldman probably sees a huge opportunity to serve Facebook’s 500 million users.
That’s a big pool of possible customers. If Facebook gives Goldman the keys to market to these people, watch out. If Facebook is going to own everyone’s “social graph”, you think Goldman is going to want access to all that data? You bet. That’s pretty powerful.
Goldman’s investment in Facebook makes so much sense beyond just the fact that Facebook has the chance to be “the company” this decade, Google (GOOG) was last decade and Microsoft (MSFT) was in the '90s. It feels like an index investment in social, but everything else they get access to, including the possible customer base, data, and whatever else we don’t know about feels just as important, if not more.