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Investment Banking FAQ: The 25 Most Asked Questions

25 most asked questions about investment banking

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January 13, 2021

Investment banking is a complex field with many nuances. As the leader in deal sourcing technology and M&A Tools for Investment Banking, we're here to answer many of the common questions that are asked about investment banking. Let's get started. 

#1: What are investment banks & what do investment banks do?

An investment bank is a financial services company that acts as an intermediary in financial transactions between governments or corporations. An investment bank is usually involved:

  • When a startup company prepares for its launch of an initial public offering (IPO), investment banks raise capital and issue securities.
  • When a corporation merges with a competitor, investment banks advise buyers and sellers on valuation, negotiation, structuring of transactions, as well as procedures and implementation.
  • As a broker or financial adviser to source deals and raise capital by borrowing money or issuing stock.

Investment banks and investment bankers act as advisors to corporations and governments, rather than interacting with individual investors. Investment banks assist their clients in raising capital, provide financial advisory services, and assist in the process of mergers and acquisitions (M&A). 

Mergers and acquisitions are one of the most important services that investment banks offer. Some of the general roles and responsibilities in M&A include:

  • Market and sell companies 
  • Find potential investment opportunities
  • Negotiate deals with businesses and investors 
  • Recommend the best terms and timing for a capital raise 
  • Market debt or equity issuance to investors

The broad categories of M&A deals are sell-side and buy-side, and targeted deals and broad buy-side deals. In targeted deals, the buyer and seller are often in communication, or a company wants to focus on just a few likely buyers or sellers. In broad buy-side deals, investment bankers may show a company dozens of prospective buyers and sellers in the market.

Depending on whether they are on the buy-side or sell-side of M&A deals, on the day to day, most investment bankers are largely responsible for:

  • Creating different operational cases and deal scenarios for each company, such as different purchase prices, cost synergies, and mixes of equity and debt.
  • Building valuations and valuation models. For example, company A will trade at a higher multiple than Company B after it acquires it for reasons X, Y, Z.
  • Meet with clients, prepare offers, run financial projections, and work on pitch books that help generate new clients.

#2: How do investment banks work with private equity & venture capital firms?  

Investment banks are distinct from private equity and venture capital firms. Investment banks act as middlemen or intermediaries between publicly traded companies and other investors, whereas venture capital firms invest their own money in privately held companies. 

#3: How do investment banks make money?  

Investment banks usually make money from the process of connecting buyers and sellers in different markets. They usually charge commissions on trades, correlating to the size and prestige of the bank. Sometimes banks will provide underwriting services for fees as well.

#4: What are the common investment bank products?

Investment banks are commonly found managing mergers and acquisitions (M&A), restructuring, and leveraged finance.

  • Asset management - Oversee investments for companies and governments.
  • Equity research and advising - Research and analyze the market to provide financial advisory services to companies and governments. 
  • Mergers and acquisitions - Assist in the merger and acquisition process for maximum return. 
  • Sales and trading - Intermediation for the buying, selling, and trading of securities between businesses and investors.
  • Underwriting - The process of accepting financial risk in the form of loans, insurance, or securities in exchange for a fee. 

#5: How do investment banks compete with each other?  

Generally speaking, investment banks compete in the same way many service industries do: 

  • Attempting to attract new clients
  • Incentivize clients to choose their services over the services of other investment banks
  • Attracting the best talent

They typically do so with the non-price competition strategy: leveraging their reputation and experience to promise the best service possible. 

Reputation is based on:

  • Performance of analyst recommendations
  • Debt offering capabilities
  • Distributional abilities
  • Market making prowess
  • Pricing accuracy
  • Past deals

Additional incentives to attract clients include lower fees and more optimistic recommendations.

#6: How do investment banks differ from commercial banks?

Commercial banks typically make money from interest on loans and fees, and are tasked with: 

  • The holding and movement of money
  • Accepting deposits
  • Making loans
  • Safeguarding assets
  • Working with the general public and businesses

Investment banks specifically work with large corporations and institutional investors in advisory financial transactions. 

#7: How do investment banks source deals?  

Deal sourcing is an important part of investment banking. Deal sourcing is the process of generating actionable opportunities, and maintaining strategic relationships to continue to do business and increase profit. Because of the vast sums of money that banks often deal in, investment bankers often use different methods of lead generation and deal sourcing than what you might expect. Marketing and other forms of sourcing are not always sufficient, instead, networking and other methods are often used. 

Traditionally, an investment bank could spend hours conducting a comprehensive screen of target industry using traditional. Investment bankers can face cumbersome and time-consuming preparation of industry landscapes due to the process of collecting business data from multiple disparate online websites. A minimum of several hours could be spent on a single project, searching through Google to guess for competitors and similar businesses to your portfolio companies, and test and laboriously check permutations of emails.

Because of the time consuming nature of this work there are a variety of third party tools which can significantly streamline the process of gathering, synthesizing, or extrapolating useful information. For example below are a few of the ways that Sourcescrub helps investment banks use new school deal flow tactics to improve deal sourcing and improve advisory relationships outside of traditional strategies:

  • Conference Preparation
    Quickly identify the best investment opportunities by tapping into 30,000+ conferences, buyers guides, lists, and industry coverage lists within our platform. If you find a list we don't have, leverage our team of 500+ researchers and get it scrubbed on-demand.
  • Post-Deal Marketing
    Amplify marketing efforts by efficiently identifying competitive businesses in the sector as well as contact details for key decision-makers. 
  • Target Market Analysis
    Enhance investment banking deal sourcing and identify strategic buyers and Sponsor coverage.

There are many other companies and tools on the market that focus on streamlining various aspects of deal sourcing, all with a focus on saving time for origination teams. 

#8: What are the job roles in an investment bank?

Most of the jobs at an investment bank involve bankers. Most of the investment banker positions are analysts and associates. Both roles act as intermediaries and advisors to businesses, raise capital, match buyers and sellers to facilitate the trading of securities, and assist in mergers and acquisitions. You can roughy breakdown most investment banks into four main departments:

  • Private equity
  • M&A 
  • Underwriting
  • Venture capital

Investment bank M&A teams can typically be further broken down into a hierarchy of roles and responsibilities:

  • Analyst
  • Associate
  • Vice President
  • Managing Direct


The analyst is an entry level position that is responsible for much of the legwork that goes into sourcing and executing transactions. This includes:

  • Composing PowerPoint presentations and Excel models
  • Organizing files and information
  • Performing industry research
  • Taking notes on calls and meetings
  • Tracking and recording sourcing and execution activity


As the next rung up from analyst, investment banking associates usually fulfill the roles of supervisor or project manager to analysts in performing their tasks, while also dealing more with clients and executives. The associate is responsible for:

  • Checking the analysts' work 
  • Coordinating the creation of PowerPoint presentations
  • Talking to clients and executing on day-to-day transaction tasks

Vice President

The vice president supports business development efforts and manages deal execution. They help handle communications with clients and prospective investors, and take the lead on messaging for pitch books and deal marketing efforts.

Managing Director 

The managing director is responsible for business development and sourcing deals, as well as helping guide deal execution. Most of a managing director's time is spent building relationships, meeting with potential clients, and staying current with industry and transaction trends.

#9: What divisions make up an investment bank?

Investment banks often group themselves by industry. This is based on their clientele or departmental specialization. Common industry groups include: 

  • Energy and utilities
  • Consumer and retail
  • Financial institutions
  • Healthcare
  • Industrial
  • Natural resources
  • Real estate, gaming, and lodging
  • Technology, media, and telecom 

#10: What are the top investment banks?

The "top" investment banks are usually considered the bulge bracket investment banks (BBs), which are the largest banks that operate in all regions and offer all the typical services an investment bank does. 

Investment banks are typically ranked into three tiers based on their size. Size is defined by several criteria, including but not limited to:

  • Revenue 
  • Global reach
  • Number of employees
  • Product categories
  • Number of services
  • Assets under management (AUM)
  • Number and value of deals made

Tier 1

Tier one consists of the overall "largest" investment banks:

  • JPMorgan Chase
  • Goldman Sachs 
  • Citigroup best 
  • Morgan Stanley 
  • Bank of America 

Tier 2 

Tier two consists of large to "mid sized" investment banks:

  • Deutsche
  • Barclays
  • Credit Suisse
  • UBS 

Tier 3

Tier three consists of the smaller of the large investment banks:

  • HSBC
  • BNP 
  • Paribas
  • Société Générale

Beyond the top three tiers, there are hundreds of investment banks globally. There are multiple categories and ways of categorizing investment banks, the main ones include, but are not limited to:

  • Bulge bracket banks (BBs)
  • Regional boutique banks (RBs)
  • Elite boutique banks (EBs)
  • Middle market banks (MMs)

#11: What's a bulge bracket bank? 

Bulge bracket banks are the largest of large investment banks, usually covering multi-national markets and firms. Their clients are often large corporations, institutional investors, and governments. Bulge bracket investment banks regularly handle multibillion-dollar M&A deals, as well as trading, financing, asset management services, and equity research and issuance. Many bulge bracket banks also have commercial and retail banking divisions and generate additional revenue by cross-selling financial products.

Other categories of investment banks include regional boutique, elite boutique, and middle market banks. 

Regional Boutique Banks

Regional boutique investment banks are the smallest category, both in the number and size of operations and the deals they make. Due to their size, they typically specialize in a few specific industries or services.

Elite Boutique Banks

Elite boutiques are like regional boutiques in that they usually do not provide a complete range of investment banking services and may limit their operations to handling M&A-related issues. They are more likely than regionals to offer restructuring or asset management services.

Elite boutiques resemble bulge bracket banks in that the dollar value of the deals they manage is frequently over $1 billion, and they commonly have a sizable nationwide or international presence, although they lack the kind of global presence of bulge bracket investment banks.

Middle Market Banks 

As the name suggests these fall into the middle ground of investing banking services in most respects:

  • Deals start around the regional level and go up to near the bulge bracket level, the average deal typically ranging from about $50 million up to around $500 million or more. 
  • Geographic reach falls in the middle with substantially larger presence than regional boutiques, but falling short of the multinational scope of bulge bracket banks.
  • While resembling regional boutiques in that they specialize in offering services to a particular industry or sector, they also usually provide the same full range of investment banking services as bulge bracket banks, including: 
    - Equity capital market and debt capital market services
    - Financing and asset management services
    - M&A and restructuring deals

#12: What role do investment banks play in the economy?

In many economies, governments and companies both rely on investment banks to raise money by sourcing deals with investors and other companies. This is commonly known as adding liquidity to the market. Liquidity benefits the economy primarily due to the injection of funds it provides. For this service, investment bankers reap the rewards of being intermediaries or middlemen. With their help, financial development becomes more efficient and businesses everywhere benefit. 

#13: How many investment banks are in the United States?  

This is a tough question to answer. Beyond the top 20 in the US, there are many dozens of smaller and mid-size firms. 

M&A FAQ: Common Mergers & Acquisitions Questions 

#14: What are mergers and acquisitions? 

The terms merger and acquisition generally refer to combining one company with another. In an acquisition, one company purchases the other, with the purchased firm not changing its name or structure, rather being owned by a parent company. A merger combines two companies or firms, which usually take on the same name.

#15: Why are mergers and acquisitions important?

Mergers and acquisitions are some of the largest and most game-changing movements in the world of finance. They move capital around, combine technology and resources, and can completely alter the direction of a business with restructuring, growth, and altering the competitive playing field. This effect on businesses influences multiple industries, markets, and the economy as a whole. 

#16: How do mergers and acquisitions create value? 

Generally speaking, if done well, a merger or acquisition makes both entities more valuable, and consolidates their assets underneath one roof. Mergers and acquisitions create value in a couple different ways. 

Consolidating means an increase in market shares. The value of businesses is more than just the sum of their parts. Businesses merge and make acquisitions to share technology, information, and resources. Doing so strengthens businesses by overcoming challenges, combining strengths, and compensating for weaknesses. This gives companies a competitive edge and the ability to increase productivity and reduce costs. 

#17: How much do mergers and acquisitions managers make?

The significance of the role that investment banking and M&A management plays in the economy is a big responsibility that requires extensive education and experience. M&A managers generally are compensated well, with an average annual salary of $162,954. 

#18: How are potential mergers and acquisitions discovered?

Mergers and acquisitions are usually discovered by a manager, who attempts to do the necessary market research, as well as facilitating the negotiations between the two entities being merged or the one being acquired. This is called deal origination. Potential acquisition targets are assessed based on potential for growth, latent value, or potential synergies with other merger targets. Traditionally deals have been sourced through networking and personal connections, as technology has evolved a variety of companies have created tools and platforms for streamlining and informing many aspects of this time consuming work.

#19: What do investment banks do in mergers and acquisitions?

It depends on whether the bank is representing the seller or the buyer. On the sales side, the investment bank attempts to make sure that the seller is treated to the most fair and beneficial deal possible, while on the buy side, the investment bank attempts to correctly assess and interpret the value of the bank. 

#20: How can mergers and acquisitions affect a company?

Companies always set out to buy or merge with another company to boost growth, fend off or acquire competition, or generally consolidate their position in the market. It can be extremely risky, which is why it requires a firm and knowledgeable hand at the wheel. Many negative things can occur, such as overpayment or failure to integrate both companies (look no further than AOL-Time Warner for examples). But the rewards can be enormous.   

This is why it's important that investment bankers have the right tools to research potential investment opportunities, like Sourcescrub M&A and deal origination tools: 

  • Identify non-transacted companies as potential merger and acquisition targets
  • Rapidly analyze target business firmographics, including growth of employees, investment data and more
  • Proactively track updates to key public and private companies for stronger market intelligence

#21: What is the primary reason that mergers and acquisitions fail?

No matter which way you look at it, a merger is disruptive. Often departments within each business are consolidated or merged, resulting in redundancies and the business operating inefficiently for a long period of time. Many times, there can be massive problems in integration, which can result in year-end losses. Appropriate leadership that works effectively and collaboratively with both parties often prevents this, but this is the number one cause of failure.  

This is where investment bankers come in, to act as advisors during mergers and acquisitions to make the process smooth and successful. Investment banks know that successful M&As start at the beginning with deal origination. An important part of their job is to research companies to find the best opportunities to invest in. With Sourcescrub, investment banks can discover and track investment opportunities and proactively maximize sourcing efforts with human-audited company data points to drive more quality management meetings.

#22: How many mergers and acquisitions were there in 2018 and 2019?  

In 2019, there were 281 M&A transactions valued at more than $1 billion USD. In 2018, there were around 1,700 mergers and acquisitions completed. 

#23: Why does the government oversee and regulate mergers and acquisitions?

While the government in the United States takes a relatively hands-off approach, the function of government oversight is to ensure that one company does not form a monopoly. 

#24: Do all mergers and acquisitions require shareholder approval?

All acquisitions generally require approval from specific shareholders. However, the necessary level of support varies depending on the required shareholder support for different jurisdictions and deal structures. Some require a simple majority, while others require a supermajority. 

#25: How do investment banks make money on an IPO?  

Generally speaking, a group of banks or a single bank will put up the money to underwrite the IPO, buying the shares before they appear on a stock exchange. The banks will then profit on the difference they make in the price between the purchase and when the shares are offered to the public. You may have heard this referred to as the pre-IPO price of a stock, that delta represents profit for investors.

Now that you know more about the basics of investment banking, you might be wondering how you can improve your deal flow technology. Built by investors for investors to discover more Buy-side or Sell-side opportunities, request a demo, and do more, better, faster, with Sourcescrub