As one of the highest-paying finance careers, it is true that investment banking is a very lucrative industry. So, do you really know what is investment banking?
To put it simply, investment banking is a branch of banking concerned with the creation of capital for other businesses, governments, and other parties that work directly with businesses or corporate customers rather than with individuals. Contrastingly, consumer banking deals directly with retail customers. Generally, investment banks serve as a link between major businesses and individual investors, advising firms and governments on how to manage financial challenges and the best method to generate cash, whether through raising capital, bond issuances, or derivative financial instruments.
So, what exactly does an investment banker do? In short, there are only two things that investment bankers do. First, they assist companies in purchasing other companies or selling themselves to other companies. For example, when company A purchased an initiative, the investment bankers advised company A on the purchase, whereas the investment bankers at company B advised on the sale of that particular initiative. This process is known as mergers & acquisitions (“M&A”). As the whole M&A process is complicated, therefore investment bankers are needed to guide businesses through the process. In this sense, they're similar to real estate brokers, however instead of brokering real estate between sellers and buyers, they're brokering businesses.
Second, investment bankers assist businesses in raising capital. Companies frequently require more money to fund their expansion than they have available in their bank account. However, where are they going to acquire the funds? This is where investment bankers enter the whole picture. Investment bankers assist businesses in obtaining the capital they want from investors.
People frequently mistake investment bankers for investing professionals; investment bankers mainly assist in the sell or buy-side of the transactions and trades. From the sell side, they make money through fees & commission. On the other hand, buying low and selling high is how they make money from the buy-side. Want to know more about unfiltered Insights and pathways into investment banking? Stay tuned for our upcoming parts of this series, which dissect in more detail of the investment banking industry.