A Bitcoin Startup: The Best Exit Opportunity for Bankers Interested in Tech?
Do you learn anything useful in investment banking?
Banks hype up the “transferable skill set,” but anyone who’s worked full-time in IB before might tell you something different:
No, compulsively fixing font sizes in PowerPoint and swapping in slide for last-minute fire drills do not count as “transferable skills.”
But there might be one area where your experience in the industry does give you an advantage.
I’m referring to financial technology (fintech) startups, and the latest, hottest area within fintech: Bitcoin.
Our interviewee today worked in investment banking and private equity before leaving to start BitX, a leading Bitcoin wallet, exchange, and merchant services provider.
Say hello to Marcus Swanepoel, who shares the full story of how he left his previous career in finance to change the world with Bitcoin:
Banking to Bitcoin
Q: Can you start by telling us exactly what your company does and how it’s different from other Bitcoin-related startups?
A: Sure. In short, we’re a ‘universal’ Bitcoin company, meaning we provide products and services that touch on multiple aspects of the Bitcoin ecosystem.
For example, we provide wallets for people to safely store their Bitcoin, exchanges where people can easily buy and sell, and integrations for other companies that want to accept Bitcoin.
We are aiming to become the top digital currency platform company in Southeast Asia and Africa, and we currently have offices in Singapore, Jakarta, and Cape Town.
Our main differentiators are our local knowledge and relationships, our partnership approach (we integrate with other companies to help build Bitcoin ecosystems), and also our focus on mobile in those regions – we think the growth potential and adoption rates will be much higher there.
Our app simplifies the process of buying and selling Bitcoin on exchanges, sending them to other people, and using them to pay for goods and services online.
Q: And what did you do before this?
A: I’m originally from South Africa, where I qualified as a Chartered Accountant (CA). Then I moved London, began working in Morgan Stanley’s Consumer Banking Group, and qualified as a CFA charterholder.
After that, I worked at 3i in fundraising and growth capital investing, and then went back to business school, completing my MBA at INSEAD in France and Singapore, along with an exchange at Wharton.
After graduation, I joined Standard Chartered’s Leveraged Finance team in Singapore and covered Southeast Asian markets such as Indonesia and Malaysia. I also spent some time in Africa working for the African LevFin team.
Q: I can understand your background in emerging markets, but how did you get interested in technology and cryptocurrencies?
A: I used to code and design a lot in high school, so I’ve always been interested in tech and media.
But I was also very interested in finance and emerging markets, which is why I worked in so many different groups and regions over time.
I ended up quitting my IB job in Singapore without a specific plan, other than wanting to work for or help build a tech startup.
I decided the best place for that was Silicon Valley, so I packed my bags and moved to Palo Alto for a few months.
I started researching various areas, including cryptocurrencies, and, like many others, quickly realized how disruptive they might be.
Around that time, a friend was visiting and mentioned that some of his friends were working on a cryptocurrency project.
I met up with them and found that we had very complementary skill sets and got along quite well, so I joined their team, and we started building the business together.
Q: So what exactly was this “cryptocurrency project?”
A: It was a project to build the first cryptocurrency system for a multinational bank.
This project came before Bitcoin was “hot” and before the press started writing about it all the time.
A lot of banks are interested in this space, but they are conservative and move very, very slowly.
After spending a lot of time working with a number of global banks on their Bitcoin strategies, we decided to focus more on building the consumer side of our business.
So our current goal is different, but the insights, relationships, and technology we gained from these early workings have been critical for the BitX everyone knows today.
Finance to Tech: Lucrative Exit, or Bubble Waiting to Burst?
What would you say to them?
A: You shouldn’t do it just because it’s “the thing to do.”
While we’re probably not looking at another 2001, there is definitely a tech bubble going on at the moment (2015). I’ve seen many people leave good jobs even when they do not have the personality or skill set to run a business.
One of the biggest obstacle for most bankers is that they’re not willing to fail – which will happen a lot if you ever start something.
Many finance professionals have had perfect GPAs and test scores, attended the top schools, and pursued opportunities where they knew upfront that they would likely be successful. But you have to get used to a lot more randomness with entrepreneurship.
If you’re from that background and you want to continue on that path, there is no reason to join an early-stage startup or to start your own.
In particular, if you’re more interested in the outcome (e.g., scoring big in an exit) than the process, just stay in banking. If you run the numbers, you’ll see that you’ll earn more on average.
You have to be passionate about the process of solving a problem for the startup path to make sense.
Also, some bankers don’t have much experience working with consumers, as opposed to large companies.
So if you’re planning to launch a consumer-facing startup, which is what most fintech companies are, you need to get close to your customers, many of whom come from different backgrounds than you.
Finally, it helps if your background has some logical relationship to whatever business you’re starting.
My path may seem random, but I had a lot of relevant experience:
- Experience with coding and design when I was younger.
- Finance experience in emerging markets such as Africa and Southeast Asia.
- Work on that initial cryptocurrency project.
So it’s not like I was quitting my finance job to start an import/export business for antique armor from the Middle Ages.
Q: You just mentioned how your particular experience was important, but how is investment banking experience, in general, relevant to cryptocurrency work?
A: You get a better handle on the regulatory aspects of banks, their current limitations, and how you might build a company to circumvent the traditional financial system.
I spend a lot of time speaking with government regulators and banks. Since I can point to my work history at banks, I have more credibility than someone who’s just out of university or someone from a different industry.
Making pitch books or Excel models isn’t directly relevant, but “brand name credibility” very much matters to conservative institutions.
My MBA at INSEAD was also helpful because many of my classmates started companies, so I’ve learned a lot from their successes and failures. That network has also been valuable in building our business and relationships across multiple countries.
Q: So let’s say that a former banker or consultant comes to you and wants to work at your company.
What qualities would you look for in him/her?
A: It depends on the type, stage, and industry of the startup; a late-stage, pre-IPO company will look for different things than a 1-year old business with ten employees.
Since we’re early-stage, we’re looking for people who are:
- Multidisciplinary – They’re comfortable wearing multiple hats, and they’re good at many tasks rather than being skilled at only one or two things.
- Passionate – How interested are they in cryptocurrency or consumer finance? Have they worked on related side projects? Are their hobbies and interests relevant?
- A Good Fit – Our team is quite diverse, and people have had experience in different countries and industries. So a banker or consultant who hasn’t had much experience interacting with a broad spectrum of people may not be the best fit.
On the developer side, the factors above still matter but we’re more concerned with coding ability and their familiarity with the technical underpinnings of cryptocurrencies.
A Day in the Life of a Former Banker
Q: Thanks for explaining all that.
Can you walk us through a typical day in your life?
A: As we’re speaking, we have a team of nine permanent, full-time staff, and four part-time staff.
I split my time between all areas: product, support, strategy, marketing, hiring, and fundraising.
So a standard day might look like this:
- Morning: Review new features that users have suggested, and decide where they should be on our developers’ priority list.
- Late Morning: Interview candidates for our business development / partnerships team.
- Early Afternoon: Work on fundraising, send financial and KPI updates to existing investors, and contact new potential investors.
- Late Afternoon: Review a new marketing campaign we’re running to boost user growth in Southeast Asia, and assess how well current campaigns have been performing.
- Night: Take care of anything that didn’t get finished during the day, such as responses to pending emails, outstanding support tickets from technical or billing problems, and so on.
Q: You just mentioned the fundraising process, which is also an area where a finance background might be useful.
And you also just raised SGD 1 million in seed funding, so can you describe that process and how you made it happen?
A: Since we’re based in Singapore, it was significantly tougher to raise money than it would have been in Silicon Valley (SV).
Most of the ‘smart money’ going into cryptocurrencies is currently in SV; while many US VCs claim they’re “global,” they feel far more comfortable with US-based management teams or products and services that address the US market.
So while the liquidity is there, it’s not necessarily available to non-US strategies.
On the flipside, African and Asian VCs are very risk-averse, even though they’re in higher-risk regions. So they are not the first ones stepping up to fund cryptocurrency businesses, although that sentiment is starting to change.
In the end, we managed to bridge this gap and found high-quality investors. Pitch books and Excel models came in handy with this process!
Q: So would you recommend raising funds in Silicon Valley rather than Asia or Africa, even if your startup focuses on emerging markets?
A: I wouldn’t quite put it like that; you just have to realize that there are differences.
First, the risk appetite in Silicon Valley is higher. Investors are often willing to fund a business with a good idea and a team, even if they don’t have traction and/or a finished product.
They feel comfortable with that because many of these investments have become billion-dollar companies. They are also more likely to fund entrepreneurs who have failed previously, whereas in emerging markets failure is often seen as a negative.
Investors in Asia are more conservative, and they almost always want to see traction and revenue before they will fund a business.
There are some “sure things” like e-commerce in China and Indonesia, but you still need to demonstrate tangible progress first.
Second, the value-add from VCs will be different: Silicon Valley firms have a lot more operational expertise and often employ successful ex-entrepreneurs as investors.
Asian and other emerging market VCs are often ex-investment bankers or finance professionals turned VCs, so you won’t necessarily get as much operational know-how from them.
However, many of these investors do have strong networks and relationships in these local markets, which are extremely useful benefits that an SV-based VC cannot bring to the table.
Finally, you’ll often get a higher valuation in Silicon Valley than in Asia because Asian VCs haven’t seen many billion-dollar sales or IPOs.
So they assume the exit will be smaller, which limits the valuation they’re comfortable with (not that this should drive your decisions, but it is still important for many people).
That said, Asian VCs are becoming more aggressive and forward-thinking, so that may change in the future.
Some VCs we spoke with indicated they might invest if our management team were based in SV, but we felt it was better to stay close to our customers here in Singapore.
Q: A lot of people also have misconceptions about Bitcoin and digital currencies, which may make it harder to raise funds.
Can you walk us through what the most common misconceptions are?
A: A lot of people focus too much on Bitcoin’s price or believe that it is simply “another “type of currency.”
(We’re cryptocurrency-agnostic, but for now we focus on Bitcoin since it has the most traction and may be the most likely to succeed in the long-term.)
But cryptocurrency is exciting because of the technological aspect and the main problem it solves: double-spending.
Until just a few years ago, if I wanted to transfer any digital property (a domain name, shares, online money, etc.) to another person, I’d have to do it through an intermediary.
I couldn’t send it to you directly because of the risk that I would copy and paste it and send it to you and someone else at the same time.
This issue is called “double-spend,” and many banks and payment processing companies keep a database of transactions to prevent this. In exchange for this service, they charge a fee.
Bitcoin is a big, open, public ledger system that the entire world can see. There’s no need to have intermediaries because one ledger lists all the transactions, and everyone can see and agree on it. This setup means faster, safer, more transparent, and virtually free transacting.
Money is the first application, but the real power is that you can digitally transfer ownership of anything.
People won’t even necessarily need to know about the technology to take advantage of lower fees and faster processing time.
Eventually, it might become as easy as swiping a credit card, where you’re still using a local currency, but all the processing happens in the background via Bitcoin.
Finally, the other big misconception is that Bitcoin was “created out of thin air.”
If you read the original Bitcoin paper, however, you’ll realize that decades of work by top cryptographers and mathematicians came first. Like most scientific discoveries, it was “built on the shoulders of giants.”
Q: Thanks for explaining that one.
A lot of other Bitcoin startups do not focus on specific regions, so why are you targeting emerging markets?
A: There are opportunities in developed markets, but things are already quite efficient there: what adult in the US or UK does not have a credit card?
But in emerging markets, people don’t have credit cards or Paypal accounts and moving money around is incredibly inefficient.
Emerging markets also tend to “leapfrog” to the latest technology: in Africa, people skipped landlines and went straight to mobile phones; then they skipped computers and went straight to smartphones.
Something similar may happen with digital currencies in these countries as well.
Adoption is much easier when there’s no existing behavior to change!
Quitting Finance for Tech: Final Thoughts and Advice
Q: You’ve had a good run so far, and your startup seems to be doing quite well.
But how could current bankers or consultants in your position decide whether or not the startup world is for them?
A: It’s difficult to give a universal answer, but I would urge you to be careful if you’ve gotten interested because your friends are doing it or because it seems ‘cool.’
In my limited experience as a first-time entrepreneur, I’d say you have to be very self-driven and good at dealing with uncertainty, including extreme highs and lows.
It’s also quite important to be passionate about serving customers, and to be willing to get your hands dirty in the process.
Your odds of success are small, so unless you enjoy the process itself you shouldn’t even bother.
Q: Any other advice for others who are thinking of quitting their corporate jobs?
A: I would say, “Don’t listen too much to other peoples’ advice” because each person’s experience is different. You don’t necessarily want to emulate what other people have done since your strengths and weaknesses may be different.
When I quit, I made the call to start exploring other, entirely different alternatives, rather than taking a sabbatical. I could have done that, but my focus and drive wouldn’t have been the same, and I might have gone back to my old job afterward.
I honestly don’t think you can work for 12+ hours per day and also try to figure out what else you might want to pursue. Entrepreneurship is an all-in or nothing game.
So if you have the luxury and you’re sure you want to do something non-traditional (i.e., an industry where you won’t be penalized for quitting your old job), I recommend taking time off to reassess your goals.
If you haven’t spent foolishly on models/bottles, you should be able to afford a few months off from work to figure things out, so in that sense banking is very useful.
By closing one door, you force others to open up.
And new opportunities will find you more quickly once those new doors are open.
Q: Great! Thanks for your time.
A: My pleasure.
More About BitX:
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Investment Banking in Calgary: Advise on Multi-Billion Dollar Energy Deals and Still Get the Weekends Off?
If you want to work on energy deals, Canada is a good place to start.
And within Canada, most of the action is in Calgary – from both the Big 5 Canadian banks and the bulge bracket banks.
Sure, energy deals do take place in other locations, but it’s hard to beat Calgary for the depth and breadth of the experience you’ll get.
Our interviewee today broke into the industry several years ago, and gives us the full run-down on everything:
- Why recruiting might be easier, or at least “different,” in Calgary.
- How the Big 5 banks and bulge bracket banks operate differently.
- What to expect in terms of deal flow, technical work, and office culture.
- And even major industry trends, such as crude-by-rail and royalty stream deals.
Breaking Into Banking in the Far North
Q: Can you walk us through your story and how you got into your current role?
A: I started late. I realize I wanted to go into banking only in my 4th year of undergrad, and I didn’t go to a target school.
So I spent a lot of time networking, applying to jobs online, and hustling for interviews using all the strategies you’ve described before.
I don’t think my story is too much different from those of other readers – so the only two points I’ll add are:
- I focused on Calgary because I figured it would be less competitive than Toronto and/or other cities.
- I contacted literally every firm in the city: the Big 5, National Bank, the bulge bracket banks, and then boutiques like Rothschild, GMP, Peters, FirstEnergy, Haywood, AltaCorp, Desjardins, and more. I cold-called, cold-emailed, and used LinkedIn to contact people in every office.
Q: So how is recruiting in Calgary different from recruiting in Toronto?
A: In my opinion, it’s easier to get a job here than it is in Toronto if you come from a non-target school.
Banks in Toronto are a lot more selective about your school background, and if you haven’t gone to one of the top Canadian universities (Richard Ivey, University of Western Ontario, Queens, McGill, Rotman, etc.) it’s tough to get in.
But bankers here don’t care as much about your university, so you see junior hires from a broader set of schools across the country.
Also, demand for junior bankers in Calgary can suddenly spike depending on the energy market. You could say there’s more “volatility” than in other places because of the industry focus.
That was one of the major factors that helped me: I got the timing right, and started networking and interviewing just before deal activity here jumped up.
Q: I see. Any tips on recruiting for energy groups there?
A: The biggest thing is that you need to demonstrate a specific interest in the industry.
Many students mistakenly think they can just list an Oil & Gas course (whether a self-study one, a college class, or anything else) on their resume and “stand out.”
But that alone isn’t enough – you need to be well-versed in oil & gas news, big themes in Canada, and you need to be comfortable walking through models and how they might apply to other companies / deals.
If you do want to take a course, I would recommend the short class on O&G offered by SAIT Polytechnic: Southern Alberta Institute of Technology because they go into more detail on the engineering / geology / drilling side of the industry.
Finally, if you’ve done an energy-related internship, you’ll need to be able to walk through the NAV model and answer related technical questions.
And even if you haven’t had that experience, there’s a good chance you’ll be asked to walk through the NAV model.
Surveying the Industry Landscape: Let It Go?
Q: So what’s the industry like in Calgary, and what deal types are most common?
You see a lot of mining teams and some diversified teams in Vancouver, and diversified teams with Quebec-based clients in Montreal (and a lot of diversified coverage in Toronto, including mining, financials, real estate, and other sectors).
Most Canadian energy deals are asset acquisitions and divestitures.
If oil or gas prices are falling, companies – especially financially distressed companies – will tend to sell their assets, which is definitely happening today.
The volatile differentials between Canadian oil prices and the WTI benchmark have led companies to deleverage their balance sheets and redeploy capital, so asset divestitures have been more and more common.
Equity issuances vary based on market conditions, but they can comprise over 50/60%+ of all deals if it’s a strong market with a lot of companies in the pipeline.
However, the time spent on equity issuances tends to be much lower than that because follow-ons are generally “bought” by the bank and don’t require a ton of work.
Q: Great. So which banks are strong in which areas?
For example, do Canadian banks focus on different deal types than US-based banks?
A: Canadian banks do mostly asset acquisitions and divestitures (predominately sell-side mandates ) while actively seeking mega cross-border transactions.
Equity issuances are usually led by Canadian banks such as TD, RBC, BMO, Scotiabank, and CIBC. Canadian banks tend to get a higher fee percentage on those deals because of their leading research, lending, and trading platforms.
The US-based bulge bracket banks often work on debt and bond financing deals, but they focus on the cross-border M&A mega-deals since they can earn higher fees there (especially if they have connections to international buyers that are looking to get into Canada).
Most global banks here have fairly lean deal teams, so senior bankers can earn quite a lot even if it takes 2+ years to get a deal done.
For instance, a typical Canadian bank’s office here might have around 3-6 MDs, while a bulge bracket bank usually only has 1 MD – even though they advise on some very large transactions.
It’s hard to say which individual banks perform the best because it varies over time, and sometimes a single large deal can tilt the rankings in one bank’s favor.
For example, BMO did very well in 2012 when they advised on CNOOC’s $15.1 billion acquisition of Nexen and Progress’ $5.4 billion sale to Petronas.
Q: So what else explains why Canadian banks and US banks focus on different deal types?
Is it just a matter of which firms have the most international connections?
A: There are a few factors – for example, it’s difficult for bulge bracket banks here to lead equity deals because they don’t have equally strong research, trading, and lending platforms for Canadian companies.
If they’re in an equity syndicate they also earn lower fees, so they don’t necessarily want to devote time/energy to pitch for those types of deals.
They are mainly here for pure advisory mandates, or “elephant hunting.” They’re looking to do big deals, especially cross-border M&A transactions, but those don’t come around all the time.
Another factor is that you need a strong technical team (as in, geophysicists and engineers) to do asset acquisitions and divestitures (A&D). This is why the Big 5 Canadian banks all have their own A&D teams, which they gained mostly by acquiring boutique advisory shops.
This has begun to change a bit because firms such as Goldman and JP Morgan have been setting up their own A&D teams, but Canadian banks still tend to dominate.
To communicate with CEOs and CFOs of O&G companies you really need to understand the underlying assets, which is why geophysical / engineering knowledge is so important.
Just being able to produce a spreadsheet doesn’t mean much here.
The Polar Express: On the Job in Calgary
Q: Thanks for all that detailed information.
What do you do on a daily basis there? Is the life of an analyst or associate any different because of the deal types and industry dynamics?
A: A lot of it is the same, but there are a few differences as a result of so many A&D deals.
For one, I spend a lot more time on gathering data and refining assumptions than an analyst in another group would, because O&G models can get quite complex and technical.
On average, I get in around 8:00 – 8:30 AM, work on models and pitch books in the morning and meet with VPs and Associates, and then do similar work throughout the rest of the day after taking a break midway through.
I usually get home around 11 PM – 12 AM, but on Fridays I might get off around 6 PM. On weekends, I might have to work one day on average (from, say, 10 AM to 6 PM).
But when I’m staffed on a deal and activity is heating up, all that goes out the window and I might work until 5 AM even on weekends.
Q: Another region where those “protected weekends” seem to be nonexistent…
So what percentage of time do you spend on deal execution vs. pitching?
And are there any other differences to note?
A: In my office, around 70-80% of the work is deal execution at the moment – contributing to drafting sessions, refining management presentations, coordinating with counterparties on Q&As, and working with the M&A team on bid evaluations.
Only around 20% of the work is pitch-related (e.g., drafting industry overview slides, compiling company profiles, and benchmarking analysis among different companies).
Overall, the office culture is quite relaxed and you see a more diverse set of personalities in the office.
Part of that is because we work closely with the A&D technical team members, who usually have engineering and geology backgrounds.
Compensation varies from year to year, but generally Canadian banks offer lower base salaries but higher bonuses than US banks.
So I don’t think the total compensation is much different, especially at the junior levels.
Industry Trends: How to Buy Your Own Royalty Stream Near the Arctic Circle
Q: Thanks for adding all that.
You mentioned earlier that a few industry trends (as of 2014) have been impacting the industry in Canada.
Can you elaborate on those?
A: Sure. Two of the main trends are crude-by-rail (i.e., delivering crude oil by railroad rather than traditional pipelines) and royalty stream deals offered by companies that own fee title lands.
The first one is driven by pipeline constraints: there’s surging oil production in the northern US in places like the Bakken shale, and Canadian oil producers have limited takeaway capacity.
There’s limited pipeline capacity connecting the North to Cushing (in Oklahoma, the “pipeline crossroads of the world”), and both of them are full right now so it’s very difficult for Canadian producers to get their oil to refineries.
Plus, a lot of Canadian oil production consists of heavy oil and requires specific transportation mechanisms, so that also limits capacity.
Crude-by-rail is suitable for Canada because it is usually more economical, and it’s actually safer, faster, and easier to transport heavy oil that way.
Heavier oil has a higher flash point (the lowest temperature at which a material can vaporize to form an ignitable mixture in the air), so it is easier to manage via rail transportation as well.
Oil refineries also benefit from the lower-priced Canadian product, and from the added speed (5-10 days by rail vs. 30-50 days via pipeline).
The US has a much more developed crude-by-rail market, but Canada is in the process of catching up.
Q: Great. And what about the royalty stream deals you mentioned?
A: Companies that drill on mineral fee title lands have to pay a royalty fee to the title owner of the land.
This fee is typically based on oil/gas production from that land, and is very different from a working interest because royalty fees involve no operating or capital costs for the title owner: the owners just collect a percentage of all production revenue as a “royalty”.
Companies realized this, of course, and started buying up land titles because of the appealing business model.
It’s like “free money”: they get the top-line revenue and cash flow without the expenses and risk in between.
Take a look at PrairieSky’s financials to see this firsthand: where else can you find a company with close to $90 million in quarterly revenue that also has an 80% operating margin?
And the more companies drill on that land, the more in royalties the title owners collect.
So every bank here is pitching fee title land companies on sales or IPOs, which are some of the hottest deals at the moment.
For example, banks leading the IPO for PrairieSky (a royalty company divested from Encana) increased the shares offered and the price range during the process, and the share price still “popped” by 25% on the first day of trading.
Investors love these businesses, but there are relatively few royalty-exclusive public companies – so banks are pitching companies with fee title assets to spin them off and/or take them public.
Q: So are there any new technical skills required as a result of these new deal types and industry trends?
A: It’s actually hard to value the fee title land companies because they only lease out their lands for other companies to drill on.
So you don’t use a standard NAV model since production is difficult to forecast – you might just make rough estimates for cash flow, or use a 2-stage dividend discount model.
Crude-by-rail firms are more like standard industrials companies, so you can use the normal DCF analysis there.
Q: Thanks for all that detailed information.
So, bottom-line: who would fit in well with an energy IB team in Calgary?
And who would not fit in well?
A: You really need to be passionate about energy, because the material can be dry and technical and you deal with engineers and geophysicists all the time.
So if you’re looking for a fast-paced environment where senior bankers are throwing printers at you and doing crazy things, this is NOT for you.
But if you want a long-term career in energy, great deal exposure, and a more relaxed culture, Calgary is a good bet.
A lot of people here come and go, so banks also want to make sure you’re in it for the long-term – if you’re only interested in staying for a year and then leaving, it’s also not for you.
Q: Great. Thanks for your time!
A: My pleasure.
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Oil & Gas Project Finance in Singapore: All the Upside of Asia, with None of the Risk?
A power plant.
A toll road.
A new oil field that may or may not survive a military coup or a government collapse…
…and a bank contemplating which one it should lend to.
That’s a good way to describe Project Finance in Asia: lots of opportunity, if you don’t mind the occasional hiccup along the way.
We’ve covered Project Finance before, but it’s very different depending on the region you’re in, and our reader today has had unique experience in Oil & Gas and Project Finance in Singapore and mainland China.
He also broke into the finance industry coming from a consulting background – proving that even if you start out your career mining for gold in Saskatchewan, you can still end up in a much warmer place.
Here’s his story, and your crash course on Project Finance in Asia:
Q: Can you summarize your background and how you got into Project Finance?
A: Sure. I had always been interested in oil & gas because my uncle used to work for one of the biggest oil companies in China (think: CNPC, Sinopec, etc.).
So after I graduated from university (one of the top schools in China, followed by a Master’s program in the US), I joined a consulting firm and advised energy companies on compliance and regulations.
Then I did an MBA degree at a Top 20 school in the US and completed an internship at another oil & gas consulting firm, where I first got exposed to capital raising, cash flow projections, P&L forecasts for oil companies, and so on.
That type of work made me a lot more interested in investment banking. Afterward, I moved to Singapore because I thought Asia would be one of the highest-growth regions for oil & gas.
I took your online courses to learn more about valuation and modeling, then did a ton of networking and joined an oil & gas company in a business development role; eventually, I transitioned into Oil & Gas Project Finance at a large bank here.
Q: Previous interviewees and commenters have said that “networking doesn’t work” in Singapore – what was your secret?
A: With the recruiting process, you have to look at two things:
- The effort you’re putting in, i.e. how many professionals you’re contacting and staying in touch with; and
- Your unique background and how you can add more value than other people.
To give you numbers, I got to know over 60% of all oil & gas project finance bankers in Singapore – if you’ve spoken with that many people in one region, you’re bound to start getting interviews.
Then, I leveraged my background to stack the odds in my favor:
- Language – Most of the clients I deal with are Chinese and speak Mandarin. I knew that my Chinese background and language skills would be very useful in Singapore, whereas they wouldn’t help as much in the US or Europe. You really need to listen, speak, and write like a native mainland Chinese person to develop relationships with these clients, particularly the state-owned enterprises.
- Oil & Gas Knowledge – Since energy is so specialized, you really need to know the industry in and out and understand the key drivers, risks, and challenges. I learned some of this in consulting, and then I learned more on my own by reading industry publications and by networking with professionals.
- Modeling Knowledge – All employers, no matter how big or small, want someone who can hit the ground running; they don’t have the time or money to train you. So if you don’t already have these skills, get them!
- Exposure to Both Renewable and Conventional Energy – I’ve had a lot of O&G-related work experience, but my undergraduate degree was in environmental science, and some of my consulting projects were renewable energy-related. This unique combination of “tree hugger” and “oil man” also made me stand out against candidates that had a narrower sector focus.
Q: Logistically, how did you get the interviews that led to this role?
Did you ask about working there, or did they come to you?
A: I had met with bankers at my current firm before and expressed interest in roles here, but nothing came of those initial conversations.
But then late last year, someone on their team left and they needed a replacement ASAP.
I was referred to the Group Head of China at this firm, and I went through a few interviews there with people at all levels. During the interview with the Group Head, they also gave me an oral and written language test to see if I really understood how to communicate with Chinese clients.
I didn’t hear anything for a while, but then suddenly they emailed me on Friday night, sent me a case study, and asked me to submit my response within 10 hours (i.e. by early Saturday morning).
It wasn’t that complicated – an analysis of a company’s cash flows, a build-up of the three financial statements, and a recommendation of the amount of debt to raise – but if I hadn’t completed your online courses or networked with professionals in the industry, I couldn’t have finished it in less than a day.
Q: Yet another reason why you should be careful with the bottles when you’re in the midst of recruiting…
A: I actually had to cancel a session of bottles that night and switch to “Red Bull mode.”
The Asian Landscape
So what does Project Finance in Asia (ex-Japan) look like, and how is it different from other regions?
Most Project Finance teams in Asia are actually headquartered in Singapore, with team sizes ranging from single digits to dozens (our team is one of the largest).
If you look at the league tables in Asia Pacific, the top 10 Project Finance banks tend to be Japanese, Australian, or European names. You won’t see the usual bulge bracket banks as much.
Among European banks, you’ll see BNP Paribas, Crédit Agricole, ING, HSBC, Standard Chartered, SocGen, and Natixis quite a bit.
Regional banks are also expanding their presence in Project Finance, especially firms like DBS and OCBC, along with UOB.
Q: And is everyone from Asia?
Or do you see people from Europe / the US / other parts of the world?
A: It depends on the bank and the size of the team – we have bankers from more than 6 countries, but other teams might only have professionals from one or two countries such as Japan or Singapore.
You’ll tend to see more Europeans and non-Asians at banks such as HSBC, Standard Chartered, and the French firms.
I don’t know why the French are so active in Project Finance, but you run into them everywhere.
Q: Great. And how is the overall deal market different?
A: The main differences:
- Deal Size – The average upstream oil & gas deal in Asia is much smaller than the average deal in the US. The total value might be approximately $200 – $300 million USD, and $1 billion+ deals are rare.
- Liquidity and Pricing – The US market is dominated by a handful of US and European banks, and possibly a few Japanese banks. But there are fewer prominent clients in Asia, so you’ll see everyone imaginable “chasing after” the top names such as Petronas and Sinopec. As a result, those few companies often get better terms and cheaper financing.
This also explains why firms with large Balance Sheets, such as the Japanese banks, dominate Project Finance in Asia: deal volume has to compensate for lower fees.
- Competitors – You won’t see many foreign banks doing Project Finance deals in the US, partially because it is a developed market – but in Asia there’s a much more diverse group of banks competing for deals.
The bond market here is also less developed, and the country-specific risk in Asia-Pac tends to be a lot higher (except for places like Australia and Singapore).
Deals can get scrapped or infinitely delayed because of legal or political issues in these countries.
Q: So within oil & gas, do you see more asset-level deals (Project Finance), or corporate-level deals (normal loans and bonds)?
A: They’re not mutually exclusive, so it really depends on the client’s financial strength.
If the client is very strong (think: Petronas or Sinopec), then it can raise significant capital via corporate loans or bonds at a lower cost than with Project Finance loans.
It’s also faster to close those types of deals (1-7 months from start to end).
But if the client’s track record and credit rating history aren’t quite as strong, or if the company and/or its project partners don’t have as much liquidity, Project Finance is often the better route.
For instance, if a company does not have much cash and it needs to build a CapEx-intensive project, PF provides a good structure because deals often use 60% to 80% debt, which is more like a Leveraged Finance deal.
The downside is that it takes much longer to conduct due diligence and close Project Finance deals (~18 months on average). If you get hit with land acquisition “hiccups,” deals can even drag on for 5 or more years.
A lot of emerging markets are ramping up their infrastructure spending on assets like power plants and toll roads, so you’ll see more Project Finance activities there as well.
On the Job as a Senior Associate
Q: So let’s move from the industry landscape to the job itself.
What’s an average day in your life as a Senior Associate like?
A: There is no “typical day” in Project Finance, as our work is driven by client needs and the corresponding compliance requirements.
But here’s an example of how we are paid to be “abused” by clients in a single day:
I get in at around 9:00 – 9:30 AM, and I usually check emails and news in the first hour.
Between 9:30 AM and mid-day, I respond to clients’ requests and work on deal-related or compliance-related tasks such as “getting to know our customers” (not the most exciting part of the job, but you do get to know the residential address of your clients’ senior directors).
Each bank has internal compliance policies and protocols you have to follow; no one wants to lend to a client with a track record of sanctions, scandals, or broken covenants. This takes up around 20% of my time.
In the afternoon, I spend my time on conference calls with clients and other lenders, and also work on models and written deal documents. This takes around 30% of my time.
Then at night, I spend my time working on presentations and pitch books for clients in order to present our financing recommendations to them. This takes up around 20-30% of my time.
Then there are internal credit applications we have to complete in order to win firm-wide approval to lend money – this involves filling out the application, communicating with internal and external parties, and answering follow-up questions. It takes up around 20-30% of my time.
Most people here leave around 7 – 8 PM (maybe a 55-hour workweek on average), but I’ve been leaving more like 10 PM to midnight because I joined the bank more recently and want to take the time to learn everything in-depth.
Q: Great – and what about the technical work itself?
How is it different from what you do in other groups?
A: It’s similar to what your previous Project Finance interviewee described: everything is cash flow-based, and the models are much more detailed and granular.
Keep in mind that valuation multiples are not really “valuation” – they’re shorthand for valuation.
If you know the discount rate, a multiple always implies a specific long-term free cash flow growth rate.
So we avoid multiples-based valuation altogether and focus strictly on cash flows.
The concept of “Terminal Value” doesn’t exist because we project cash flows for decades into the future – until the resource itself runs out or the asset stops operating.
You’ll see spreadsheets here with 2,000+ rows, and you might go as granular as modeling the revenue and cash flows from thousands of separate customer contracts or oil wells. And then you need to call in consultants to verify each line once you have the initial numbers.
That level of detail is rare in M&A models because you don’t have the time or the motivation: a lot of analysis is done at the last-minute and the bank is not risking its own capital, so bankers don’t care as much about footing all the numbers.
In Project Finance, there’s also a lot more focus on downside scenarios: even if the asset collapses or has to be shut down, can we still get our money back?
If not, how can we mitigate risk and make the deal more appealing? You need to explain these mitigants clearly in your credit application, or you’ll be grilled by the credit team.
So you’ll see models with 10-15 different scenarios that take into account factors like cost inflation, project delay, volume and pricing changes, and so on.
It’s rare to show that many different scenarios in IB models and presentations, partially for time/motivation reasons, and also because it doesn’t exactly look good to march in and show a client all your “Downside” cases.
Q: Yup, very true. Any other differences to note?
A: There’s also a difference between being the Financial Advisor (FA) and Mandated Lead Arranger (MLA).
FAs act on behalf of the sponsors / borrowers to structure financing schemes, and they help raise capital from different sources at the optimal terms.
MLAs act as lenders to review project structures, obtain internal credit approvals, and enter into loan documentation to finance the project with loans.
Typically, the bank acting as FA will also participate as the leading MLA.
The client mostly cares about how much capital you can commit to the project, and at what cost.
Q: Great, thanks for sharing all that. What about advancing on the job?
Is it any different if you’re working at a Japanese bank in Singapore?
A: At the junior level (below VP), financial modeling and documentation skills are critical for your professional growth.
At the VP-level and above, skills such as deal origination and client relationship cultivation become more important.
And just like in other finance roles, you also tend to get promoted every 2-3 years here.
One difference is that there’s more hierarchy at Japanese banks. If you know anything about their culture, this shouldn’t surprise you.
- Senior Associate
- AVP (Assistant Vice President)
- VP (Vice President)
- FVP (First Vice President)
- SVP (Senior Vice President)
- Deputy Manager
- General Manager
So you may get promoted more slowly due to the additional levels.
On the other hand, there’s also more job stability in Project Finance and at Japanese banks in general.
Your chances of suddenly being fired, downsized, or “restructured” are lower than in traditional IB roles – certain Japanese banks didn’t even cut their Project Finance teams during the last financial crisis.
Q: Interesting points there.
Do you have a sense for how the European banks differ?
A: I can’t speak to the cultural / work hierarchy differences, but here are a few observations on typical clients and regional / industry strengths:
- Japanese Banks: They are most comfortable with big-name clients, and tend to offer debt with lower pricing and longer tenor.
- HSBC and Standard Chartered: They target clients with weaker financial profiles, and charge higher fees for the greater risk they take on.
- French Banks: BNP Paribas and Crédit Agricole are very strong in upstream oil & gas financing; BNP even has a dedicated Reserve-Based Lending (RBL) team to cover that segment. Crédit Agricole is more active in the EMEA region. SocGen has a solid track record on financial advisory to liquefied natural gas (LNG) projects.
Moving Up, Moving Out, and Moving On
Q: Since you’ve worked in a few different oil & gas and advisory-related roles, it might be interesting to compare them.
What was it like doing business development at the oil & gas firm vs. doing Project Finance for oil & gas companies at a bank?
A: I wouldn’t say one was “better” or “worse” – it comes down to what you’re looking for:
Work-Life Balance: On the corporate side, you have a much better work-life balance. Hours are not much longer than a standard workweek, and you’ll almost never be in the office until midnight, let alone 2 AM.
Pace: At a corporate, you’ll only work on 1 or 2 deals at a time over the course of 1 or 2 years. You won’t even work on other transactions until you close the deal you’re working on.
At a bank, it’s much faster-paced and you’ll end up switching deals, dropping clients or potential financings, or suddenly having to create a pitch at the last-minute.
Personality: At a corporate, you won’t meet as many “alpha”-type people who are driven to close deals as soon as possible.
In banking, well, you know that classic M&I story about the VP who punched through his car door window, right?
Nature of the Work: The analysis tends to be simpler at a corporate because you focus on simpler metrics like the IRR or NPV of projects. If they pass your threshold, you’ll move forward.
But at a bank, you look at credit ratios like the DSCR – Debt Service Coverage Ratio (unfortunately, not the “Drink Service Coverage Ratio”) – and the LLCR (Loan Life Coverage Ratio), to make sure that projects generate enough cash flow to repay debt.
You also get exposed to a variety of deals, and you need to evaluate everything from the economics to the legal side. You also have to deal with compliance and internal procedures.
You put a lot more work into each deal since you have to figure out how it fits in with the rest of your portfolio – and you need to complete more tasks and coordinate with other parties/lenders to close the deal.
Q: Great, thanks for that comparison and for the reference to that classic story.
Any thoughts on how Project Finance compares to traditional investment banking roles?
A: In short:
- Pay: The base salary is about 10-20% lower than IBD base salaries, and junior-level bonuses represent about 6-10 months of your salary.
- Hours: They’re much better than in IB. Weekend work is pretty rare, and you even get to go home before you want to pass out.
- Skill Set: PF is way more technical as you need to drill down to every last detail of models, contracts, and documents. IBD is more of a sales-driven business so sales acumen is critical for senior bankers, although financial modeling is still important for junior roles.
Q: Sounds good!
Finally, what are your exit opportunities like if you work in oil & gas project finance in Asia?
A: Most people tend to stay in oil & gas project finance; sometimes they move to Hong Kong because the taxes are also low and because there are more generalist groups there (in case they want to move to another industry).
Moving to traditional buy-side roles is difficult because there aren’t too many energy-focused buy-side funds, or even credit-focused buy-side funds, in Singapore.
Q: And what are your own future plans?
A: I’m planning to stay for at least another 3 to 4 years to gain more deal exposure and experience working on bigger projects.
But eventually, I want to move into oil & gas advisory at a bank or go to the buy-side.
Q: Great, thanks for your time.
A: My pleasure.
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