How to start an Investment Banking Business
Investment banking is the division of a bank or financial institution that serves governments, corporations, and institutions by providing underwriting (capital raising) and mergers and acquisitions (M&A) advisory services. Investment banks act as intermediaries between investors (who have money to invest) and corporations (who require capital to grow and run their businesses). This guide will cover what investment banking is and what investment bankers actually do.
Investment bank offers various services like trading,research,Mergers & Acquisition,loan syndication,Asset management,custodian services,restructuring, corporate finance,underwriting and others.
If one entity offers various services under its umbrella it is called as investment bank.
To offer each service I-Bank has to get related approvals accordingly. So, it not like there is going to be one license to start Investment Bank.
Step 1: Begin by offering underwriting services. You will act as an intermediary between companies seeking to raise capital and investors looking for companies to invest in. You take on the risk of ensuring that a company obtains enough investors, or otherwise you will need to hold the shares of the company yourself. Your income will be the difference of the price at which you buy the stocks from the company and the price at which you sell them to third party investors, this is called the underwriting spread.
Step 2: Add M&A services. You will advise companies and individuals looking to sell (parts of) their company to other investors. You can also offer buyside advisory, i.e. to those who want to purchase (parts of) companies
Step 3: Add other services such as debt advisory, where you help companies to raise debt. You can also add lev. fin. and restructuring advisory.
Step 4: Add market making and various trading services (currency, derivatives etc.)
Step 5: Add equity research and sell your research reports. You better have some of the best researchers around though.
You will want to make sure that each department is staffed with several managing directors who you have snapped up from other banks so that you have plenty of clientele and a good pipeline. Be prepared to comp these guys extra for leaving their old place, taking the risk to work with you, and probably working more hours since there are no mid-tier bankers (VP/Director). Then you’ll need to recruit a small army of analysts and associates to perform the ground level work, i.e. modelling and creating presentations.
IB is a highly competitive industry that revolves around relationships. If the CEO of MEGACORP (fictional) is friends with a bunch of seniors at MORGAN SACHS (fictional) they will likely do business with their friends. So you’ll need to convince those guys to come over.
Congratulations. You now run an investment bank, give or take a few services perhaps.