Post-IB Exit Opportunities: The Good, the Bad, and the Finance
Exit Opportunities after Investment Banking:
Gold and Glory, or Tears and Overhyped Disappointment?
Welcome to Investment Banking: Where everyone on the outside wants in, and everyone on the inside wants out.
The worst-kept secret in the world of IB is that junior Investment Bankers are planning on staying at their bank forever. Sometimes it is necessary, of course, for these interns and analysts --typically-- to play the role publicly, but the real plan of action in the majority of cases is to make an exit.
This is not a bad thing, however, and is not a “knock” on the opportunity that IB can bring you. The opening of doors and barriers to these impressive exit opportunities are arguably the best part of the job out of undergrad, even when compared to the size of your incoming bonus or locked up salary for the year. That’s how you should be thinking, at least.
In this article, we are going to first give the case to staying on as an Associate in Investment Banking. Please note that we do not recommend this path, but we are simply laying out the circumstances where it could make sense depending on your risk profiles (extremely low-risk move, could stay in the game until you retire), and perhaps more importantly - your wherewithal to withstand client demands and unpredictable hours.
So real quickly (before we get into what you’re really here for), let’s go over what you are foregoing, assuming you are good enough (read: on the job and politically) to get an A2A (Analyst to Associate) promotion if you wanted it.
You could stay in Banking as an Associate and make some pretty decent money, continuing your path as a sell-side deal junkie. This is what the Investment Banking Associate compensation structure is typically like:
Associate 1: 150+ base 75-250 bonus
Associate 2: 180+ base 100-250 bonus
Associate 3: 200+ base 125-300+ bonus
If you are dead-set on the Investment Banking route for your career, or maybe even branch off into your own M&A shop down the line, this is a path you could consider.
But in most cases, given our current macroeconomic views on what the future years and decades of the Finance industry will look like, we would highly urge you to consider the Buy-Side.
Much of Investment Banking’s appeal comes with the roles it can unlock for you for your next gig. Some of the most popular exits from IB are jobs in the “Buy-Side.” The Buy-Side includes Private Equity (PE and VC) and Hedge Funds. These jobs are essentially *unlocked* by doing a good enough job at your investment bank (at least if it is a reputable bank), and they can be tough to get without IB experience (especially if you want to work in PE).
The PE Associate jobs recruit on cycle, so it is a very formal process each year, similar to how it is with IB. Some top Hedge Funds run more predictable processes but PE recruiting, coming from IB, is certainly much more straight-forward since bankers are naturally well connected to the dealmakers on the other side of the table in PE. VC is a strange and seemingly unpredictable beast dependent on fund needs, networking, and top-group pedigree from investment banks. It is tougher to quantify what exactly is needed for VC entry, as the number of available positions is small to begin with.
There are tradeoffs to each choice, we really want to drive this point home when thinking about all of these different career maps. It can sometimes be hard to get a full understanding of which you will prefer until you get real intern / work experience in the field.
The #1 most sought-after Investment Banking exit-op is the transition from a 2nd year IB Analyst to the buyside an Associate at a Private Equity firm. There are many different types of Private Equity roles (most often when “Private Equity” is mentioned, it is referencing the classic buyout PE shop), so let’s discuss the advantages and disadvantages of going into each.
Private Equity (PE, Growth Equity, Venture Capital):
Private Equity, the cherished golden path of High Finance, where everything is good in the world and you will finally have a strong work-life balance. At least that’s what you have been telling yourself.
In all seriousness, while PE will still require high discipline and focus, it has been a fantastic place to be in Finance over the recent stretch. When compared to its effective peer in the Public
Markets (Hedge Funds), which has recently been losing out mass amounts of capital to robo-advisers, Private Equity as an asset class has been on a quite favorable trajectory.
The great thing about investing roles dealing within private equity transactions, is that you could be well on your way to earn “carry” (read: carried interest) for the money your fund makes. Or at least, have part of your Bonus structure tied to how well your firm invests.
The “spectrum” of Private-Equity investors goes from Angel Investors all the way up to Buyout Private Equity shops.
For the sake of this post-IB career discussion, only pay attention to the Venture Capital -> Growth Equity -> Buyout PE shop funding zone in this chart below:
Venture Capital is funding young businesses and startups that generally have extremely high growth potential. This is a riskier investing model than the model that the standard Private Equity firms use, investing in companies that are more established and have already proven their worth in the market.
VC is an interesting place to be in your career, especially if you are interested in the emerging technologies of the world and enjoy being on the West Coast. However, working at a VC can pigeonhole you into the world of startups / entrepreneurship. If this is something you have interest in, there are still plenty of opportunities within this spectrum to keep you busy, but it is something to be aware of if you don’t enjoy the tech world.
At the end of the day, PE is the most preferred path after IB for a reason. This may not necessarily be what you do until the day that you die, but it is a fantastic career progression coupled with your prior sell-side experience.
You are also typically not buying a controlling interest in the companies you invest in as a VC firm, while the buyout Private Equity shops mostly buy 100% ownership stakes in the companies they acquire. In theory, this allows you to make larger and more impactful operational changes to the acquired business and also grounds your work in a "measurable tangibility" (PE NERD ALERT!) that VC often lacks.
There are also Growth Equity investors who work in between the spectrum of Venture Capital and Private Equity. These Growth Equity firms are often still referred to as “PE shops,” but they operate at a bit earlier business stage than the classic LBO PE Firms. Growth Equity is an interesting fit for you if you enjoy working with early stage companies, but not to the level that you are hoping to scout out the next Snapchat or Zoom from Silicon Valley.
The most common exit opportunity post-IB is Private Equity Buyout Shops, where you acquire more mature companies and work to optimize them, before ultimately selling them in the future for a higher price (usually 5-7 years down the road).
The most sought-after path in Finance is called the “2+2” or “2+2+2” if you go for an MBA, representing 2 years at a Top Investment Bank + 2 years at a MF (“Mega Fund”) Private Equity firm then admission into a top Business School (Harvard, Stanford, Wharton).
This path will set you up for a very prosperous career for practically any area in Finance, or you could even just stay in the Private Equity / VC world for your whole career. Your compensation should be increasing every year you are in the industry (also can be contingent on investments going well, but over the long run they should), and you will be able to cash in big checks when the carry from your fund clears post-exit.
Note that the MF PE shops are super tough to get into, and are generally higher paying than the middle-market or lower middle-market Private Equity gigs, but the huge PE shops will always work the associates to the bone. There can be some more flexibility, and even an increase in personal responsibility for the deal as a whole due to smaller deal teams, found in the middle market.
However large of a fund you end up at, you are setting yourself very nicely for a career on the buyside, or to jump to one of the sponsor companies that you work with if there is one you hit it off with.
Hedge Funds (Public Markets)
Similar to a Private Equity investing role (even more so in a lot of cases), Hedge Fund analysts can end up with a large chunk of their compensation tied to performance of their fund.
The downside to the public markets is that you fundamentally have much less slack to pull on as a firm when your performance can be tracked and updated every minute of the day. The private equity model allows for a much longer timeline for their investments, so you are less at risk of having your seat pulled out from under you on the private market buy-side (PE, VC).
The Hedge Fund industry over the past decade has cooled down due to the rise of passive investors (into index funds like the S&P 500 for example) and the rise of other investment opportunities (crypto, private equity, real estate). In fact, most hedge funds have been outperformed by the SPY over the past 10 years.
These industry headwinds have caused the old HF compensation model of 2-and-20 (HF gets paid for 2% of Assets Under Management, and 20% of the profits of their investments) to shift in recent years to a more normal profit-take % of 15%.
Still, there is a ton of money to be made at the top if you play your cards right, you could make plenty of money and get to learn from some of the top traders in the world. You will not get away with having sloppy fundamentals in the mathematics and technical skills needed as a Hedge Fund Analyst.
Hedge Fund roles are more geared to the quantitative folks who excel at mathematics. In the quantitative finance realm, If you’re smart enough to blaze through the highly challenging and heavily mathematical technical interviews at Jane Street Capital, Susquehanna, or Bridgewater Associates (popular quant HF shops), more power to you! You would be setting yourself up for career success if you can perform up to their standards. In many cases, if that's you, you would be directly working at one of these shops if your quant IQ is 130+, without needing an IB stint (and IB is probably not even preferred for such roles). We won't say much on this topic as we do not fall into this category.
Through any of these options, your total first-year gross compensation will be <at least> $160-200K.
In Private Equity, you spend time learning how to manage a team, the ins and outs of the funding process, and even business strategy to some degree. Alternatively at hedge funds, you become good at mainly researching and analyzing equities, which is an important, yet more specialized, skillset which leads to the future “exit” opportunities being a bit more limited.
There is certainly a lot of money to be made in the Hedge Fund space if you have the skills, the willpower, and eventually, the financial backing.
For some readers this will be your best option, for others it will not be a smart use of your time and early career mobility. We are just here to explain to you the landscape of each opportunity so you know both what you are getting into and what you are passing up on.
Other Common Exit Opportunities:
The other popular exits for bankers after their 2 years analyst stint is Corporate Development, MBA, and Entrepreneurship. Notice that becoming an Investment Banker and completing your analyst program will allow you with huge career mobility. Any company in the business world would love to add an ex-banker to the ranks, as it is proof that you at least are somewhat smart and can work hard.
We will quickly go over each of these 3 other popular routes, which are outside of Buy-side recruiting.
Corporate Development / Strategy:
This exit opportunity is the best path for those that are tired of the long, stressful hours in banking. Your typical Corp Dev gig post-IB stint will be a 9-5, which will free up time on the side for work-life balance (or to work on multiple income streams if you’re smart!).
In Corporate Development, you will be responsible for executing M&A transactions and capital-raising (just like how it is in Banking), except you are now working for a company instead of a bank. The job requires much less of you than Banking or Private Equity would, but you are still making six figures and are doing similar work. You will likely work on the strategy side of the business with former management consultants.
Top 10 MBA (Warning!):
Many bankers will go and get their MBA either directly after their banking experience, or after getting a few years of experience on the buyside. The MBA Route certainly made more sense 15 years ago, when information and opportunities for collaboration through the internet weren’t as built out as they are today. Many PE firms are no longer requiring that their juniors get an MBA, and you undergo massive opportunity cost to forfeit $200k+ jobs while shelling out tuition fees. It is worth noting that your acceptance to a highly touted Investment Bank will certainly help your school placement during MBA Recruiting, as recruiters know it is a tough job to break into.
We would not recommend this route, but it is an option for people on the outside breaking in (maybe they didn’t get a banking offer during their undergrad SA and FT cycle) and people who are looking to make a big career switch. We expect that with every year that passes, the prestige and worth of getting an MBA (even at a top-tier business school) should decrease continuously.
Last but not least is the route of rolling the dice and going out on your own. Perhaps through your stint in IB, you have learned the ins and outs of a market that you cover, and you have a strong game plan set for the next greatest product. Investment Banks typically attract more risk averse individuals, while entrepreneurship is the complete opposite risk tolerance point.
You could win big or you could lose big; most of these businesses end up failing. Don’t think that since you are your own boss now, your life will become super easy and low stress, because you are likely in for the opposite. If you venture down this road, be prepared to face the tough sleepless nights where you are worried that doom is imminent for your brainchild, asking yourself why you didn’t just take the Private Equity job like everyone else did!
In Conclusion: These are your best paths forward after completing your stint in Investment Banking. To recap, the Buyside opportunities are very appealing, but there are also many other ways to make money and better your life.
If these career paths interest you (or let’s be honest: you just want to make some good money), grab a copy of our new book, The Banker’s Bible.
We are confident that you will learn all the skills and tactics necessary to break into Investment Banking and how to maximize your time there. No BS, No Fluff. Just real, actionable, non-mainstream tips and insights from real Wall Street professionals.
Feel free to leave any questions in the comments, or reach out to us via Twitter or via email (email@example.com).
We wish you the best!
The Banker's Bible Team