Choosing an Investment Bank? 3 Things to Look For
For public and mature private companies in need of financing, finding the right investment bank is a vital early step. Choose wrong, and your deal could sour, or you could wind up accepting an unfavorable valuation. But the right banker will guide you through your IPO, follow-on investment, or other financing deal while maintaining a long-term relationship with you that could bear fruit for years to come.
So what should you be looking for? For each investment bank you consider, you’ll want to look hard at three things above all: the quality of each firm’s banking team itself, the credibility of its research team, and the relationships that you can forge with its people, as well as their own relationships with the Street.
Let’s cover each of these three key areas in more detail to inform your next evaluation.
The Banking Team
The bankers themselves are focused on the transaction: It’s their job to help you successfully complete whatever deal you’re trying to make, whether that’s a private financing, an IPO, a post-IPO follow-on round, or something more exotic.
The banking team should be comprised of a senior-level banker, as well as some mid- and junior-level team members. Each group will be responsible for different aspects of your transaction, and you’ll work closely with each, so it’s important for you to know exactly who is accountable for what. High finance is complicated, and some deals in particular, like IPOs, are extraordinarily complex and notoriously unwieldy. A good investment banking team must possess a range of professionals with diverse skill sets, and must be able to manage huge projects efficiently and transparently.
You should look for a banking team that also has:
- Experience with the particular type of transaction you’re doing. There are many ways to raise money. Each transaction type is unique, and the investors for each are different. For example, an investment bank that specializes in taking firms public might not be the right fit for a post-IPO follow-on round, while one that specializes in PIPE transactions (private investment in public equity) may be a poor choice to manage a private company’s late-stage financing.
- Experience in your sector, and preferably your subsector. If you’re a medical device company, an investment bank that’s worked mostly in pharmaceuticals will likely lack the sector expertise necessary to help you position your story best and will also lack relationships with the specific buy-side analysts you need. The best banking team for you is one with detailed knowledge of your industry. They should understand the competitive landscape, have relationships with industry analysts and investors, and even know who might someday acquire your firm.
- Recently completed a transaction in your sector. The world of finance is in constant flux. What excited investors six months ago may be exactly what they don’t want today. It’s vital that your banking team knows what’s hot – and what’s not. The worst thing you could do is pitch an investment story that sounds a lot like one that recently disappointed the Street. On the other hand, if there’s a way you can position your story so that it dovetails with a recent big winner, you’ll want to do that – and your banker needs recent experience in your sector in order to help you.
The Research Team
Your investment bank’s research analysts play an important role in selling your story to the Street, so you’ll want them to have buy-side credibility and followers, especially within your sector (and even subsector, if possible).
And because the research team will be talking your story up to analysts and investors, it’s important that they go well beyond simply knowing the story – they must believe in it. You want them singing your praises enthusiastically, not spouting the party line.
At the same time, their detailed knowledge of your sector and its buy-side analysts can serve as a vital resource as you work with the banking team to build your investment deck and fine-tune your story. A good research analyst will know which investment stories are selling, and which aren’t.
This role is so vital, in fact, that it’s not unusual for a company to hire a less-than-stellar investment bank just to access its highly regarded research analyst, giving the bank a co-manager role on the investment deal even though the company doesn’t need its banking team to do much.
And that’s perfectly fine. It’s quite common, especially in larger deals, for companies to include more than one bank, although it’s important for companies to identify the lead bank in such cases. Having multiple banks included on your deal is a way to access the best individuals on each team.
Relationships Make It All Work
Just as you need to work with a bank whose professionals possess the right kinds of expertise, it’s important to remember that you’ll be working with all of them closely, and for a very long time.
This may seem obvious, but you want to like them. You want them to like you. And most importantly, you need to trust them.
On the banking side, for example, it may seem tempting to focus all your attention on the senior banker who will head up your deal. But that would be a mistake. You’ll probably spend more of your time with the bank’s mid- and junior-level employees, the ones who’ll be up late with you working on the content of your investor deck, among many other tasks.
Take the time to get to know everybody. Of course, it’s still important to have the attention of the senior banker. He or she will review your presentation and sign off on it. And, the senior banker has the experience to steer you clear of mistakes, like trying to go public in a market that’s not ready, while also spotting subtle opportunities that you’d otherwise miss.
Finally, just as your relationship with your investment bank is important, your bank’s relationship with Wall Street matters, too. As I’ve been suggesting, your researchers’ and senior bankers’ following with buy-side analysts, as well as their relationships with rival executive teams and their knowledge of your competitive landscape can all benefit you as you finalize your deck and hone your story.
Thinking of taking your company public? For additional resources, download our Insider’s Guide to Going Public, which offers our best advice for each stage of the IPO process. At Westwicke, we’ve helped dozens of companies vet and select the right investment banking team to manage their deals. We’d be happy to help you, too. Reach out to start a conversation.
Caroline Corner is a Managing Director on Westwicke's medical technology team. She has extensive experience in medical devices and diagnostics. She has a BS in biological systems engineering from Virginia Tech and a Ph.D. in biological engineering from Cornell University.
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