Why Business Owners Need Investment Banking Relationships

There are two types of investment bankers: one exists and one does not. Hollywood has taken the excess of the 1980s and sensationalized the investment banker in movies such as Wall Street and American Psycho. This fictional portrayal is built to be provocative and sensational. Lavish dinners, all-night parties, and a lack of connection with anything conservative and logical pervade this character. This is the investment banker that has captured the eye of the American public and our collective psyche.

Now let’s talk about the real life investment banker: The banker and her partners with over 100 years of collective experience in skillfully guiding business owners and companies through the private markets; the three-man advisory shops that previously ran (and successfully sold) their own businesses and are looking to pass on their experience to fellow executives; and the bankers who have done tireless market and industry research to effectively educate and inform CEOs about timing issues for any potential transaction.

These are the professionals that guide companies and here’s what they provide at a high-level:

Advice and Insight

Investment banks are the informational hubs of the private market. They are regularly tracking company valuations, global economic trends, government legislation, etc. They are sponges that soak up all of the information that could be relevant to your business. Bankers are always looking to build relationships with new companies in the industries they serve to become more educated about their market, share their insights, and build quality long-term relationships. The investment banking world thrives on sharing information with private company executives. By regularly speaking with different investment bankers, you can ensure that you’re receiving the most relevant insight into your industry at the exact time that you need it.

Capital

Most investment banks provide much more than advice. In the event that you look to sell, they can bring additional buyers to the table that you might not have considered. Additionally, some investment banks now provide specialized types of capital for private companies, including mezzanine debt, which allows investment bankers to not only to support your company financially, but also gives you the option to bring them in as an eventual financial partner while also getting their expert advice and guidance. While some companies only turn to their local or regional bank for financing or capital, this can sometimes be a short-term solve rather than preparing for the long-term options your company might need. Investment banking companies can access the capital markets on your behalf, helping you structure your company’s balance sheet properly. The process can also help you build strategic relationships with other alternative capital providers.

The Next Step

Private companies like to pass their company down to the next generation or smoothly promote from within. How do you prepare the company for that transition? Other companies look to bring into a financial partner to take the risk off of the table. Who are the top financial partners in your industry? Which future partner really understands how your business’ IP and patents set you apart from your competitors? Most companies are ill-prepared to answer these tough questions. Investment banking firms reputation and existence depend on acting in the best interest of their clients. They relentlessly research the market to find the right future partners, time the transition precisely, and help you prepare your internal operations, procedures, and finances to ensure a perfect exit. Finally, investment banks can offer wealth management services internally to help you transition from your career as an executive to help you protect your wealth and also increase the returns from your years of commitment and the risk you took in building and running your company.

It’s easy to get caught up in the hype. Mass-media and a few bad eggs have painted this highly reputable group in a bad light. The issue lies not with investment banks, but optionality. Due to your workload, it is impossible to fit any extra work into your day without sacrificing valuable personal and family time. However, by not maintaining options with different investment bankers, you are cornering yourself into either the firm that cold calls you the most or the local advisor your law firm recommends to you.

But more choices are available to keep your options open. Databases likes Capital IQ can give you a ton of information. Google can let you search for days. But only Axial will allow you to quickly see the most active investment banking firms, their most recent deals, and what services they offer – in minutes. You can quickly compare all of your options, ensure your companies’ future, and still make it home for dinner.

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