Insights and Opinions

 

Thursday, February 3, 2011

Fifteen things investment bankers won't tell you

from Megan Lisa Jones





1. They donít like your company; no reason for us to say such a thing. Better to maintain the relationship and see how a company evolves.

2. That they donít like your sector; ditto from number one. The criticism also isnít constructive. You obviously do like the sector and are committing part of your life to it. Why wreck your passion.

3. That your projections are ridiculous (see below); weíll guide you later however. Unrealistic projections only make you look bad, uninformed and show bad judgment. Better to under promise and over deliver.

4. That your valuation expectations are laughable (again, weíll guide you lowerÖ); nothing kills a deal faster than a sky high and unrealistic price. Get some competition going for your deal and then youíll see more pricing flexibility.

5. That your competition is going to crush you; and weíve listened to your competition. Investment bankers donít need to project everything (research analysts do that).

6. That you arenít a credible leader; saying so would kill any chance of a relationship should we change our mind or you prove us wrong.

7. That your business model doesnít make the grade for investors they know; instead, Iíll tell you what performance metrics you need to meet over the next six months. Prove me wrong.

8. That you donít know your market/product/industry/company well enough; Insulting at best. Iíve heard a twenty-five year old CEO explain his market so well I was speechless. We know true passion and understanding when we hear it.

9. That you have no options; I might be missing someone and certainly donít know who you know. Iíve watched such companies continue to Ė shockingly on my end Ė continue receiving money from existing investors for what seemed like forever.

10. Their real pipeline; if weíre too busy we donít look like we have time for your deal; not busy enough we look like no one values our services.

11. Whether or not they can get the deal done; if we donít think we can we wonít take it; investment banking fees are mostly success based. If I spend time on your transaction I donít have as much time available for other companies or for finding new opportunities.

12. What the market will do; as if anyone knows. Deal valuation, success, financing, etc can be dependent on market forces. I can provide an educated guess but not certainty.

13. That they can help you when they donít think they can; again, this issues goes back to the reality that if I canít get a transaction closed I donít get paid. And I can work for free easily; but it doesnít pay the bills.

14. That due to one of the above they canít, and thus wonít, help you; investment banking is a relationship business. If I canít help someone I try to refer them to someone who can. Companies grow and change. Perhaps one day in the future I can help.

And some things they will tell you

1. What doesnít work in your business plan; better to add some constructive value than let a potential client walk away with nothing.

2. That your projections arenít plausible and why; see number one.

3. Who might be interested in your company (but they might not give you an exhaustive list); why would you hire me if I donít have a vision for and understanding of your company?

4. What they think you should do about your capital structure; we almost canít help ourselves on this one. The topic is so interesting and moldable.

5. That you need a better CEO/CFO; investment bankers canít be shy about delivering the tough message. Very often too much is at stake for us to punt.

6. That your deal, and all deals, are subject to market realities; none of us controls the realities of the market. It is an inherent risk in many transactions.

Megan Lisa Jones is an investment banker who works primarily with companies in the digital media, technology, gaming and other emerging industries. Her experience includes time with Lazard Freres, Needham & Company and Merrill Lynch. Her investment banking blog is at www.ibla.us; and she released a novel, Captive, in late 2010 (www.meganlisajones.com).


blog comments powered by Disqus

Other Articles

Startup Resources