Choosing an investment bank is serious business and you really do not want to just go on Google and find the first lender you see, expecting it to fund your project at a moment’s notice.
If you are looking to raise capital for your business or to help jump-start your ideas, what do you need to do?
1. Learn more about investment banking.
The sad truth about investment banking is that very few people know what it is and what they should expect from it. It is imperative that you know how investment banking works and what it could deliver. This way, you would make very informed decisions, especially those pertaining to which investment banker you would go to.
Ask the banker about their contacts at the venture funds that they plan to approach for your business or project. Ask them how they plan to pitch your business to these funds and get regular status updates from them.
2. Be sure that your investment bank is well-versed in your business and can adequately pitch your ideas, discuss your proposals and basically speak in your behalf.
Remember that your investment banker will be the one who will represent you and sell your ideas to investors. So they should be knowledgeable about your industry and your business in order to be able to convincingly and intelligently talk about it.
3. Make sure they are well-connected.
One of the benefits of talking with investment bankers or investment firms that have years of experience in your field, industry or business is their networks.
If they had been dealing for other companies in your industry, they will know the people who would be willing to invest in yours, as well as the other players in your industry.
Ask the hard questions such as:
- How will you communicate with prospective investors or buyers? Will you be approaching financial buyers? Our competitors?
- What types of transaction structures should you expect and would there be any foreseeable problems to these transactions?
- Do you have any comparable transactions in the past that we can use to gauge our situation?
- Was there an instance where you failed and why were you not successful in selling?
4. Choose an investment banker or firm whose aim aligns with yours.
You would need to know what you want from the deal. For example, if you are looking for buyers or investors who are easy to deal with, then the investment banker should be able to scout your project to a lot of people. If you want the highest price to sell your projects, then the investment banker should be very aggressive in pricing them up.
5. Be sure that you do not think of the firm as just an investment bank but as a partner as well.
It does not matter what you think of your project or idea; it is a business. And for that, you should think about not just getting an investment banker or someone who provide investment banking services, but also someone whom you can trust as you would trust your business partner.
Narrowing Down the List
On top of these five things that you need to do in order to come up with a list of potential investment firms or investment banks, you should also do the following to make sure that you make the right decision in choosing:
Be objective. Draw up a list of criteria that you are looking for in an investment bank or investment banker, and you should be objective in evaluating potential investment bankers against this list.
What are some of the criteria that you should be looking for in an investment bank? Let’s take a look at the results of a 2012 Thomson Reuters survey wherein both large enterprises and small businesses were asked about the things that they consider important to them when choosing an investment bank.
The survey finds that in-depth knowledge of the industry was the top criteria for most people. Close to 7 out of 10 respondents indicated that they wanted their investment bank to be at the forefront of the investment banking industry.
Money matters, as well, with 45% of respondents saying that the company’s fee structure is very important.
What else? Around 43% said that it was important for their investment bank to have a good relationship with a bank. Other important criteria are their ability to finance the deal and how they handle the deal and execution.
Of course, when it comes to your personal investment banker, you will want to have your own set of criteria. You may want to work with somebody who is good at communicating or who could make you feel at ease. You might want someone who would be able to digest the different options for you and present you with the best ones, or you might prefer somebody who gives you all the options available and let you decide which one you want to pursue. Or you might want somebody who you could talk to about anything, even those outside investments. It never hurts to deal with a professional who aligns with your own personal biases and philosophies.
Do not rush. Hasty business decisions are not going to be a good idea if you are looking for someone who is going to be the equivalent a business partner. Make sure that you know your investment bank through and through before you make a decision. Remember that it is better to delay things a little while you find the funds for it rather than be stuck with a shady investment bank even for just a short time.
Look into your potential investment firm’s business ethics. You are going to deal with somebody who is going to handle the financial side of your business. Ethics should be at the top of the list of things you should be looking into. Be sure that the investment bank and the person you are working with both like to keep things aboveboard.
So these are the things you need to know if you plan to or if you are in the process of looking for an investment bank.