The Best Explanation Of What Investment Bankers Do We've Ever Heard

Mergers and Acquisitions ^ | 10/26/2012 | Brian DeChesare

[SeekAndFind]

I've seen many explanations of what investment bankers actually do, but they've all been either bad or boring.

I can sum up what we do in 2 words and 1 picture:

Ari Gold.

Investment bankers are agents, just like Ari.

We don't create anything and we don't buy anything; we just sell things that aren't ours to begin with.

And we make a lot of money doing that, thank you very much (more on investment banker salaries).

Business::Entourage

If the business world were like Entourage, bankers would be the agents, private equity firms and large companies would be the studios, and companies would be the actors and movies.

Private equity firms buy and sell companies; studios buy and sell actors and movies.

Bankers make introductions and try to sell companies; agents make introductions and sell their clients.

Vince Chase would be Facebook: young but huge success in store, even with occasional missteps along the way.

Medellin would be WebVan. Or maybe Kosmix.

Just like in Hollywood, starting or running a company (movie/actor) carries the most risk but can also the most fun for those involved.

If you look at all the characters in Entourage, it's hard to argue that Vince doesn't have the best life.

But it's not easy to get there and it's far riskier than being the agent (banker) or the studio (private equity firm).

The agents and the studios, on the other hand, have an easier but less fun job: they must distribute risk so that they don't get screwed.

It's just like Terence says when chatting with E at the end of Season 2:

“We all start out believing that our clients care about us, but in reality they don’t. There’s only one way to look at clients, Eric. Like stocks. Invest without emotion. Diversify.”

So when choosing a career, don’t ask what job you want.

Ask yourself, “Would I rather be Vince, Ari or the head of Warner?”

If you’re an Ari guy or girl, you might just be a banker.

And If You Haven’t Seen Entourage…

First, you really need to watch Entourage or you have no right to work in finance. So go watch it.

But just in case you haven’t yet: think of investment bankers like real estate agents but for companies instead of houses.

Just as a real estate agent introduces buyers and sellers of property, bankers introduce buyers and sellers of companies and try to make a deal happen.

And just like real estate agents, the only thing at stake is our time – we have no money invested on either side.

But What Will You Do as an Analyst or Associate?

The above is the “high-level” view of what investment bankers do.

As a junior banker, you’re more like Lloyd: you grab coffee for Ari and take care of his grunt work.

[proxy_user]

Being able to make a sale is a highly valuable skill. Salesmen at all levels are well-paid. The typical compensation model is a percentage of the deal, so if you manage to sell someone a large company, you’re going to make a lot of money.

[Be Free]

Are they “overpaid”? Who is to say? The sellers of the company are the ones doing the hiring, and they do so pretty consistently. It is the job of the investment banker to maximize the sales price for the seller. They do this by doing what the seller almost never is able to do themselves - identify potential buyers, market the story, negotiate the deal, and more.

In my company, I’ve been involved in both buying and selling. We almost always have to deal with the bankers when buying and, for us, they bring order and predictability to the process. Often, they can be a voice of reason back to the seller, when said seller thinks their company is worth more than it really is.

Useful role? Yes. Overpaid? Not when the payment is voluntarily agreed by the seller.