5 Most Lucrative Exit Opps Investment Banking

Are the 80hr work weeks of investment banking TRULY worth it?

Surviving two years of banking opens doors to the most exclusive exit opps in business.

It allows you to jumpstart your career & get ahead of your peers at very young age.

The highest-profile long-term careers only recruit from pools of investment banking analysts.

They know how valuable the training & exposure you get in banking is -

And view putting in your two years as the minimum requirement to come work at their firms.

I’m first going to explain the three reasons these firms only hire ex-bankers.

Then I’ll give an overview of the top five exit opps bankers leave for after putting in their two years.

TABLE OF CONTENTS

• WHY INVESTMENT BANKING?

• TOP 5 EXIT OPPS

• ARE THE HOURS WORTH IT?

WHY INVESTMENT BANKING?

Investment banking has always been one most highly sought after fields to pursue after graduation. This has made it extremely competitive to break in, as it attracts only the best and brightest students from the top schools all across the country.

The training and exposure you get doing two years as an analyst is unmatched, but it comes with the downside of long hours.

I compare it to residency programs doctors go through. In both roles you “earn your stripes” by putting in long hours, basically being on call every night for a few years. However, both pay off big time in the long-term and set you up nicely for the rest of your career. The only difference between the two is that residents earn pennies while first year bankers rake in an average of $150-200k out of college.

Compensation and exit opportunities are the two main selling points of banking.

There are three main reasons these firms only hire ex-bankers.

The 65 - 80hr work weeks pay off, as doors are opened to the most exclusive and high profile exit opportunities shown below.

TOP 5 EXIT OPPS

PRIVATE EQUITY ASSOCIATE

In private equity, firms take controlling stakes (>50%) in later-stage businesses that already have customers and product market fit. Their goal is to step in and grow the business for five-to-ten years then sell it for a profit at the end of the hold period. Think of it like house flipping.

I skipped two years of banking and went straight to PE.

PE firms didn’t hire straight out of undergrad until a few years ago. The banking / PE industry has become so competitive that kids are starting to study technicals earlier and earlier every year. This is why some PE firms are starting to change their mindset and now think that top candidates can jump straight into PE without getting those two years of industry-specific training in banking.

Over the past few years, many of them have started to open up analyst programs. I was one of the lucky ones that benefitted from this.

There were four reasons I found private equity to be more attractive than banking.

• (1) LONG-TERM MINDSET. After closing a deal in banking, you say your goodbyes and move on to the next. When buying a business in PE, you have to live with that investment for the next five-to-ten years. I liked that you got to actually see your investment thesis play out.

• (2) OPERATIONAL EXPOSURE. In PE, 85% of my time was spent doing deals and the other 15% was on the operational side. I got to “roll up my sleeves” with the management teams of these companies and help execute strategic initiatives for the portco’s I was staffed on.

• (3) STRATEGIC THINKING. Investment banking is a marketing job since it’s their goal to make businesses look as pretty as possible and yield the highest purchase price from investors. PE is the complete opposite where you try to find the downside of every investment. I liked that you got to use your brain a bit more in PE when making investment recommendations to the MDs.

• (4) CONTROL OVER YOUR TIME. Your schedule will still vary depending on what stage of the deal process you’re in, but the hours are slightly more predictable in PE. You’re no longer on the client services side of the transaction, so you’ll be the one requesting documents and asking questions to bankers. Much more fun to be on that side of things.

I was at a middle market fund where we focused on buying business with under $100M EBITDA.

The chart below does a good job of breaking down the different buckets of firms.

VENTURE CAPITAL

Venture capital is probably the second most popular exit opp.

It’s kind of like Shark Tank, where they make lots of small bets on early stage startups. Unlike private equity, they take non-controlling stakes (<50%) in these businesses meaning they have less control over the day-to-day.

The analysis is much less technical than private equity and revolves around market growth potential and skillset of the founder & management team. Private equity is more concerned with projecting cash flows and estimating IRR, which is hard to do in VC since most of these companies generate little to no revenue / earnings in the first place.

Each VC fund will focus on companies that are at a specific point in the life cycle of growth. The chart below shows the different categories of funding based on how large the startup is.

VC is an attractive exit opp for anyone that has a passion for startups or tech.

Most of the top firms are located out in silicon valley right next to all the action.

The chart below shows logos of some of the more well-known names.

HEDGE FUNDS

Hedge funds attract kids who have a deep passion for investing in the stock market want to have a career in the public markets. The work itself is more introverted & research focused than roles in IB, PE and VC.

These firms implement specialized strategies, performing deep analysis on individual stocks and sectors to try and “generate alpha” (outperform the market). The chart below outlines some of the different types of strategies.

The process to break into these roles is a lot less structured than PE or VC. Interviews happen sporadically and are more focused on you speaking to your personal history investing in the market.

Just beware the skillset you build at a hedge fund is much more niche than PE or IB and can limit your optionality for the next career pivot.

There are many types of funds, each with their own approach. Here are a few of the biggest names.

CORPORATE DEVELOPMENT

I had an internship in corporate development summer after freshman year.

The alumni who hired me previously worked in both IB & PE. He did two years of banking, two years of PE and then left to lead the corporate development arm for one of his PE firm’s portfolio companies.

Corporate development is essentially a smaller team within a larger company that focuses on mergers & acquisitions. You actively hunt for smaller businesses to acquire to add on or complement your existing business’s capabilities & accelerate growth.

For each opportunity, you put together the investment thesis / strategy, a valuation and model projected synergies to pitch it to your company’s board members. If approved, you proceed with diligence and hopefully close on the business to begin implementing integration initiatives.

This is a great option for anyone looking to continue to work on deals but have a much better work-life balance. You typically make less than you would in PE or IB, but have a much more predictable schedule.

TOP 10 MBA

Another popular option is getting your MBA at a top ten program.

The schools consistently ranked in the top ten are:

• Stanford Graduate School of Business

• Harvard Business School

• University of Pennsylvania Wharton

• Northwestern University Kellogg School of Management

• University of Chicago Booth School of Business

• Columbia Business School

• MIT Sloan School of Management

• University of California, Berkeley Haas School of Business

• Yale School of Management

• Duke University Fuqua School of Business

Most will tell you that graduating from a non-top ten program probably isn’t worth it.

The relationships you build doing two years at one of these programs will set you up well for whatever you want to pivot into next.

Whether it’s starting up a search fund, going back to PE / IB, transitioning to consulting, etc - these programs are an excellent chance to take a step back for a couple years to figure out your next move while building your network.

ARE THE HOURS WORTH IT?

Nearly every ex-banker will tell you they wouldn’t be where they are today if it wasn’t for those first two years of banking.

As the president of our school’s academy, I was fortunate to spend lots of one-on-one time with our director, who was a former partner at a top firm in Chicago.

Looking back on his career, he couldn’t be more glad with the path he chose. Like me, he came from a middle-class household in a small town in the midwest. He preaches that starting out in banking allowed him to learn and develop faster than he would’ve in any other career out of undergrad.

It also gave him the opportunity to achieve financial flexibility at uncommonly young age. He does admit there were some stressful times, especially in those early years, but emphasized the thrill of doing truly important and interesting work every day made the days fly by and he never found himself feeling bored.

Cheers 🥂

- Jack

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