To the layperson with limited knowledge of commerce and banking, ‘Investment Banking’ is bound to be a mystery of sorts. The general understanding of investment banking among the common public is limited and investment banking continues to remain the domain of specialists or in other words investment bankers.
In a way, this is justified. The complex financial operation should be left in the hands of experts just as investment banking is left to investment bankers. However, there is little reason not to have a general understanding of investment banking. It could probably serve you well at some point in time, especially, if you run a business that has the potential of going public or if you aspire to work in the banking sector. Additionally, a basic understanding of any subject, no matter where your interests lie or the nature of your profession is never a bad thing. It is all about knowledge for knowledge’s sake which should drive you to ask the question “What is investment banking” and seek out the answers that are laid bare for you within this article. Read further to know more.
Definition of Investment Banking for Newbies
If you find yourself asking what is investment banking? The investment banking meaning or definition as detailed below should serve you well. Investment banking courses can lead you further in the right direction.
Investment Banking meaning in the simplest of terms is a branch of banking operations wherein the banks act as middlemen between companies in need of capital and investors who are happy to furnish capital or seed money in return for a profit in the future. As mentioned earlier investment banking is the area of expertise of specialists or investment bankers to be precise.
A company in need of capital is almost never in the position to source capital by itself and that’s where investment bankers come in. Investment bankers are specialists with extensive connections to investors who have money to spare and wish to invest that money in the right business ventures.
In return for a commission, an investment bank and it is a team of investment bankers will act as middlemen between a company in need of capital and investor who can furnish that capital in lieu of a profit in the future. It is easy to see how investment banking works to the advantage of growing companies in need of seed money and investors who are eager to earn money on money that would otherwise be unutilized. It is fair to say that we have established the definition and intrinsic importance of investment banking thus far. Now let’s venture deeper into additional information pertaining to how investment banking works.
As mentioned before, Investment Banking works on the principle of serving companies in need of money by mediating with investors that have money to invest in lieu of an ROI (return on investment). This process of acquiring capital or seed money on behalf of a company in need is structured. A company may access the funds its needs from an investor by means of …
- Borrow Debt
- Equity Sales
- Or Selling the Company
In the simplest of terms, borrowing debt is terminology for the terms and conditions wherein a company that is need of funding gets the money it requires from investors with the understanding that the money will be paid back over time with interest. The investment bank acts as the middleman to set this deal in motion for which it earns a fee and the investors are rewarded with paybacks along with an interest.
A company may choose to gather the funding it needs by selling equity or part ownership of the company to investors. The investment bankers play an indispensable role in facilitating the sale of equity.
Selling the Entire Companies
Often times, the owners of a company may wish to sell a company for a wide range of reasons. Investment bankers also facilitate such a sale on behalf of the company in exchange for a fee or commission.
In simple terms, investment banking is an extension of brokering. However, various investment banking courses can help you go deeper into the subject; if this is where your interests lie.