In today’s competitive landscape, even the slightest hiccup in business decisions can give your competitors an upper hand. As a startup founder, you must pay heed to elements that can ensure your startup’s success. One of which is your financial position. Since founders generally lack knowledge of their financial position, they seek the expertise of investment bankers.
Your startup’s financial position depends on various elements such as needing to raise decent capital and developing robust financial strategies to sustain and scale your business. Investment bankers are finance professionals that contribute directly to your startup’s success by overseeing financial aspects, such as raising capital and navigating complex transactions. This page covers the role of an investment banker and how you can choose the right one for your startup.
What is the role of an investment banker?
Investment bankers are financial experts that help raise capital for startups, corporations, business entities, or governments. They primarily focus on ensuring the business receives enough funds to kickstart proper workflow and production. A frequent question asked about them is, “The investment banker performs what three basic functions?” These are:
- Capital raising
- Mergers and acquisitions
- Financial advisory
What are the basic functions of investment bankers?
Investment bankers help raise the capital for your startup by underwriting securities, such as bonds and stocks. They also help issue those securities to the respective investors. Moreover, they help founders explore other avenues, such as private equity, crowdfunding, or venture capital.
With a compound annual growth rate (CAGR) of 8.6%, the global investment banking industry rose from $153.49 billion in 2022 to $166.62 billion in 2023. Therefore, investment bankers may be playing an increasingly important role in raising capital for startups.
Mergers and acquisitions
Investment bankers also help startup leaders with mergers and acquisitions. They advise you on target acquisition, contract negotiations, closing deals, and research market trends and conditions to analyze your startup’s financial performance and valuation. If need be, they can also aid businesses in selling off their assets or restructuring their operations.
The role of an investment banker is not limited to a singular aspect. They are responsible for ensuring your business's success through financial research and analytics, and help you make data-driven decisions.
Not only do investment bankers provide startup leaders with financial advice, but they also help in risk management, company governance, and legal compliance. Legal issues can disrupt your startup within months so, an investment banker can effectively help you cover these bases. They can create and execute strategies based on financial data analysis, making your decisions easier.
What is the difference between a financial advisor and an investment banker?
An investment banker isn’t equivalent to a financial advisor. The difference between a financial advisor and an investment banker is that the former may provide comprehensive financial services, such as tax, estate, and retirement planning to individual clients. The latter provides financial advisory services to corporate clients.
What are the skills of an investment banker?
If you’re planning to work with an investment banker, you must look beyond the investment banker’s qualifications and ensure they possess the skills needed to serve you. Some of these skills are:
- Analytical: You must look for an investment banker with strong analytical skills so they can effectively comprehend and analyze financial models.
- Communication: They must have strong verbal and written communication to handle clients by asking their requirements and probing questions.
- Relationship management: They can maintain good relationships with other professionals, such as lawyers or accountants.
- Attention to detail: The slightest miscalculation can be disastrous for your startup’s finances. Hence, you must hire an investment banker with impeccable attention to detail.
- Problem-solving: The ability to solve problems under time constraints and scant knowledge is essential for any good investment banker.
- Time management: Since managing multiple projects is a norm in the corporate world, your investment banker must be capable of juggling them while efficiently managing time.
Consider the above characteristics of an investment banker to ensure a successful working relationship.
What is the difference between a broker and an investment banker?
While both professionals are involved in the financial industry, there is a major difference between a broker and an investment banker. Brokers are the middlemen between buyers and vendors of securities like bonds and stocks. They carry out trades on behalf of their clients but do not typically offer financial advice or analysis.
Investment bankers focus primarily on providing advice to their clients when it comes to securities like bonds. Moreover, they help raise capital and help you bring in investors through data-driven decisions.
Venture capitalist vs investment banker: Who is more important?
As a startup founder, you must understand investment bankers and venture capitalists can both be crucial for your startup, albeit in different ways. Investment bankers will help you secure capital through strategic transactions, whereas venture capitalists can provide financing resources that might just be the kickstart your startup needs. The resources provided by both types of professionals are crucial for any startup.
Investment banker: Key takeaways
Investment bankers are financial professionals with expertise in offering advisory services to startup leaders. They mainly help you with financial transactions, such as mergers and acquisitions, capital raising, and other related processes. Investment bankers play a vital role in the financial industry by facilitating startup leaders in obtaining the required capital to develop and accomplish their objectives.
You must work with investment bankers with strong analytical capabilities, financial modeling expertise, excellent communication and negotiation skills, and a thorough grasp of the financial markets. More importantly, you must know the exact scope of an investment banker since they differ from a financial advisor or venture capitalist.
Disclaimer: LTSE is neither a law firm nor provides legal advice. Before making decisions on matters covered by this post, readers should consult their legal adviser.