When Silicon Valley Needs Financial Advice

Image credit: iStockphoto/heyengel

On this blog we’re always looking at the intersection of financial services and technology, and that’s why this singular figure got our attention: $497 million. That’s how much just one institution has already made this year advising technology companies on financial services issues. And if you guessed the institution in question is Goldman Sachs. . .you’re right.

But could that be good news for other banking institutions as well?

Counting everyone from Microsoft and Apple to Alibaba as customers, Goldman has cornered the biggest slice of this critical pie. It offers wisdom on a host of money-related matters, largely because the company has not only mastered the unique rhythms of this dynamic industry, but also keeps changing to support it.

Of course, acquisition is the biggest attention-getter, and the tech industry seems to be going full throttle right now. In just the past few months Intel acquired chipmaker Altera for a staggering $16.7 billion, while Equinix acquired Telecity Group PLC and Avago Technologies swallowed up Broadcom for $37 billion.

And these are just the well-known names making high-profile deals; many others are happening under the radar. Collectively, this adds up to the most active deal-making period for technology providers globally since 2000.

It’s also fun to consider which, if any, of these deals might enjoy a high-profile afterlife. Back in the fall of 2001, analysts were furiously debating the merits of a potential merger between Hewlett-Packard and Compaq, two industry titans facing hard times. The deal went through a few months later, and the debates are still raging. But no one could have predicted that it would end up as a major issue in a presidential campaign. Yet that’s exactly what has happened since the executive who championed the deal, HP’s then-CEO Carly Fiorina, is now running for the Republican nomination.

That said, it isn’t only the acquisition process that needs strategic counsel.  Today, every successful tech company goes through multiple levels of maturation, a departure from the turbulent times of the dot-com era when it was a frantic race to the IPO.

That is why the Goldman Sachs model is so interesting. The corporation is thriving in this arena by creating and deploying teams to meet clients’ needs at multiple touch points. These include some that come before a potential IPO.

We’ve long maintained that there is a lot the financial services industry can learn from the Silicon Valley mindset—this is a dynamic sector where companies frequently cannibalize their most popular product lines (before someone else does it) and best practices are ruthlessly discarded almost as soon as they’re established (in favor of something better). That’s why the industry’s annual listing of, say, the 20 Biggest Companies features new names on a regular basis. The banking equivalent changes almost exclusively through consolidation.

Sure, it’s apples and oranges—the barriers to entry are very different, as are the metrics for success. Still, there’s no question that the banking industry can make room for changes

At the same time, the learning can go both ways. There’s considerable buzz over this subject already on whether we’re seeing a replay of the dot-com era. However, the fact that so many startups are in the market for financial advice early in their gestation is at last one sign that times have changed.

And therein lies a potential opportunity.

Social media and mobile advances, among other trends, have spawned a new generation of disruptive startups, and for every Instagram or Twitter out there, there’s a thousand that want to be.  Most can’t afford the services of a multinational conglomerate headquartered on Wall Street, but they know they need help.

So what might be the big stories in this space a year or two from now? In the dot-com go-around, venture capital firms got all the glory (and most of the early profits) from investments in hot startups. But many banks make business loans and offer financial counsel to fledgling ventures too—are there any future stars in your firm’s portfolio?

Written by Jack Dougal

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