Investment Bank Overview: Working With An Advisor

July 6, 2022

Investment banks can provide a tremendous amount of value to your business. This might be most clear when it comes to assisting with a sale process or preparing for an IPO, but advice and guidance often begins well before a transaction.

You don’t need to be actively pursuing an exit to begin speaking with banks. Building relationships early on can provide perspective on who would be the best partner down the road, and are often great resources before engaging as well.

Identifying which banks to reach out to

Start with reaching out to banks most relevant to your company. Most banks have a page on their website dedicated to sector-specific transaction experience and credentials for you to reference.

Make a list of banks that meet the following criteria:

  1. Advised peers. If you can find a sell-side advisor that works with companies you consider to be peers or are in a tangential space, there’s a strong chance that they’ll have relevant experience to help your business. This information is accessible through press releases, bank websites, and third-party sources like Pitchbook and FactSet.
  2. Aligned with goals. Identify banks that specifically serve your valuation range and sector. A bank’s valuation range can be determined via a typical deal size and deal volume. You can find this through data providers (e.g., 451 Research, Pitchbook), your investors, bank websites and conversations with the banks themselves.
  3. Recommendations. Making the right decision isn’t just about which bank you choose – it’s also about the lead banker and the team. You’re looking for clear communication and people you can trust. Ask for recommendations from your network and investors to ensure you find an advisor who you can work with successfully.

Adding value before a formal engagement

Once you’ve made a list of strong candidates to engage with, it’s time to begin making introductions and building relationships. Meet with banks one-on-one and keep a regular cadence, aiming for five to six interactions per bank. As time permits, it can be helpful to initiate relationships with two to three new banks per quarter.

Remember that banks can be an extremely valuable resource for your business even if you don’t pursue a formal engagement with the institution.

To get the most out of banks as you make introductions, keep the following tips in mind:

  • Assess their knowledge of your market and acquirers, existing relationships, deal skills and relevant transaction work for vetting purposes.
  • Give your story–it will naturally be relayed and amplified throughout the ecosystem by the banks (read: free viral marketing).
  • Ask for feedback on your deck, positioning, and more.
  • Use them as a source for acquirer and market intelligence.
  • Ask for warm introductions to target acquirers.

Maintain exposure with bank conferences

As a part of larger liquidity event planning, investment banking conferences provide opportunities for CEOs and founders to position their business to both strategic and financial backers.

Bank-hosted conferences and events offer speaking opportunities and pre-arranged one-on-one meetings. They are typically attended by large tech acquirers, private equity investors, VCs, and customers. Participating in these events can be a time-efficient, targeted way to gain exposure to relevant audiences and amplify your story.

Be sure to ask the banker advisors you connect with about any upcoming conferences. Aim to attend one or two per quarter. You’ll want to prioritize events with speaking opportunities and those that best suit your needs (i.e., later stage versus start-up focus, strategic buyer versus PE focus, large versus intimate, etc.).

The best way to extract value from conferences and events is through one-on-one sessions. Visibility and interaction with buy-side accounts during these meetings are critical for exposure. You have a chance to convey your story to potential investors, address unanswered questions, and expand on an investment theme. Evaluating attendees and their availability for one-on-one meetings is a great way to prioritize which conferences are most worthwhile.

Leveraging your investors

Your investors will be an excellent resource as you begin building relationships with banks and gaining exposure through conferences and events. Use them to help you refine a list of the most relevant banks. They can also help to educate bankers on your business before facilitating an introduction.

These investors are also extremely valuable soundboards and provide network opportunities as you prepare for conferences. They can provide introductions to people of interest and help you prioritize attendees for limited one-on-one sessions. Your investors may also be able to work with bankers to ensure you have access to top-priority one-on-ones. If your business plans on a speaking engagement, you may want to have your investors collaborate on or review your narrative and presentation materials.

Most importantly, your investors can be extremely effective points-of-contact between you and prospective banking partners. Though it’s important to stay connected with bankers, it’s best to leave the majority of relationship management to your investors so your team can remain focused on execution.

Preparing for a formal engagement

Once the time comes to plan an exit for your business, engaging an investment bank as your advisor can substantially improve bandwidth. They are also valuable in providing certainty around process and driving deals to a close.

Some value-adds include tailoring marketing materials to a specific set of target acquirers, serving as a buffer to potential buyers so you don’t sour a relationship (commercial or otherwise), and freeing up your team to continue running the business rather than running the process. It cannot be understated that sale processes, IPOs and other liquidity events are incredibly time consuming and banks are experts at lightening the load.

The selection and engagement process generally follows these six steps:

  1. Narrow down your top two or three banks. This shortlist will be determined by their relevant deal work, market knowledge, buyer relationship, and culture fit.
  2. Invite these banks for a formal presentation. Your top selection will pitch your management team and board of directors on why they would make a great partner. Ideally, they should address how they’d handle the sales process, specifically in terms of estimated range of value, prospective buyers, and positioning.
  3. Collect feedback and call references. Have your board of directors provide feedback on the presentations, while noting their preferences and concerns for each institution. Banks will often have contact info available for former clients who can serve as reference – ask for a few and make reference calls to gain additional perspective.
  4. Request an engagement letter. Investment banks tend to structure their fees as a combination of retainer and success fees, and as a result may be open to negotiation. Pay close attention to terms on exclusivity, term length, tail period, termination, and expenses.
  5. Review and negotiate terms. It’s important to ensure that the terms of the engagement letter align the outcomes correctly. Be sure to review with your board and legal counsel to redline any necessary changes. From here, negotiate a mutually agreed upon arrangement.
  6. Make a selection. Sign the final engagement letter with the bank of your choice. Congratulations! You’re ready to hit the ground running.

Review and download the OpenView Investment Bank Overview slide deck for more tips on navigating the networking and advisor selection process, as well as key assessment criteria, term definitions, and more.

Sam Johnson Headshot

Corporate Development Associate

Sam is a Corporate Development Associate at OpenView, where he supports creation and execution of strategic and financial outcomes across OpenView’s portfolio, including M&A, private capital raises, IPOs, and secondary transactions.