How To Start An Investment Bank

In this article, we’ll be covering the details involved in starting an investment bank.

We’ll also be looking at the basic operations of such institutions including shedding light on what investment banks do.

As you read on, you should understand the basic processes involved in successfully starting and running an investment bank.

Investment Bank Startup Guide

Financial institutions engage in a wide range of transactions including investments. Setting up a banking operation isn’t easy at all as it requires a whole lot of strategic actions.

This article takes a look at starting an investment bank. What’s the process is like and what must be put in place in readiness for the takeoff of operations.

About Investment Banks

Investment banks are financial institutions that offer a wide range of financial-related services and solutions. They serve institutions, corporations, and governments as well as individuals.

Here, services are of different kinds and include sales & trading, underwriting, and asset management.

Other forms of services offered include equity research, as well as mergers & acquisitions. So, what are these about? Let’s briefly explain each of these services.

  • Sales & Trading

Under this type of service, buyers and sellers of securities in the secondary market are matched. Asides from matching up buyers and sellers, professionals also trade the institution’s (investment bank) capital.

  • Underwriting

This type of service caters to the primary market and involves the raising or sourcing of capital that mostly happens between investors and companies seeking investments.

The process of raising such capital is known as the IPO.

  • Asset Management

As the name implies, asset management involves the management of investments for a pool of investors. Such investors could consist of either individuals or institutions or companies.

A variety of investment vehicles exist for such purposes.

  • Equity Research

Under the equity research arm of investment banks, there’s a deliberate aim to guide investors on the best investment decisions.

Like most of the points mentioned, there are finer details involved with each of the steps mentioned.

  • Mergers & Acquisitions

Investment banks also provide advisory roles or middlemen between sellers and buyers of businesses. They help manage the merger and acquisitions processes, thus allowing it to run smoothly.

Steps Involved in Starting an Investment Bank

Investment banking is a serious business and requires proper preparation such as identifying necessary skills required, market research, understanding your competition, and comparing your interests with available options.

What more? A thorough understanding of risks and challenges is necessary. Of course, you’ll need to choose a more suitable legal entity.

Your business plan must be properly written in addition to picking the right name. Startup capital is crucial to your success. Get the right employees.

  • Identifying Necessary Skills

Certain skill sets are vital for starting and operating an investment bank.

Such skills include business valuation, financial modeling, sales & business development, relationship management, transaction documents, pitchbooks & presentations, as well as negotiation.

These skills must be possessed by employees to guarantee the smooth takeoff and operation of your investment bank.

  • Market Research

Feasibility or market research is a vital component of starting an investment bank.

An understanding of the financial industry must be had to be able to tailor your services towards meeting the demands of the market.

More important is the need to improve your odds of success in the industry.

  • Understanding your Competition

When it comes to investment banking, it’s a highly competitive industry that requires finding out what’s involved in terms of competition.

Geographical boundaries don’t come in the way when it comes to investment banking.

With better knowledge about your competition, you’re able to better strategize towards getting your fair share of the market in terms of clients.

  • Comparing your Interests to Available Options

A successful investment banking operation will depend on a decision on whether to start your operations from scratch (which will involve more work) or to buy into a franchise.

The franchising model tends to have the most success due to the adoption of a proven business model.

  • Understanding of Risks & Challenges

Before getting involved with any business venture, it’s necessary to first understand its possible risks and challenges. These will always come up at different stages of the business.

The early stages tend to be the most difficult as they require more work.

It’s important that you fully understand any risks associated with investment banking. Getting to know these risks helps you anticipate and adequately prepare for them.

  • Choosing the Right Legal Entity

The choice of a legal entity is crucial because it helps with easy navigation of the business arena.

Certain legal entities give better leverage than others depending on your type of business operation. You want to go with one that doesn’t impede your growth and development.

You might want a professional to guide you through the processes involved as well as the benefits and disadvantages of each legal entity.

  • A Sound Business Plan

This is one of the first things that need to be taken care of.

You want to have a well-structured plan to help improve your chances of success. Writing an investment or private banking business plan can be a painstaking process but is worth the stress.

Of course, you’ll need the help of professionals in putting your plan together. An accountant, as well as a legal expert, will all prove helpful in getting the work done.

  • Pick an Appropriate name

What name do you wish to call your investment bank?

This might seem like an easy undertaking on the surface but the reality is quite different if you have no idea of what it takes to get the right name.

Research through your list of possible names and have them checked for availability before registering your investment bank business.

  • Get the Needed Funding.

Capital is crucial for starting an investment bank.

The amount required largely depends on your scale of operation. Bigger investment banks require significant startup capital to kick-start their operations.

As seen so far, starting an investment bank isn’t an easy process and requires putting in the work needed to get things started. It’s a serious undertaking that must be viewed as such.

This should also reflect in the actions you take towards making it a reality.