Investment Banking: How it works, How to be an Investment Banker

4 Mins read

Investment banking is both a complex and rewarding career choice, but what exactly does an investment banker do? 

This article breaks down the different functions of investment banking, how to become one and insights into how they earn.

In this article:

What is Investment Banking?

Investment banking is a financial service that involves the raising and investing of money. The main purpose of investment banking is to raise capital for companies and governments.

They also provide advice on mergers and acquisitions.

Why do companies need investment banks?

Companies need investment banks because they help them raise capital so they can grow their business or expand operations into new markets. 

An investment bank also serves as an intermediary between buyers and sellers in mergers-and-acquisitions (M&A) transactions—in other words, it helps broker deals.

How does Investment Banking work?

Investment banking is the process of raising capital for a company or an individual by facilitating transactions between those entities and other investors. 

The goal of investment banking is to provide financing, advice and guidance throughout this process.

The first step in investment banking involves evaluating a client’s needs. 

This may involve providing financial information about their company and its operations, as well as recommendations on how to improve performance or prepare for future growth.

Once potential opportunities have been identified through research, the next step is identifying suitable buyers who might be interested in purchasing shares from your client(s). 

Banks will often use their contacts within companies or private equity funds to find potential buyers who can make suitable offers on these shares—and they’ll also help ensure that all necessary contracts are signed before any transfers occur so there’s no confusion later down the road (or lawsuits).

two colleagues in a discussion

What does an investment banker do?

  • They identify and evaluate investment opportunities.
  • Based on their understanding of the company’s business strategy, they make financial decisions for it. They also analyze financial data to determine if an investment is financially viable.
  • When a potential investment opportunity comes along, they identify it for further investigation by other bankers or clients. The job of an investment banker is not just to find opportunities; it’s also to help the client decide which opportunities are worth pursuing and how much effort should be put into each one.
  • In addition, when there’s already been some preliminary work done on a deal by another bank or client (like a valuation), they can negotiate deals with other parties involved to get everyone on board with terms they’re happy with before moving forward with any decision-making.

What skills do you need for investment banking?

To be a successful investment banker, you will need to have a combination of skills. These include:

  • Analytical skills – the ability to understand and interpret financial information, such as analyzing market trends, statistics and data. You’ll also need to be able to evaluate securities (e.g., stocks) based on their value and potential for growth.
  • Problem-solving skills – the ability to identify issues or problems in an organization’s workflow processes or systems; find solutions to them; implement these solutions; monitor their effectiveness; make any necessary adjustments as needed over time until you’ve resolved all outstanding issues/problems within your area of responsibility.
  • Communication skills – the ability to express yourself clearly in writing or verbally so that others can easily understand what it is that you’re trying to say.

How to get into investment banking

To become an investment banker, you’ll need:

  • A bachelor’s degree in finance or economics: You can get a master’s in business administration (MBA), including classes that will prepare you for investment banking interviews.
  • Investment banking experience: This could include internships at large banks and private equity firms, or even small boutique firms focused on specific industries such as energy or real estate. If you have no background but have determined this is the career path for you, consider taking a job in another area of finance at first before applying to positions directly within an IB department (such as corporate finance).
  • Passing CFA exam level III or FRM exams: The Chartered Financial Analyst (CFA) professional designation requires passing three levels of exams that test knowledge of financial concepts like valuation analysis, asset allocation theory and macroeconomics as well as practical skills such as portfolio construction techniques used by investment professionals worldwide every day.

Investment banking is a challenging and exciting career choice. You’ll be working in teams and on projects that span across multiple industries.

How much do investment bankers earn

Investment bankers typically earn a base salary, plus bonuses. However, the more senior and experienced you are, the more your compensation will resemble that of a partner at some firms.

To maximize your earning potential as an investment banker, you’ll need to focus on two main areas: maximizing your own performance and networking.

Investing time in these can help you become one of the top performers in your department or group (and thus earn higher bonuses), as well as get noticed by senior management and make connections that could lead to promotion opportunities.

What is the difference between banking and investment banking?

Banking is a financial service that provides credit to individuals and businesses. The lending activity of banks is called commercial banking, or corporate banking when it specifically involves large companies with several thousands or more employees. 

Retail banking services are usually provided at local branches of national institutions, such as by a branch of a multinational bank.

Investment banking is another form of financial services and it differs from commercial banks because it focuses on providing advice, underwriting securities and helps in the trading of securities rather than granting loans to individuals or companies.

Investment bankers work on behalf of clients who need their help in raising capital through issuing stocks and bonds; they also help them buy properties such as land or property owned by other firms (both private companies and public corporations).


Investment banking is a challenging and exciting career choice. If you are looking to make a real impact on the world, an investment banking job could be one of the right options you need. It also offers great opportunities for advancement and earning potential over time. However, it does require a lot of hard work and perseverance to be successful in the industry.


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