January 21, 2021

A Career in Investment Banking vs Venture Capital: An Overview

Career in Investment Banking

Career in Investment Banking

Venture capitalists and investment bankers work with companies to provide financing for operations improvement and growth accelerations. In general, they have the same type of business environment and operate in the business cycle from a company’s launch to acquisition by another company. The serve for capitalism with some overlap in their roles, but mostly, they play distinct roles in business growth.

Let’s have a breakdown of these two important financial careers, their growth, and future opportunities here.

1.Investment banking

Investment banking is one of the banking divisions and mainly involved in creating capitals for government, organizations, and other entities. They are either direct investors or form the intermediaries. They earn their profits by charging a fee for assisting their clients.

For instance,

  • When a company acquires another company or gets acquired by another company during a merger of acquisition, investment banks assist in buying or selling of the company
  • They help companies to raise debt from the banks, lenders, or the bond market
  • Also, they act as consultants and provide advice on financial matters and M&A opportunities
  • They also house trading businesses and trade securities while creating more profits

1.1 Roles and responsibilities of an investment banker

The main responsibilities of an investment banking job(s) include:

  • Guiding stock placement and issues
  • Facilitating mergers and acquisitions
  • Helping clients to sell securities
  • Trading for institutions and private investors
  • Underwriting debts and equity securities

1.2 Job roles

Investment banking professionals serve in different roles. They include consultants, banking analysts, capital market analysts, research associates, or trading specialists.

1.3 Educational qualifications

Most of the professionals hold a degree or post-graduate degree in finance, mathematics, accounting, or economics. Most of the investment banking firms prefer candidates having Master of Administration.

To gain an advanced level of competency in the domain, it is preferred to earn an investment banking certification like Chartered Investment Banking Professional (CIBPTM). The CIBPTM qualification, provided by the Investment Banking Council of America enables the professionals to gain knowledge in advanced tools and techniques deployed in financial analysis. It helps the professionals to make sound decisions in complex scenarios, and approach with confidence for

mergers and acquisitions, leveraged buyouts, initial public offerings, restructuring, or any other investment decisions.

1.4 Work culture and salary

Some of the major and emerging players in the Global Investment Banking market are Morgan Stanley, Barclays, Goldman Sachs, JP Morgan, Deutsche Bank, and Credit Suisse. The investment banking jobs demand a high-time, say 16-20 busy hours per day. One may have to work from morning 9 AM to 2 AM in the mid-night. However, satisfaction is that job is more interesting, commanding, and one can earn a bonus for each deal, along with normal compensation.

According to the corporate finance institute, an Analyst earns USD 85k-100k; an Associate earns USD 100k-USD 120K; Vice-president earns USD 120K-USD 150K, and the managing director may earn up to USD 300k to USD 1 million per annum.

Moving forward, let us understand about venture capitalists

2. Venture capital

Venture capital firms are involved in identifying start-ups, new businesses, fast-growing firms, and other companies that need money. They invest for them and share revenue or sell their stakes. The amount they invest may be USD 5 million or higher. They use equity while buying and restrict their activities for certain industries like biotech and other technology industries. They take board seats and exert influence on business operations.

Companies that are small and yet in the growth stage may not have access to global markets as they are short of funds. Venture capitalists’ partner with such firms who have proven idea for scaling and evolve successfully, protect their investments, influence their strategies, decisions, and operations for profitability. Being partners, they earn returns on the success of the venture. The money to fund usually comes from capital from limited partners.

  • Venture capitalists initial funding referred to as seed-stage involves providing money for developing a product, developing a business plan and conducting market research.
  • The next-stage, referred to as early-stage investing, a larger amount of money for starting up the business. Each investment is designated with letter series or Rounds A and so on.
  • Likewise, the later stage of venture capital investment involves maturing companies that have a track record of growth and revenue generation.

2.1 Roles and responsibilities of venture capitalist

The main responsibilities of venture capitalists include:

  • Find new startups to invest and make an initial outreach
  • Conduct due diligence, analyze startup’s market and financial projection
  • Help portfolio companies in business operations including recruiting, sales, marketing, engineering, fundraising, administrative, deal tracking, and financial issues
  • Attend events and conferences to build network and brand
  • Report to limited partners and raise new funds by finding new investors

2.2 Job roles

The job hierarchy includes Analysts, Pre-MBA Associates, Senior Associates, Principal, Vice President, Partner, or General Partner.

2.3 Educational qualification

Most firms seek graduates from University-level business schools. A Master’s in business is preferred. Venture capitalists must know about business finance, management, and work experience as a business manager or an entrepreneur are highly preferred.

2.4 Work culture and salary

According to Wallstreet, an Analyst earns USD 80K-150K; an Associate earns USD 130K-250K; Vice-president earns USD 200K-250K, and Principal draws USD 500K t0 700k per annum.

3. The bottom line

The investment banking industry is different from venture capitalists, though both deal with finance. They operate in a unique area of finance and deal with companies with different destinations. A job in an investment banking industry or venture capital firm suits you if you are good at finance and networking.

Pursue your interests and choose your career wisely to witness growth and success.