A few people have emailed asking about specific groups and what they should and should not do when they start an investment banking job. Some of the questions are quite specific so before we jump into what this post is all about here is an overview of the main “groups” within investment banking:
Equity Capital Markets (ECM): “Yeah you know I want to work on IPO’s and stuff.” Basically, this is what you will be doing… You will help raise money for companies in the form of Equity, hence equity capital markets. Sometimes the segment gets more spread but some examples of equity raises would be 1) Initial Public Offering, 2) Follow-On-Offering, 3) Registered Direct Offering. If we want to get more granular you may also work on some Private Investment in Public Equity (PIPE) deals as well. Bottom line? You’re simply raising money and are trying to convince your relationships that they should be interested at $x price per share.
Debt Capital Markets (DCM): “Yeah I want to work in the bond market yo.” Generally most people have no clue about anything bond related because it is not “sexy” but to put things in perspective the bond market is 4x+ largerthan the equity market. With that said, DCM is similar to ECM in that you are helping raise capital, however in this case we’re looking at 1) Convertible bonds, 2) Long-term/Short-term Debt, 3) Subordinate Debt, 4) Mezzanine Debt, 5) Bridge loans (Pre-IPO) and anything else bond related. One segment in particular that would be heavily DCM related would of course be… Public Finance Investment banking, this would be equivalent to raising bonds to pay for a new bridge, sports stadium or other publicly financed facilities.
Mergers and Acquisitions (M&A): “I want to help buy and sell companies and work all night.” So no one really says that last part, however that is the jist. In simple terms, if you work for a major bank you will help advise in buying companies for your relationships or helping sell companies to larger companies. The reason why this is the most “prestigious” piece of the sell side is that it is hands down the most analytical. Unlike ECM/DCM where valuations are simple, usually taking the high end of comps and sticking a price tag on there (sort of joking), you’re working to get two parties to agree on a price for an entity and at the same time convincing them that the combination will be lucrative. The reason why you’re going to be getting killed should be relatively clear, you now have two or three bosses, your bank and the Company you are advising who will have no problems emailing you last second for anything they wish.
Industry Group (Medical, Technology, Consumer, Financial, Industrial etc.): “I want to know a space.” This one becomes tricky as you may work on everything from Equity to M&A. In this case you are focusing in a sector but are getting to see the various transactions from M&A to Equity raises (debt would be unusual). This is certainly a good fit for those that want to work in a specific sector long-term.
Other: Other groups can include restructuring, leveraged finance, specific M&A shops such as a Medical only M&A firm or Industrial only Advisory firm etc. The other category can be good and bad depending on the prestige of the firm and your interest level, just recognize that you’re becoming more and more niche.
With the basics out of the way, lets take a high level look at how you should view your career. In order to survive Wall Street long-term you likely want to start in a position that is most marketable. The reason why we recommend this is because it is next to impossible to know how good you will be or how hard you are willing to work. It is quite easy to say “I can work 120 hours a week with a MD yelling down my throat no problem!” it is a whole different level to actually do this and do it properly. In addition, you may not like this space for the long-term and may want to jump to research, sales, hedge funds, private equity or otherwise.
With that said if you’re looking for a transaction based job in Investment Banking to kick off your career, start in M&A or an Industry Group. Here is why:
You will have the technical skill set to move to ECM, valuing M&A is more rigorous than ECM
If you start in an industry you will have a chance to work in corporate development as a plan B if you’re unable to survive Wall Street hours
Your hours will be higher in both of these groups relative to ECM/DCM (No pain no gain)
You will quickly see your skillsets, if you are better at excel and numbers M&A may be good, if you’re better at working politics/building relationships it may actually be smart to go into ECM/DCM and build up a client base in the future
Conclusion: Now that we’ve cleared up some general guidelines when deciding on what to do within Wall Street there is one last thing that we should leave you with. Without becoming niche you will never become rich.You will eventually need to choose your own path and focus specifically on a sector to become an expert in. This could be as specific as being “the guy” for picking medical stocks in a global hedge fund portfolio, to being “the guy” as the investor liason for any consumer equity raises. At the end of the day, when you find your talents you zero in and become known for that space. Once this is done, you’ll unlikely venture out of the sector/product but we should note that starting out niche can be a terrible decision, as almost nothing you learned in college will be applied on the job. One final caveat would be an extreme passion in a space, in that case you’re certainly better off joining an industry group versus a general M&A group.
Remember, you want to be marketable when you’re young followed by building a reputation or brand for yourself mid-career.
Good luck.
