Goldman Sachs' game plan for venture investments in India

Investment banking giant Goldman Sachs' Principal Strategic Investments (PSI) group is looking to invest in early-stage Indian startups, mainly those focused on big-data analytics and machine learning, as it seeks to ramp up its venture funding activity in the country.

The group, which invests from Goldman Sachs' balance sheet, is in initial talks with a few companies in India as well as Asia-Pacific for investments, PSI managing director Alokik Advani said at a conference. He declined to name the startups the group is in discussions with.

"We don't have a magic target. We are very opportunistic in how we think about this. When we go out and meet a whole series of startups, the numbers could be anything. It depends on what we're able to find," said Advani.

Advani laid down a three-fold approach that the group intends to take towards its investments in the country. The group will invest in companies where it can take a minority stake and where the technologies can be used at Goldman Sachs. It also intends to participate in local mentorship programmes to promote startups. Finally, the PSI will look to commercialise its technology by offering it to third parties.

The PSI will form strategic tie-ups with emerging firms based on a successful proof of concept of their products within Goldman Sachs.

Focus areas

The areas in which the group intends to park its investments fall under three broad segments: technology--which will cover enterprise data management, cloud, security and software design; shared services, workflow design and automation; and financial technology and firms focused on data analytics, machine learning, retail trading platforms, regulatory and compliance technology, payments, alternate finance and crowdfunding.

The group has already begun exploring its mentorship opportunity by initiating discussions with IT industry body Nasscom on its 10,000 Startups initiative and its industry partner programme. The PSI has also engaged with iSpirit, a group of IT product companies. "Their focus has been very much as a non-profit organisation working with the government to establish the building blocks for financial services," said Advani.

The PSI looks to take on a board seat or serve as a board observer at its portfolio companies. Globally, it invests between $2 million and $30 million for an average of five years. "Our holding times are usually long. We don't have any immediate pressure to force a company to IPO," said Advani.

The group intends to focus first on Bengaluru, where 41 per cent of the total startups in India are based and which has a large number of venture capital firms. But it doesn't have a dedicated team for its Bengaluru operations yet and will manage it from Hong Kong.

"When you look at the big startup ecosystems in the world and the amount of fund raising that has happened, San Francisco is the largest ($13 billion), Beijing ($6.4 billion), New York ($5.7 billion), Palo Alto ($3.2 billion) and Bengaluru ($2.6 billion). This is why we think we're focused on India and with a strong focus on Bengaluru," explained Advani.

Set up in 2008, the PSI is part of Goldman Sachs' investing and lending business unit. Investments are focused on companies in market infrastructure, financial technology and enterprise technology. In India, the PSI has previously invested in the National Stock Exchange and the National Commodity & Derivatives Exchange Limited.

Goldman Sachs' other investments

While this will be the PSI's first foray into the startup ecosystem in India, Goldman Sachs has made a number of investments in the country. The most recent one was in February when a private investment unit of the firm acquired a significant stake in Amber Enterprises Pvt Ltd, an original equipment manufacturer of consumer durables.

In January, it invested Rs 441 crore ($66 million) in PE-controlled hospitality firm SAMHI Hotels Pvt Ltd.

Last year, it closed a number of deals. In August, it invested $150 million (Rs 978 crore) in Piramal Realty. The month before, Goldman Sachs and other investors put in $100 million in Mumbai-based furniture e-commerce marketplace Pepperfry.com. And in May, it signed a pact with developer Nitesh Estates Ltd to jointly invest $250 million in commercial property.