2022 Trends: The Impact of Technology on Investment Banking

Investment Banking
Last updated:
March 8, 2022

Hot on the heels of the COVID-19 pandemic, 2021 saw the biggest deal surge in investment banking history. In fewer than 12 months, the market transformed first into no-man’s-land and then into the promised land. Firms went from too much time on their hands to too many deals on their hands.

The adoption of technology by the investment banking industry has historically been slower than other technology-savvy markets. But unmatched competition and unexpected changes over the last two years have caused more banks to begin embracing digital transformation to fuel smarter decision making, accelerate processes, and scale operaitons.

Our research shows that digitally mature dealmakers with sophisticated use of data and technology transact 3.5x more frequently and generate IRR 8.8 percentage points higher than their peers. And while no one can foresee exactly what 2022 will bring, we’re confident that leading investment banks will continue to harness the latest tech tools and processes to meet new challenges and opportunities head-on.

Let’s dive into 5 recent technology trends and how they’ll impact the way investment banks find and close deals in 2022:

  1. SaaS Sales Models
  2. Hybrid Conference Strategies
  3. Artificial Intelligence Applications
  4. Agile Processes
  5. Decentralized Finance

1) SaaS Sales Models

Tech companies have become famous for the way they sell products and services. With 1.35 million new tech startups hitting the scene every year, competition and pressure to hit investor performance targets is intense. Software-as-a-Service (SaaS) sales teams don’t have time to waste on the wrong opportunities, or to wait for the right opportunities to come to them.  

That’s why most tech companies create teams of dedicated business development representatives (BDRs) to proactively source and vet prospects that meet the companies’ ideal customer profiles (read: thesis criteria). To help BDR and sales teams prioritize one prospect over another, tech companies also assign weights to various profile attributes and develop
automated lead scoring.

Over time, BD teams learn how many quality leads they need to source to generate the right number of opportunities for the company to hit its revenue goals. This type of predictable sales model makes it much easier to accurately forecast and systematically produce results.

How Tech Sales Will Create Disruption in Investment Banking

In 2022, more investment banks will adopt these tech-inspired direct sourcing methods, build business development teams, and implement supporting technology to accelerate buy-side deals. Copper Run is one example of a bank that has taken a page out of technology sales and is clearly reaping the benefits.

Copper Run’s team of analysts is responsible for directly sourcing deals that align with the firm’s buy-side clients’ investment theses. Rather than doing this manually, they invested in the latest deal sourcing technology to quickly surface relevant non-transacted companies based on data signals like employee count and ownership type. This has enabled them to systematically double their number of deal engagements.

2) Hybrid Conference Strategies

Before COVID-19 hit, trade shows and conferences were among investment banks’ most successful deal origination strategies. Firms attended the biggest shows and spent hours roaming expo halls in search of relationships that would generate returns. But all of this changed with the global pandemic.  

As of March 12, 2020, just weeks after coronavirus began making headlines, 500 global trade shows had already been postponed. Suddenly, dealmakers were forced to trade in lanyards and handshakes for home offices and Zoom calls. Investment banks turned to new technology- and data-driven deal sourcing strategies as traditional relationship-driven tactics became impractical.

Despite the excitement to return to business as usual, leading banks noticed that the “science” of data and technology actually enhances the “art” of making connections at conferences. And as trade shows slowly begin reappearing on calendars, these new school dealmakers are likely to take a hybrid approach.

How Conference Data Will Create Disruption in Investment Banking

We predict that the impact of technology on the investment banking industry will become abundantly clear in dealmakers’ 2022 conference strategies. Using the latest M&A technology and data service providers will improve the way banks approach trade shows in three key ways:

  1. Attending only the most relevant events. Identify which conferences top targets plan to attend ahead of time, including smaller bootstrapped companies. Filter conference lists by thesis criteria to pinpoint events with the greatest number of relevant companies.
  2. Booking more meetings per trip. Find companies that match your investment criteria and easily build lists of leads in or around conference locations. Use this information to turn up the productivity on trade show-related trips by scheduling additional high-value meetings off-site.
  3. Standing out with personalization. Surface highly accurate contact information for executives and founders, as well as company data points like recent awards or new hires. Send personalized outreach to book meetings with decision makers ahead of time, and use this insight to stand out in expo hall conversations.

3) Artificial Intelligence Applications

Artificial intelligence (AI) is the use of computers to simulate human intelligence to make decisions and perform tasks better, smarter, and faster over time. It has many applications, including automation, machine learning (ML), natural language processing (NLP), robotics, and even self-driving cars.

While a recent survey found that just 15% of financial services companies (including investment banks) use AI-powered technology extensively, nearly 90% plan to increase AI-related investments by 2025. The study also shows that investment banks are deploying AI technology at a faster rate than their financial services counterparts.

Some of the more common use cases for AI in banking and financial services industries include:

  • Personalizing customer service and communications at scale
  • Measuring the predicting investment risk using algorithmic models
  • Reducing operational costs through the automation of repetitive tasks

How AI Will Create Disruption in Investment Banking

2022 will witness a shift in how investment banks use AI as more firms seek to create competitive advantage through proprietary market insights. “A lot of the inspiration for these firms has been some of the high tech industries and firms that are using mass amounts of data, machine learning, and AI to be able to drive algorithmic models,” says Frazier Miller, COO of SourceScrub, in a recent interview with GrowthTV.

However, there is a caveat: It’s easy to assume that feeding AI-enabled technology as much data as possible will result in ground-breaking insights. But machines can’t tell whether the data they’re receiving is accurate, and they have a long way to go before they’re able to make contextual and reliable decisions for people. For now, AI and machine learning in banking still depend on humans to ensure data quality, put insights in context, and use their best judgement.

4) Agile Processes

Shortly after the turn of the millennium, a group of software developers came together and defined a core set of guiding principles for building products in today’s rapidly evolving and highly competitive environment. Their “Agile Manifesto” cites four key values:

  1. Individuals and interactions over processes and tools
  2. Working software over comprehensive documentation
  3. Customer collaboration over contract negotiation
  4. Responding to change over following a plan

In contrast to traditionally sequential, rigid, and top-down “waterfall” processes, an Agile approach emphasizes breaking large tasks into smaller chunks, continuous iteration and improvement, and individual accountability paired with team collaboration. Data is also a critical piece of Agile methodology as it allows teams to test and prove or rework certain hypotheses at every step of the project.

Over time, the Agile development philosophy has been adapted into countless project management methodologies, software development practices, and sales and marketing frameworks. In yet another example of the impact of technology on the investment banking industry, dealmakers are now beginning to implement Agile banking practices.

How Agile Will Create Disruption in Investment Banking

Traditional deal processes usually start with a well-connected partner making decisions based on past successes and educated guesses, creating a clear chain of command. Once a plan is set in motion, others in the firm take a waterfall approach to ensure each step of the process is carried out. Analysis and optimization typically take place once the plan has been completed, at which point it’s too late to influence the outcome or shift priorities.

In contrast, 2022 will see more banks thrive in today’s fast-paced and volatile market by taking an Agile approach to dealmaking. Rather than following top-down directives, these firms will use data to guide their strategies and plans. Every employee will take responsibility for being an expert in their role and using data to consistently evaluate plans, priorities, and progress. Teams will work closely to quickly respond to new opportunities, identify threats early on, and continuously improve theses in real time.

5) Decentralized Finance

It’s been a little over a decade since “Satoshi Nakamoto” introduced the first cryptocurrency, bitcoin. Shortly after, the original blockchain was implemented to serve as a public ledger for peer-to-peer bitcoin transactions. Fast-forward to today, and the financial services industry is buzzing about Decentralized Finance, or DeFi.  

DeFi refers to a system that uses blockchain and similar technology to facilitate secure, programmable, near real-time transactions directly between digital asset holders. DeFi is sometimes referred to as “bankless finance” because there is no centralized entity regulating these transactions. This means increased risk, but it also means more control and less fees and red tape for participants.

The concept of decentralized finance is complex, so here’s a helpful video that explains the building blocks, benefits, and risks of DeFi in detail:

How DeFi Will Create Disruption in Investment Banking

Many of today’s biggest banks, like Goldman Sachs and BNY Mellon, are beginning to explore how to leverage bitcoin and other cryptocurrencies. Others in the space are speculating all the ways that blockchain will disrupt the industry as we know it. However, one thing is for certain: DeFi is still in its early days, so it’s impossible to know exactly how it will cause technology disruption in banking.

One way for banks to get ahead of DeFi in 2022 is to focus on developing proprietary market intelligence. Leading firms are hiring data scientists to set up data warehouses, integrate data from across multiple sources, and develop models that uncover meaningful insights. Reliable market predictions, accurate scoring systems, and other proprietary resources will be the secret to winning business and commanding bigger fees in the future.

Learn More Recent Trends in the Investment Banking Industry

Investment banking has traditionally been among the last industries to adopt new technologies. But the need to innovate in the face of historical market disruption and competition, combined with research highlighting the success of digitally mature dealmakers, is leading more investment banks to embrace digital transformation.  

We believe that these five trends are just the start of the impact of technology on the investment banking industry in 2022. To learn more about how data and digital transformation are changing the way banks find and close deals, read this free guide, Think and Grow Different: Dealmaking Strategies for Investment Banks.

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