How to Defy the Odds and Create Your Own Investment Banking Job

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How to Create Your Own Investment Banking JobIf you’re interested in finance, you probably have a Type A personality:

  • You’re highly competitive;
  • You care a lot about achievement and money;
  • You love multi-tasking, you’re a perfectionist, and you’re always rushing around to finish work.

And normally the finance industry would be a good it for you – except for when there are no jobs and few firms are hiring.

If you’re in that boat, there are always Plan B options to consider… maybe you could just accept that Big 4 offer, go to a normal company, or go back for a Master’s program…

Or you could just create your own job instead.

Today we’re speaking with a reader who did just that, hustling his way from a direct sales role to dental school to the investment banking industry.

And rather than jumping into it as an “employee,” he’s effectively a Partner and he works with other business partners to close deals and generate commissions – straight out of an MBA program.

This might just be the most “out of the box” story I’ve published on here (be on the lookout for that upcoming one on how to move from a male stripper role to a hedge fund analyst, though), so let’s get started:

Background Assumptions

Q: So let’s go back to your “Origin Story,” because I think it’s a good one…

A: Sure. I’ve always been an entrepreneur at heart, and prior to attending university I started my own direct sales company for satellite dishes. It was very profitable and we did quite well, but I felt obligated to get that “professional education,” so I ended up attending dental school.

6 months into my first job with a dentist, I realized I hated it and it wasn’t for me – I didn’t do well working for other people.

I ended up getting more involved with business brokering and used Internet marketing (paid advertising, search engine optimization, etc.) to get leads.

I acquired the Deal Capital – Mergers and Acquisitions site 1.5 years ago and have been building it ever since, focusing on selling baby boomer-owned businesses.

Over the next 10 years, around 7 million businesses owned by baby boomers will be sold as they retire – and so there’s a big opportunity to advise on the sales of those small and mid-sized companies.

Oh yeah, and in between all that I also found the time to attend business school – which I did mostly because I felt like I needed a more formal finance background to do all this and become more actively involved with selling larger companies.

Q: OK, so let’s keep going in chronological order here before we get to what you’re currently doing…

How exactly did you get into this type of “business brokering” role?

A: It was mostly through brute-force networking. I had the direct sales experience from starting my own company before, so I was used to everything that came with it: hours and hours on the phone all day, going door-to-door selling products, and getting outright rejected or ignored by people all the time.

After I quit the dentistry path, I kept contacting people I had met via my old company and networking with them to meet investment bankers and business brokers, and I positioned myself as someone who could deliver leads – companies looking to sell or buy.

Bulge bracket banks wouldn’t care about that, but these smaller places are always looking for business because few of them have a consistent, repeatable strategy for getting clients in the door.

Naturally, I churned through a lot of contacts on my way here; I went through at least a few dozen people before finding one who proved very reliable and good to work with.

The lack of technical skills also hindered me, which is why I did the MBA program and also started working with current students and alumni from that program from a very early stage.

What Do You Do, Exactly?

Q: Right… so, speaking of that, what do you do every day, exactly?

A: My role is to generate leads and refer these potential buyers and sellers to bankers, mostly at boutique firms, that will handle much of the process once they have the information and the marketing materials.

Here’s how it works:

  1. A potential buyer or seller comes to me and indicates that they’re interested in doing a deal.
  2. Then, I go through the network of senior bankers that I’ve developed and figure out which one would be best-suited to handle the deal, based on geography, industry expertise, and so on.
  3. Next, we do the valuation work and create marketing materials such as the CIM and management presentation; sometimes this is split up between the banker we bring in and our team.
  4. Once everything is finished, the banker gets to work selling the company (in most cases) and occasionally doing a buy-side deal.

Finally, we get paid for referring these leads whenever deals close.

Q: So how is this different from becoming an industry group Managing Director, building relationships, and then referring clients onto product group MDs when a deal is ready to take place?

A: In a sense, they’re very similar.

The difference, though, is that traditional Managing Directors at banks, and even other firms in our area, focus on “old school” methods of lead generation: putting on expensive conferences, using fairly high-pressure sales tactics, and so on.

The end result is that the cost per lead acquisition is very, very high.

There’s one firm called Generational Equity in Houston that does just this and puts on conferences and does other offline marketing to generate leads, then takes a retainer when a new client signs on, preps the business for sale, and farms out the entire process to a banker, taking a small percentage of the deal when it closes.

We’re approaching it from the opposite angle: we’re using content marketing to generate leads online, so that potential sellers find our site and all our content and contact us based on that.

It’s the same thing you’re doing with this site and your financial modeling programs: you’re using all the free articles and videos here to generate interest in your programs and sell them online, instead of relying on expensive phone or in-person sales.

Q: Anyone paying attention would have already seen the same thing happening in every other market online, but it’s fascinating to hear about the rise of content marketing even in investment banking.

So what sort of companies do you focus on?

A: Generally, we sell companies with between $10 million and $100 million in revenue – which you could call “the middle market” (roughly).

We also try to ensure that the companies have at least $1 million in EBITDA, because with anything less than that it’s more “business brokering” rather than investment banking.

We prefer sell-side deals because, as you’ve written about before, they’re much easier to close than buy-side deals; sometimes we help with capital raising, but that’s less common for these smaller companies.

Q: OK, thanks for clarifying that.

What about the process of finding Partners and MDs to work with? I’m assuming you have to narrow down that list somehow, right?

A: These days, we do that mostly via an extensive reference check. As our business picks up momentum, we’ve been getting more and more inbound inquiries from bankers who are interested in working with us.

In addition to the references, we also try to assess how quickly the banker can move and where this fits into his/her priority list, as well as what sort of expertise he/she has in the industry and geography.

Recruiting MBAs to help with the valuation, technical work, and marketing materials has been easier because, as we both know, most people are more comfortable running spreadsheets than they are marketing, selling, and working the phones all day.

We pay them on a contractual basis and hire them “as needed.”

Small Business Valuation and Wheeling and Dealing

Q: So what are the major obstacles you encounter when selling these companies?

A: With small to mid-sized businesses like these, you need to strike a careful balance between making the deal look good and also being as forthcoming as possible.

All companies have risks and potential downsides, but with these smaller businesses in particular you tend to see issues that you would rarely encounter with huge corporations – everything from leadership to properly audited financial statements to “unorthodox” business processes.

Q: So what’s the biggest issue you encounter? Too much dependence on the Founder or CEO?

A: That can be an issue, but I don’t know if it’s the biggest one or not; many times, our partners help find managers and new executive teams to help make the transition happen. And if it’s a strategic buyer, this is far less of an issue than it would be with a financial sponsor.

Sometimes, the owners will also agree to stay on for some time post-sale to ensure that the business continues to thrive.

Q: In the beginning, you mentioned that 10,000 baby boomers per day are retiring, and how that has implications for the M&A market and boutique banks in particular.

Can you talk about that trend and what it means for deal activity?

A: Sure – being in the middle of the “baby boomers retiring boom” creates some great opportunities, but also presents some threats.

First, a fairly high percentage of these retirees own their own businesses and are looking to sell them now, rather than later, because they assume taxes will be going up (even more) in the future – and also because they need the funds now.

On the surface, that seems like a great trend for us because there are so many potential buyers – but it also means that prices and valuations are going down since there’s a supply glut in some markets.

For example, if 5 major HVACs in the same region approach us and want to sell their businesses, it would be tough to find qualified buyers for all of them. They’re just too similar and the buyer pool is limited.

So far, this trend has favored us and resulted in more deal activity and fees – but anything could happen in the future, especially if prices go down and over-supply continues.

Q: Speaking of prices, what can you tell us about valuation for these companies (i.e. smaller private companies)?

A: It’s very “ad hoc” and we mostly base it on what our partners within the industry say.

The exact metrics used differ from industry to industry – software valuation is quite different from manufacturing, which, in turn, is also much different from healthcare.

As a quick example: recently we helped sell a day care center, and there the valuation was based on a revenue multiple and a “clientele multiple”, almost like what you see in telecom & media banking with multiples such as Enterprise Value / Subscribers.

I hesitate to give an exact figure, but valuations in the 2-5x “discretionary cash flow” range are quite common with these companies.

You are definitely NOT going to see (the equivalent of) 10-15x EBITDA multiples or anything like that here.

Another difficulty with valuation is that sometimes these companies lack audited financial statements – or at least, properly audited statements. If you don’t even have a set of quality financial statements, valuation will be nearly impossible.

Sometimes, we actually partner with an accounting firm that can “reverse engineer” financial statements and detect any suspicious activity from the past 3 years.

Q: Before we move on, I wanted to circle back to one of the interesting points you brought up: how you may also advise on financing deals sometimes instead of just sell-side and buy-side M&A.

How does that work for companies in this size range? And are these debt or equity deals?

A: Most of the focus is on the equity side; debt deals are pretty rare. There are two main methods we use to raise equity for these companies:

Method #1: We have a few different partners who work with high net worth clients in private banking – many of these clients simply aren’t getting the returns they want in the stock market anymore, so quite often they’ll be referred to us and we’ll arrange a deal where the client can invest and receive, say, a 10% dividend in a company.

Method #2: We also have lists of people who have frequently invested in $20-50K tranches. If we get enough of them together, an equity financing could also take place like that. The key is to show them good deals that actually result in positive returns, and to keep doing that over a long time period so that they come to trust us.

The institutional side is almost non-existent for companies of this size – it’s all “angel investors” and high net worth individuals.

A Day in the Life… and a Day in the Future?

Q: Thanks for explaining that. It’s so interesting because you see the same thing happening with private banking at large banks – especially in Asia, where high net worth clients are often brought into the investment bank’s IPOs and other deals.

So what’s an average day in your life like at the moment?

A: Right now, the rough breakdown is something like:

  • 50%: Writing content and doing online marketing work to generate leads.
  • 30%: On the phone speaking with partners, clients, and potential clients.
  • 20%: “Running the numbers” and doing technical work.

Right now, we’re trying to get that “critical mass” of content needed for the site to start generating high search engine traffic on its own – but you know how that one goes!

In the long-term, I expect to spend more and more time and effort on the phone and less on content creation.

It’s tough to pin down an exact “schedule,” but I tend to place my calls in the morning and early afternoon, and I do other work earlier or later in the day when it’s harder to reach people.

The most notable thing about my environment / schedule is that it’s somewhat isolated – occasionally I’ll see a few others who are helping with models, but almost everything else is done remotely.

Q: Quite different from a typical bank, but I think you’d see that whenever you start something on your own, whether it’s an offline business or online business.

A: Yeah, and it’s something you really need to consider carefully before doing this – if you need to be around people 24/7, this is NOT the right path for you.

Everyone should read or re-read your article on why finance doesn’t guarantee you $10 million and your own beach in Thailand for more on that.

Sometimes I do have face-to-face client meetings and I’ll go visit regional offices, but almost all work can be done remotely these days.

Q: Now for the topic everyone’s really wondering about: how and how much do you get paid?

A: Generally we get paid a percentage for each lead that results in a closed deal, and sometimes we may charge a retainer depending on the client and potential deal.

As with larger M&A deals, the percentage scales down as you move up to bigger deals.

To give ballpark figures, I would say that a 7% fee is common for deals below $10 million, and that scales down to around 4-5% at the $50 million level. That goes down even more as you move up past that range.

I can’t comment directly on how much I get paid for obvious reasons – also remember that those fees are split between many different parties, so it’s not as easy as you might think to figure out the direct relationship between fees and your own take-home pay.

Q: It sounds like everything’s going well – so I’m assuming you’re planning to keep doing this for the foreseeable future?

A: Yeah. I also have a few other ventures generating revenue, which helps, but overall I’m super-excited about this and think there’s a lot of room for growth.

Q: Awesome! Thanks for the chat.

A: My pleasure.

And check out Deal Capital – Mergers and Acquisitions when you have a chance!

About the Author

is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys learning obscure Excel functions, editing resumes, obsessing over TV shows, and traveling so much that he's forced to add additional pages to his passport on a regular basis.

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18 Comments to “How to Defy the Odds and Create Your Own Investment Banking Job”

Comments

  1. Knight says

    Hi Brian,

    Thanks for the great article once again!

    I’ve been hearing from several people in commercial banking about similar transactions where boomers are trying to cash out of the businesses they’ve built, it would be nice to see other similar career stories on the topic.

    • says

      Thanks, hope to cover more on that one soon. I agree that lots of people (of all ages actually) are running for the hills right now trying to cash out before taxes go up / armageddon arrives.

  2. A Weatherall says

    While the topic of the article is interesting, you need to avoid transcribing these conversations where you sound like a sycophantic college freshman, it substantially reduces the quality of your writing.

    • says

      Thanks for your feedback. The ironic part is that this wasn’t a “transcribed conversation,” in fact I never transcribe interviews – it’s all based on notes. I occasionally add in pop culture references and so on to make it more interesting. That is the style of the site, if you don’t like it there are other sources that only present the facts and nothing else.

  3. Roman says

    Brian, thank you very much for the article. This really inspired me. I am currently trying to launch a business brokerage kind-of business in Russia, and was looking for a nice interview with a person who had done such a thing to pick-up on tips and stuff. Your interview really helped, thank you!

  4. Student says

    Hey,

    I was wondering if you could publish a list of schools that are most heavily recruited from? As a high school student trying to figure out where I want to go to college, that could do wonders.

    In that same vein, I am currently trying to decide between the following schools:

    Rutgers New Brunswick School of Business (full ride)

    Villanova University School of Business (full ride)

    University of Michigan (Hopefully Ross) with a 10k scholarship

    Duke University

    Northwestern University

    Tufts University

    UVA (Hopefully McIntire)

    Johns Hopkins

    Emory University

    Georgetown’s School of Foriegn Service (If I attended I would major in International Economics)

    Which school of these do you think would give me the most edge in getting into investment banking?

    • M&I - Nicole says

      Thank you for your insight. Good idea.

      In terms of the schools, I’d choose Georgetown SFS given Georgetown’s presence on Wall Street, Duke and Northwestern over the others. Tufts, UVA, JHU and Emory are good choices too though I would say they’re semi-targets.

  5. Austin says

    In regards to your story, what exactly does brute-force networking entail? Just emailing folks about your service or cold calling?

  6. Michele says

    After running my investment bank for 3 years out of my home. I have come to realize that the financial stress I am taking on is taking its toll and the deals are all falling through. At what point do I shut it down and go back to working someone else. I am over $800,000 in the hole after refinancing my home for this business. Please advise my family and I are all struggling to stay above water. I have put 3 years of dedicated blood sweat and tears into this business. It is so difficult to make the choice to end it when there are constantly potential clients and deals falling in my lap…but they just don’t seem to pan out for one reason or another. I am scared if I work for another investment bank firm, it could easily shut its doors based on the economy and the risk that they seem to take on these days.

    Thanks,
    M

  7. Joseph says

    (SOS) Hi Brian,

    I am a 3rd year Credit Risk Analyst in Middle Office. My role neither involves in revenue generating, client facing nore directly impacts the decision making of business units. I basically leverage data/stats skills producing reports, analytics deliverables and I report to the board. I really want to explore a career in IB, ECM or DCM. Before I am doing my MBA at a target school i want to get some related experience. Recently I got an offer as financial analyst from a small business brokerage firm. It has corporate umbrella headquartered in U.S. but the local office here (I am in Canada) is a small team of 8 people. The transactions are mainly for ‘Mainstreet’ Businesses. Which way i should pick to increase my possibility of moving into big IB, ECM,DCM? Thanks for your adivce,

    Joseph

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