Goldman Sachs, famed adviser to Silicon Valley for decades, is turning to what it considers fertile ground for the next billion dollar business: its own employees.
Earlier this year, 500 teams of workers pitched the bank on potential start-ups, according to Tanya Baker, head of an internal program called GS Accelerate. The lure for participants was simple: Survive the rigorous six-month culling process, and winners can ditch their day jobs to run a new company backed by Goldman.
The program is the latest sign of an industry in the throes of change. Under pressure from low interest rates, a slowdown in Wall Street revenue and threats from tech upstarts, banks are increasingly taking stakes in fintech firms as a kind of disruption insurance. But Goldman Sachs, one of the most active banks in the venture capital world, didn't want to ignore the potential of its 36,000 employees, some of whom depart every year to start their own businesses.
"We found that getting things off the ground here across divisions or just anything riskier was harder than it should be," Baker said. "With all the change and disruption in the industry right now, it's not a problem we wanted to have."
Accelerate was created in late 2017 after Stephanie Cohen, the bank's chief strategy officer, said she ran into difficulty creating an automation tool for investment bankers in her previous role leading a mergers group. It required collaboration across technology, compliance and legal groups, she said.
"For 140 years before the financial crisis, our business was to hire the best people, give them autonomy and let them go, more or less," Cohen said. "The world is changing and traditionally analog businesses are becoming more digital. So you actually have to say, I'm going to invest in something for five years and then something's going to happen on the backend of that."
Of the 500 submissions from March, five were selected for funding, according to Baker. The mandate for businesses was to generate new revenue, create efficiencies or improve client experiences. The teams, located in New York, London, Hong Kong, Salt Lake City and Bengaluru, have two years away from their old jobs to make it work.
One of the winners involves something that Goldman Sachs engineers created years ago to solve a problem: Managing updates to corporate networks to keep them secure amid a daily barrage of cyber threats was difficult and error prone. So they made software to automate that process, making as many as 500,000 updates a month.
The program, called PinACL, is a key component of Goldman's cybersecurity efforts, and Baker figures that other companies will want to use it. It's a playbook Goldman has used before: Symphony, the Wall Street messaging platform worth $1.4 billion, was based on an internal messaging system at the bank.
"Right now it's very much tied to our internal infrastructure," Baker said of PinACL. "The investment is to extract it in a way that it could be packaged and deployed elsewhere, and then commercialize it."
Other winning projects include a software platform for the alternative investment industry called Scribe and an app store for user-generated programs called Panorama, Baker said.
In its short lifespan, the Accelerate program has expanded to include other firm-wide initiatives like the Atlas project, a $100 million plan to overhaul the bank's stock trading technology. In these instances, executives are using the group's governance structure to ensure projects stay on track. The companies are all run like standalone firms, with a CEO, chairman and board.
Goldman's start-up factory has created about 12 businesses so far, and it's too early to say if any will truly take off. An idea from an earlier round has already started to generate revenue, the bank told employees last week in a memo.
One could argue that for a Goldman employee with a truly great idea, there might be a bigger payoff to create it outside the bank. But that would involve risks. Goldman continues to pay Accelerate members their salaries — which can reach in the millions of dollars for managing directors — while at start-ups, most of the compensation comes in equity.
"Some people leave the firm and go build their ideas," Baker said. "You can do it outside but most businesses fail. There will be some ideas that will uniquely be successful here."
For the winners, now comes the hard part: They are now entrepreneurs who have to turn what are mostly just words on paper into actual businesses. If projects flounder or have no roadmap to generating dollars for Goldman, they will be quickly shelved.
"It's a culture of experimentation: kill, pivot, learn, all of that stuff," Baker said.