What Is Investment Banking?
Investment banking is a specialized segment of banking that helps organizations raise capital and provides advisory services for complex financial transactions. Unlike retail banks that serve individuals with checking accounts and mortgages, investment banks work with corporations, governments, and institutional investors on large-scale financial deals.
Key Functions of Investment Banks
- Underwriting: Helping companies issue stocks and bonds to raise money
- M&A Advisory: Advising on mergers, acquisitions, and company sales
- Sales & Trading: Buying and selling securities for clients and the firm
- Research: Analyzing companies and markets for investors
- Asset Management: Managing investments for institutions and wealthy individuals
Investment Banking vs. Commercial Banking
| Aspect | Investment Banking | Commercial Banking |
|---|---|---|
| Primary Clients | Corporations, governments, institutions | Individuals, small businesses |
| Main Services | Capital raising, M&A, trading | Deposits, loans, mortgages |
| Revenue Model | Fees and trading profits | Interest on loans |
| Regulation | SEC, FINRA | FDIC, OCC, Federal Reserve |
What Do Investment Bankers Do?
IPO Underwriting
Help private companies go public by structuring the offering, pricing shares, and selling them to investors.
M&A Advisory
Advise companies on buying other businesses, selling divisions, or merging with competitors.
Financial Modeling
Build complex spreadsheets to value companies, analyze deals, and project financial outcomes.
Pitch Books
Create presentations to win new clients and pitch deal ideas to corporate executives.
Debt Financing
Help companies issue bonds or arrange loans to fund operations, acquisitions, or expansion.
Due Diligence
Analyze target companies in detail to uncover risks and validate valuations before deals close.
Top Investment Banks (Bulge Bracket)
The largest, most prestigious global investment banks are known as "bulge bracket" firms:
- Goldman Sachs
- Morgan Stanley
- JPMorgan Chase
- Bank of America Merrill Lynch
- Citigroup
- Barclays
- Deutsche Bank
- UBS
- Credit Suisse (now part of UBS)
Elite Boutiques
Smaller firms focusing on M&A advisory with prestige comparable to bulge brackets:
- Evercore
- Lazard
- Centerview Partners
- Moelis & Company
- PJT Partners
Investment Banking Career Path
| Position | Experience | Base Salary | Total Comp (with bonus) |
|---|---|---|---|
| Analyst | 0-3 years | $110-125K | $150-200K |
| Associate | 3-6 years | $175-200K | $250-400K |
| Vice President (VP) | 6-10 years | $250-300K | $400-700K |
| Director/SVP | 10-15 years | $300-400K | $600K-1M+ |
| Managing Director (MD) | 15+ years | $400-600K | $1M-10M+ |
Note: Compensation varies significantly by firm, location, and performance. NYC and London typically pay highest.
How to Become an Investment Banker
Education
- Undergraduate: Finance, Economics, Accounting, or related field from a target school
- Target Schools: Ivy League, top business programs (Wharton, Stern, Ross, etc.)
- GPA: Generally 3.5+ expected at top firms
- MBA: Common path for career changers or to reach Associate level
Key Skills Needed
- Financial Modeling: Excel mastery, DCF analysis, LBO models
- Accounting: Understanding financial statements
- Valuation: Comparable analysis, precedent transactions
- Communication: Clear writing and presentation skills
- Work Ethic: Ability to work 80-100 hour weeks
Breaking In
- Internships: Summer analyst programs are the primary path to full-time offers
- Networking: Informational interviews, alumni connections, LinkedIn outreach
- Technical Prep: Practice modeling tests and technical interview questions
- Behavioral Prep: "Why investment banking?" and "Walk me through your resume"
The Reality of Investment Banking
Pros and Cons
Pros:
- High compensation
- Prestigious career
- Strong exit opportunities
- Work on major deals
- Accelerated learning
Cons:
- Extremely long hours (80-100/week)
- High stress and pressure
- Work-life balance challenges
- Hierarchical culture
- Burnout risk
Exit Opportunities
Investment banking is often seen as a stepping stone to other finance careers:
- Private Equity: Buying and improving companies (most common exit)
- Hedge Funds: Investment management and trading
- Venture Capital: Investing in startups
- Corporate Development: M&A roles at corporations
- Business School: Top MBA programs value IB experience
- Startups: Finance/strategy roles at growing companies
Frequently Asked Questions
Do investment bankers invest money?
Not directly. Investment bankers advise companies and help them raise capital, but they don't invest the firm's or clients' money like portfolio managers do. The name is somewhat misleading for retail investors.
How much do investment bankers really make?
First-year analysts at top firms make $150-200K total compensation. This increases significantly with seniority - Managing Directors can earn $1-10M+ annually, though this varies widely based on deal flow and firm performance.
Can I become an investment banker without a finance degree?
Yes, but it's harder. You'll need to demonstrate strong quantitative skills, learn financial modeling independently, and likely pursue an MBA or win a competitive internship through exceptional networking.
Is investment banking worth it?
It depends on your priorities. If you value high earnings, prestige, and learning opportunities - and can handle extreme hours for 2-3 years - it can be an excellent career launchpad. If work-life balance is paramount, other paths may be better.
