If you are a finance major out of the millions of college students in this country, don’t believe all the hype that the only way to make it big in finance is to work for a name investment bank.
I just started an intern program at my firm and I wanted to communicate to my new interns what to expect in the world of financing businesses. I realize all the press about finance in the US is centered around the big investment banking firms, but the fact is those firms only represent a very small number of financial firms who do business with a very small percentage of the companies in this country.
Don’t get me wrong, I respect these firms and it is no doubt they are the major players in the world of investment banking. Anyone who works for one of these firms ought to be congratulated. But they only work with the best of the best. What about the rest?
You see, out of the approximately 17.5M businesses in the US today, only about 2% or 300,000 have revenues over $10M. The minimum funding to be a client of an investment bank is about $10M. So it is not economical for investment banks to work with clients with sales less than $10M. They want businesses with revenues of at least $15M or more to raise at least $10M.
Servicing the best of the best are four tiers of investment banks. They can be divided as follows:
1st tier investment banks like Goldman Sachs, JP Morgan, and Morgan Stanley handle capital raises from $250M to $1B – if you can work at those firms, you have it made.
2nd tier investment banks like Piper Jaffray, Cowen, Jefferies, Houlihan Lokey, KBW, William Blair handle capital raises form $100M to $250M – again with so few clients who have the capability to raise that amount of capital, your chances of getting into these firms are also difficult to say the least.
3rd tier investment banks like Evercore, Greenhill, Lazard, Qatalyst Partners, Moelis & Co. handle capital raises from $25M to $100M – more clients support more investment banks but the market is still very tiny.
4th tier investment banks handle raises from $10M to $25M – Again the clients of these firms are only 2% of all the firms in the US.
So if you want to be an investment banker, and can get into the approximately two or three thousand firms in the US and chase 2% of the market – be my guest!
But, on the other hand, if you love finance and believe one of the major finance jobs is raising capital, don’t fret about not getting into a name investment bank because your skills are highly in demand and your market is 97% of all the businesses in the US. The problem has been, there is really no place for that market to find your skills!
Most small and medium sized companies have no real firms to go to for advice on raising capital for their businesses. So they go to people who are not really trained in raising money in the capital markets like lawyers, accountants, financial advisors, business advisors, friends, etc.
But that might all be changing with the creation of Financial Technology (FinTech). Because banks dropped out of the small loan business as a result of the great recession, there was a great demand for capital that was not being met by conventional means and FinTech created new ways for small and medium sized companies to access this much needed capital. To access and help companies utilize the new financing technology, a number of financing advisory firms came into the market specializing in helping small and medium business access that capital.
These new firms can be divided into two major categories by the size of funding the companies are looking for. For raises from $500,000 to $10M, there are a number of consultants specializing in these size financings. We call ourselves financing advisors. I personally have been in this arena my whole career. It has and always will be like a kid in a candy store, there are always many more clients then anyone can handle.
Now, there is an even newer category for financing advisors as a result of developments in the FinTech area and that is financings from as low as $25,000 through to $300,000 to $400,000. My firm has just entered this area and it is growing exponentially.
So my new interns are starting their finance career helping businesses raise relatively small amounts of capital. But they are getting their feet wet with real companies and they have the opportunity to learn about finance and raising capital, which it turns out is not that much different from what they would have learned from the large investment banks.
To all you finance majors, finance is finance no matter what firm you start at. To learn more about opportunities in finance email me at firstname.lastname@example.org.