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May 12, 2016

What’s An Investment Bank And How Does It Work For A Business

by Fin Engr

business-861323_640If you are thinking of starting a company and step into the competitive world of businesses, you will have to understand how to create capital for your business. Of course, starting a company is not that easy. You need a lot of money and you just can’t have all those millions and billions of dollars in your pocket. Investments banks are the places where companies have to go in order to have their securities issued to the public. The bank will help businesses sell their shares to the public by acting as the middleman.

An Investment Bank

As mentioned above, an investment bank can act as a middleman between your company and the public. It might buy the shares from you so you have the capital in hand to expand or start your business. On the other hand, the bank will sell those shares to the public by keeping the share price at such a point that it can earn its profit and does not damage your company’s image. Of course, people might not buy your new company’s share if they know you are a new company but the prices of your shares are too high.

Investment banks also help large companies and corporations with their mergers and acquisitions. They will help companies through the evaluation process i.e. they will find out how much a business is worth. In short, the investment banks act on behalf of the companies to look for investors for them. Investment bank also provides advisory service to these corporations. These banks need to have a large network of clients because this makes the process of finding investors easy. The bank will act from both sides i.e. it can represent a company looking to be acquired and a company looking to acquire another company.

How Does The Investment Bank Work

Any bank that invests needs to have large networks of clients. The more clients they have the more buying and selling they can perform. If they have investors, corporations will be greatly happy to work with them because they know they will get the investment sooner. However, companies that take help from banks to raise the capital for them have to research as well. Investment banks differ from each other based on the size of their network and their costs. A company looking for capital wants to keep the cost of its capital as low as possible.

Investment banks have to pitch businesses to their investors and tell the issuers of the securities that they are being charged the most reasonable price out there for raising their capital. Investors will only buy shares of a particular company when they have interest in that business or some understanding of the business. This is why it is highly recommended that you look for an investment bank that has worked specifically with clients from your industry. Always ask questions on whether your investment banker has ever worked with your industry or not. If yes, ask how successful the experience was.

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