Types of Investment Banking Services and How They Can Help Your Business

types of investment banking

Your business is going to disappear into the void if you try to expand. It’s going to vanish into the gaping maw of capitalism, shredded to microscopic pieces. The public won’t even blink.

Okay, so it won’t be that bad. But the higher on the totem pole your company tries to get, the more danger you put yourself in of entering total doom. What options can you pursue to prevent that?

You’ve come to the right place. We’re here to tell you all about the different types of investment banking services and how they can help your business! 

Are you ready? Then let’s jump right into it!

What Is An Investment Bank?

To keep it simple, investment banks are banks created for boosting the funds of organizations like corporations and divisions of the government. These banks will often be privately owned (like Citi Private Bank or Pictect) and will have whole teams of people working on a project at a time.

These banks will often serve as the go-between for your company and private investors you’re looking to get money from. Think of them like the cream holding the Oreo of your company and the investors together: they make all your negotiations and deals quicker and easier. 

The banks divide into three sections: the front (where all the direct service, advising and investing happens), the middle (the research/IT guys), and the back (HR, day-to-day organization, etc).  You will be dealing with the “front” most of the time, but it’s important to know the other parts in case you require their services.

Investment banks break down into three types: elite boutique, middle-market, and bulge bracket. Bulge bracket banks are the “big dogs” of the banking sphere: they handle operations all over the world, and they tend to lean toward investments in the billions. Middle-market is a smaller-scale version of bulge bracket: they work globally too, but opt for lower-end investments. 

Finally, elite boutique banks are the regional variants of the bulge bracket banks. They handle big-scale investments but focused on a specific area with a smaller staff. There are extra variants of boutique banks that keep the regional focus but handle more reasonably-sized investments.

So what can these banks do for you?

The Different Types Of Investment Banking Services

One of the major services investment banks will offer you is underwriting. Underwriting is an agreement where someone can take on some of the risks (financially speaking) of a company or policy. In exchange, they take a flat sum upfront.

In this case, the bank won’t need to find a third party to finance the agreement: they’ll do it themselves. Bankers at these companies will buy your stock and then attempt to market it off to other investors, or skip the buying step and be your very own salesmen.

This can also have the effect of increasing the chance that investors will get in on your business, as the bank taking stock shows them you have some credibility to your name.

Skipping the buying step is less common than you may think, however: the bankers get no flat sum if they don’t buy, meaning their income relies on how much of your stock they sell. So unless they want to go broke, they’ve got some motivation to fight like hell for your business. 

Another service investment banks will offer you is matching you up with investors. The process will entail you and the bank working together to find tiny groups of investors that you can privately sell your stock or securities to. If you’re not looking to go all in on public stock, this may be the option for you.

Public Stock And Other Investment Banking Services

Investment banks are tailor-made to help you with getting your IPO (initial public offering) off the ground. They can do everything from advising you on the right price to debut your public shares at to helping first-time business owners navigate the paperwork and legalese-filled world of the stock market.

If public shares aren’t your speed, or you’ve already gone down that route, investment banks can also advise you on any mergers or acquisitions your company is undertaking. This “division” of investment banking splits into two sections: the buyers and the sellers.

Both divisions will look at their respective companies’ finances and tell them if the merger is a good idea, in addition to creating a basic plan and price for both companies to go off of. They’ll even assist at discussions if you need them to, helping to keep the process smooth and civil.

These negotiations will also be determined via the “type” of bank you’re in: higher investment talks will need to go to bigger banks.

Before You Start Investment Banking

Despite all the services they offer, investment banks can be very costly, so it’s important to do your research before you hop on board. Try to pay attention to global or national events and how they could affect the market: recently, investment bankers have jumped ship on deals or stocks in China due to the Coronavirus.  

Another factor to consider is the power you are handing the bank over your company. This is more important if you take the route of investment bankers buying shares in your company. They will have your best financial interest in mind, but if you pride complete freedom and autonomy in running your business, it will be something you should think about first.

Taking Your Next Steps In The Banking World

Congrats! You are now equipped with the basic knowledge you need to test all the types of investment banking services and have an estimate as to whether it’s right for you!

If you have more questions about investment banking or more happening in the wide world of finance, check out some of the other posts on our blog!

So until next time, play it smart and keep a financial eye out: if you play your cards right in investment banks, you could be the next big business juggernaut.

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