When you find out about the working hours of investment bankers, you might wonder: Why should I put myself through the hard work of 100 hour work weeks? The short answer: The golden exit opportunities.
A big reason why investment banking is so appealing under very stressful working conditions is the exit opportunities. Exit opportunities are what most do after an investment banking career. Many treat investment banking as a stair-step to many high profile jobs with 6 or 7-figure compensation.
1. Why Look For Investment Banking Exit Opportunities
Investment banking is one of the most stressful jobs in finance involving long hours, multi-tasking, being extremely productive, and being result-oriented. Most banks have a strong ‘Up or Out’ culture where the bottom feeders consistently move out of the system. A lot of people working at IB firms therefore make a move to other industries where they feel they can apply their knowledge and experience they have acquired in investment banking.
As an investment banking analyst, you develop many technical skills relating to corporate finance, valuation, deal execution, business operation and gain great client exposure. The skills you develop as an investment banking analyst are highly desired by private equity firms, hedge funds, and large companies. And in terms of working hours or compensation, these “exit opportunities” are much more lucrative.
2. Best Exit Options After Investment Banking
The best exit opportunities for investment bankers can be categorized into 3 groups:
- Buy-side jobs: Private Equity firms, Hedge Funds, Venture Capitals
- Corporate Development tracks: Corporate Development, Corporate Finance.
- Others: Startups, Strategy Consulting, Advisory for large companies, and MBA programs.
Note: Investment banks are commonly labeled “sell-side,” this is because the investment banks sell securities on behalf of corporations that need capital raising to the “buy-side”. The “buy-side” firms (Private Equity, Hedge Funds, and Venture Capital) use their own capital to make investment decisions. To learn more about the difference between buy-side and sell-side, read here.
The most natural exit path for junior bankers tends to be moving to the buy-side due to the overlap in skills and technical training that is required in both the jobs. These “buy-side” investments are made in the millions or billions of dollars so top-talent is recruited out of investment banking every year. Buy-side firms are generally leaner and do not spend time extensively training the employees. They expect employees to have deal experience and be able to hit the ground running.
However, it becomes difficult to move to buy-side roles from senior banking roles as skill sets start to diverge from mid-tier positions. Mid to senior employees at IB firms typically exit into corporate roles where they can work in strategy roles, be part of the CEO’s office, lead corporate development roles or take up CFO roles in companies as it aligns with the skills they develop in investment banking.
Besides these interesting popular roles at buy-side and corporate development, some investment bankers can switch their career to a totally different field, it’s not necessarily irrelevant to finance though. Some with entrepreneurship can open their own startup companies. Some can seek ways to Strategy Consulting while others pursue higher education such as MBA programs to broaden their horizon.
Let’s zoom into each category with various destinations to see how they are appealing to former bankers and how current bankers can take advantage of their investment banking jobs as a stepping stone to these roles.
2.1. Private Equity
Private Equity is simply understood as a firm raising capital from outside investors and they use this capital to buy private companies to operate, improve them, and then sell them to make a return on investment. Working in private equity, you’ll be finding and executing those deals on behalf of clients or your business.
Private equity may be your next big thing if you would like to switch from investment banking. But there are a few things:
- First and foremost, private equity firms want analysts that have spent at least 2-3 years at big banks and had good deal experience. That is, analysts that played significant roles on live transactions, and were top in performance among their peer group.
- If you want to go into private equity (PE) then get into the M&A for a sure bet. You can get into PE from an industry group, but your choices will be limited to only PE firms in that industry. In general, M&A will leave the most doors open to you after 2 years.
- Private equity firms also want analysts with excellent financial modeling, valuation and other technical skills.
- In addition, it’s important to demonstrate a solid understanding of the business side of things. In other words, what are the key drivers of a company’s growth, where are the risks, what types of costs might be excessive, etc.
- Lastly, but just as important, PE firms want to hire analysts who have a high level of maturity and excellent communication skills.
To know more about Private Equity, you may refer to the following articles:
2.2. Hedge Fund
Hedge Fund is an investment pool that gathers capital from only institutional and accredited individuals to invest in a wide range of assets. Hedge Funds use complex algorithms and well-tested risk management techniques to secure the highest rate of return regardless of the market climate – making so-called “positive absolute return”.
As you work in a hedge fund, you’re responsible for making decisions about where and how to invest the fund. Hedge fund management can be extremely lucrative but it’s also fairly high stakes, so if you’re leaving investment banking for a cruisier life, this might not be the job for you.
This exit opportunity is better for those who are more inclined towards markets and interested in trading transactions. For analyst positions at fundamental based hedge funds, you will need to demonstrate excellent technical skills, especially valuation and modeling. Moreover, you will need to show that you not only have a strong interest in investing, but that you have the ability to make or recommend investment decisions based on your analysis. This is a key difference between the buy-side (e.g. hedge funds) and the sell-side (e.g. banking).
To know more about Hedge Fund, you may refer to the following articles:
2.3. Venture Capital
Want to be part of the next big Uber or SpaceX, then the world of venture capital might be the next step for you. Venture Capital provides financing offers or other offer formats, such as technical or managerial expertise, in exchange for stakes in a company that has long-term growth potential. Venture Capitalists will nurture a new business until it reaches a sizable scale and can be sold to a corporate or IPO (initial public offering). Extra bonus, you might get to work with unicorns (startups that reach a value of over $1 billion) and angels (investors who can throw in the big bucks).
This path will provide you with a better lifestyle with more flexible working hours, as you can choose your hours – how much you work, which projects you will invest in and how much you will invest.
Since you invest in early-stage companies, You can’t analyze the cash flow of a company that generates little to no revenue. There’s less financial analysis, and you spend most of your time analyzing the market, finding interesting companies, and networking.
If you want to get into venture capital then get into the technology group. However, only later stage VCs really care about investment banking experience (for example, the firms that invested in Facebook in 2009 — 5 years after it started!) If you are interested in VC because you want to find the next big thing then it’s probably best to go work for a startup as opposed to an investment bank.
To know more about Venture Capital, you may refer to the following articles:
2.4. Corporate Development
In particular, the main work to be done by a corporate development department is to manage M&A and restructuring for a corporation.
Working in corporate development is a great career path for those who want to continue to work on deals, specialize in a specific industry, and have a better work-life balance (but of course at the expense of getting paid less than a banker would).
Hours are better in general, but just like in investment banking, they can vary a lot depending on if you are closing a deal.
To know more about Corporate Development, you may refer to the following articles:
2.5. Corporate Finance
This option slightly differs from other investment banking exit opportunities since its nature of work is internal work. With a corporate finance career path, your main task is to deal with internal finance, regarding the company’s budgeting, internal processes, and financing needs. Chief Financial Officer (CFO) is the end goal of the corporate finance career path.
You’ll earn less than in the PE/HF/AM exit opportunities, but you’ll also have better hours and a more regular lifestyle. Working in corporate finance will give you the chance to work for a company you’re really passionate about, or specialise your knowledge towards a particular industry.
2.6. Consulting/ Advisory
If what you love most about investment banking is working with clients, solving problems and providing advice, then management consulting might be the next best step for you. Often, consulting firms will have a flatter structure, allowing you greater opportunities to work with partners and clients directly. Within consulting you’ll have the chance to work across various industries, like retail or technology. Keep in mind that you can also expect some big hours, pressure and travel when working in consulting.
There’s a reason why Silicon Valley is the only real competition for Wall Street when it comes to securing the very best talent. Namely, the salaries and benefits are potentially just as rich if not richer. Silicon Valley firms are also famous for pushing a “let’s improve the world with our product” philosophy that’s attractive to idealistic workers — and perhaps those coming from a strictly profit-motivated background in finance.
If you’re interested in making the move to Silicon Valley, FinTech (Financial Technology) is the logical choice. A finance background is an obvious plus and, even more importantly, FinTech is growing at a staggering rate. The global FinTech investment market is projected to grow by nearly 55-percent between now and 2020.
This combination of growth potential — and a banker’s existing expertise and skill set — make FinTech a great exit option.
2.8. MBA Programs
It is the most popular track for most Investment Banking analysts. The pros of this path is you can emerge yourself into a studying environment again to reflect about what field you have interests in. The MBA program can be a stepping stone to jump into more high-profile finance jobs such as Private Equity firms, Hedge Funds, Venture Capitals. The cons of the path is it will take one to two years to complete the degree and your career progression can be slowed compared with your colleagues at the former firms in the first phase.
2.9. Startups/ Entrepreneurship
It is not exactly the traditional investment banking exit opportunities. The investment banking skill set is somehow not particularly helpful. The pros of this path is you can run your own company in your way, nevermind worrying pressure from high levels like investment bankers. The cons of this path is you have to bear the responsibilities if things go wrong, and the way of getting back into finance is impossible if you’ve run your own business for a long period of time. And it would be tougher to work in a normal company after years and years you dedicate to your own business.
Talking about ‘exit opportunities’ is all the rage in the world of investment banking, both offline and online. While it is completely legit to consider your next steps and know how the job you’re doing right now could set you up for the future, career prospects after investment banking shouldn’t be the only reason you enter the field. As you can tell from what we’ve written above, many of the common steps after investment banking feature the same skills and day-to-day experiences of investment banking, but in a different context or from another angle. Be excited about the opportunities that can come after investment banking, but make sure you’re passionate about the field too!