It's a key question that students interested in finance ask when hearing about the investment banking industry. It's also a key question that is asked in every investment banking interview. We'll break down a few reasons why investment banking is the ultimate starting career path in finance and why so many students and professionals choose to pursue it when coming out of university.
Skill Development and Training
At the junior level, investment banking provides substantial structured and unstructured capital markets learning opportunities. Through intensive onboarding training and informal training from high performing and intelligent colleagues, those that enter investment banking become knowledgeable and industrious finance professionals. Investment banking analysts learn crucial technical skills such as financial modelling, valuation methods (LBO, Comparable Companies, Precedent Transactions, DCF), and business and industry metrics. Soft skill development is also prevalent, as investment banking analysts are tasked with performing well in a dynamic and intense environment with long working hours.
While investment banking is infamous for these long hours, the time committed provides junior employees with an edge over their finance peers in other industries as they get more repetitions and experience in a shorter amount of time. This intensive experience translates into better exit and career opportunities in the long term relative to other industries, which we'll discuss later.
Transaction Experience
Across the corporate world, M&A and financing transaction experience is coveted whether attained as an investment banker, private equity professional, in corporate development, or even as a lawyer or accountant. Capital markets transactions are high-stake ordeals and are a strategic priority to the companies involved. This results in intense and fast-paced workflows that are not suited to average-performing professionals or those that are comfortable with traditional and predictable roles.
By gaining transaction experience, particularly as an investment banker early in your career, you will communicate your industriousness and ability to handle a variety of crucial deliverables. This experience will follow you throughout your career and be recognized by future colleagues, peers, and recruiters, instantly communicating your competence in major strategic corporate situations.
Compensation
We've mentioned the long hours and intensity of the job, but it's key to remember that as an investment banking analyst, you are compensated for it. Investment banking remains one of the only industries where entry-level professionals out of university can earn total compensation of US$140,000 - $180,000 or more in their first year alone. And it only goes up from there if you choose to stay in the industry.
These compensation packages can be highly appealing for those desiring financial freedom, seeking to repay student debt, or who have come from underprivileged backgrounds. While the job itself has its drawbacks, the compensation, in addition to experience gained, makes it a worthwhile career for many.
Exit opportunities
It's no secret that most who enter investment banking at the junior level do not stay in the industry longer than two years. We've alluded to the reasons for this, but they primarily have to do with seeking improved lifestyles or WLB in other industries, or going into other areas of finance (private equity or hedge funds) for even higher compensation. It's typical for many in investment banking to pursue private equity after their two year analyst stint, but the opportunities go much further than just private equity. The beauty of investment banking is that the experience gained in the industry provides you with optionality and transferrable skills to pursue a number of different avenues when you decide to exit.
This optionality is less prevalent in other verticals of finance, and we'd argue that investment banking leaves open more doors than any other starting finance job. If you know you want to work in finance but are not sure what you'd like to do in the long term, investment banking could be a great option to learn more about the industry in detail while building connections and gaining high quality and widely applicable work experience.
If you want to take the first step to pursue a career in investment banking and ensure you are ready for applications, get your resume reviewed by our team at Top Bucket Blueprint.
