Should I Hire an Investment Banker or Not?

The Most Important Decision in Raising Capital

In the highly competitive environment of fundraising, it is important to have the most qualified experts on your team. Along with working with a lawyer and an accountant, you may want to consider hiring an investment banker as well. So what is an investment banker? In essence, an investment banker helps businesses raise funds in the capital market (both debt and equity).

Investment bankers help identify strategic alternatives, create solid capital structures, raise debt or equity for operation or expansion and evaluate targets for acquisitions. Many investment bankers also specialize in financial restructuring, debt refinancing, fund raising or the liquidation of assets. For this reason, Investment Bankers should be considered as potential core institutional advisers for your company…especially if your company needs funding or is undergoing drastic changes.

When is hiring an investment banker most beneficial?

The services of an investment banker become most beneficial for a company that is undergoing substantial changes in its financial situation, such as when a company is seeking to raise capital. At this stage, consulting with an investment banker is highly recommended as they can provide an outside perspective, advice on the best course of action and assistance in making informed choices.

How much do investment bankers charge?

Whether an investment banker helps you to raise capital, manage a sale or handle a merger or acquisition the bulk of their compensation will be contingent upon the success of your transaction.  The retainer fee will vary widely depending on the expertise, previous success and qualifications of the person you hire. In general, it is best to allocate approximately $15,000 to $25,000 if you need to raise $5 million and as much as $50,000 to $100,000 if you need to raise $10 million or more. Take note that an investment banker may still derive additional compensation if the transaction is successful.

What are the advantages of hiring an investment banker?

There are a number of advantages in hiring an investment banker such as:

  • Experience in Raising Capital – the core competency of investment bankers is providing financial advice. In this regard, they have deep and updated knowledge of the capital market and transaction structures and can guide your company through the process of raising capital in the primary market.
  • Optimal Outsourcing – hiring the services of an investment banker allows your management team to focus on what they do best, so you can be confident knowing that the financial side of your company is taken care of.
  • Vast Network – most businesses rely on an established network of contacts and investment banking is the same. Investment bankers have longstanding relationships with equity investors, managers, lenders and the buyers and sellers of assets in your industry.

When it comes to seeking funding for your business, nothing is more important than getting the results you’re looking for and investment bankers will match you up with the best investors for your business. Investment bankers provide excellent value for their clients because of their expertise, experience, contacts and their ability to assess your company’s worth from an outsider’s point of view.

If you like this information, you’ll really like “Top 10 Mistakes That Cause Investors to Shoot Down Deals”.

About the author: David Brode is a Principal at the Brode Group. An economist by training, Brode has over two decades of experience helping ventures develop and communicate business strategies through financial models so they can launch, grow, and sell businesses. Brode’s financial forecasting models have been through due diligence dozens of times and have been successful in securing over $11 billion in financing for projects worldwide. Brode has a B.A. degree in Economics from the University of Michigan.