A Career in Finance?
Finance attracts a lot of attention from young folks because of multiple reasons. It attracts young minds who are highly ambitious and want steep growth in their careers. While finance is not the only industry to provide a springboard to one’s career, it is definitely one of the most competitive & sought-after domains.
A career in finance can be exciting, rewarding, enticing, tempting, luring, exhaustive – depending on multiple factors. And it can be fiercely competitive to break into. After all, it’s a famously high-paying industry known to pay six or seven-digit dollar figures for these at the top. As a young professional or a student aspiring to work in finance, it’s very important to understand the industry and how it is working in the specific divisions.
Different Career Options
Finance is a very broad field and offers a lot of career options. Each one has it’s own flavor and essence and it’s way to serve the financial services industry. Different career options in the field of finance include – Investment Banking, Private Equity, Venture Capital, Hedge Fund, Public Accounting, Portfolio Management, Risk Management, Financial Planning, and Compliance and Internal Controls.
While each of these verticals has its own purpose and work, here we primarily draw our attention to four verticals that are some of the most intense and assumed to be very glamourous career options – Investment Banking, Private Equity, Venture Capital, and Hedge Funds. These career options are usually open to B school grads(especially in India), but we’re committed to helping undergraduate students to take baby steps in these industries.
Why you should consider finance as a potential career option?
The first thing that entices and lures a plethora of folks towards finance, and the four verticals we’re about to explore, is the fact that the field has some of the highest-paying entry-level positions. With growing experience and continuous hard work, one can quickly make giant leaps in one’s career and experience a generous increase in compensation. This however should not be the only motivation to break into the industry, especially at an early stage in one’s career.
The learning and growth opportunity is one key factor why this industry is considered by a lot of folks. If you are looking for a career with clear progression routes, finance is the career for you. The growth opportunities are endless, whether it’s within the same company or elsewhere. Having a job in finance gives you an opportunity to grow always keeping you on your toes. Hard work and motivation in this field can help reach heights.
It is a dynamic industry. It’s exciting, challenging, and fast-paced. The industry runs at an exhilarating pace. Lots of people who work in the finance industry enjoy the many challenges that they face on a daily basis. Almost every finance job requires problem-solving skills and some of your day-to-day tasks may involve fixing complex problems for large or small companies. If you are someone who thrives from this type of activity in a fast-paced environment, a career in finance is the one for you!
Another reason why a lot of people break into the verticals like Investment Banking is that it provides a great exit opportunity. It might sound a bit weird to think about the exit opportunity while starting a career, but break into these divisions is usually rewarding and opens up a lot of scopes to break into other fields as well.
If the startup ecosystem excites you, VC can be a very good career option for you(although it’s incredibly tough to break into as an undergrad in India). The Indian startup ecosystem is booming. There are numerous numbers backing this. India is not the future as far as the startup ecosystem is concerned, it is the present! The number of micro VC funds(active fund size < $30 million) in India increased from 29 in 2014 to 88 in 2020. This number shows the sheer opportunity to be a part of the startup ecosystem that is incredibly rewarding and intellectually stimulating for a number of folks.
The list can go on. But it depends on you that which is the one reason that excites you to break into the world of finance. We’ve covered some exciting topics to help you know more about the world of finance. Also, every coin has two sides. We’ll also make you aware of the downsides of working in the industry as well. We cover informational topics, recent deal activities, and blogs focused on Investment Banking, Private Equity, Venture Capital, Hedge Funds, Management Consulting, startups, and much more! So stay tuned and be ready to take a giant leap in your career!
But what is Investment Banking?
If stocks, underwritings, valuations are the terms that captivate you, following the financial market and keeping track of large corporate-level deals excite you, then investment banking can be a very promising(dicey?) career option for you.
So let us define what Investment Banks(IBs) do, in the simplest and layman’s term. IBD transactions or deals are large corporate-level transactions such as buying or selling an entire company, restructuring a company, or helping a company raise money that it might need through the issues of either debt or equity. Investment Banks usually act as advisors so the way it works is, we have say a company X that’s looking to sell itself and a company Y that’s looking to purchase the company X. We have one Investment Bank, say Goldman Sachs acting as an advisor to the company X and another Investment Bank, say, JP Morgan, acting as an advisor to the company Y. So the two companies along with the two IBs are having an ongoing discussion to see whether a deal is possible and if it is, what the terms of the deals or what the economics of the deal should look like. Obviously, all the discussion happens behind the scene but if an agreement is reached, then a public announcement is made and the two advisory banks end up receiving a percentage of the size of the deal as commission.
However, if your inclination towards IB arose after going through some of the famous TV shows or movies depicting the ravishing lifestyle of investment bankers and the hot-shot wall street stuff, then you should consider taking a step back and realizing the working of the industry in a better way. The glamour, fame, and all is something which most people are attracted to, but unfortunately, that is not the case especially at junior levels.
So, this is what an Investment Bank does, in a nutshell. We can further classify different divisions within the Investment Banks and can dwell deeper to understand each and every vertical. We’d be adding more exciting and in-depth stuff in the series of our Investment Banking blog. So, gear up for something exciting!
What is Private Equity?
As the name suggests, Private Equity is composed of money being invested in private companies. PE funds take money from other companies and rich people and invest that money in buying and selling businesses.
Let us break down Private Equity in two terms. The term Private means that PE funds are mainly interested in acquiring private companies that have not been listed on the stock exchange, and equity because PE funds are exclusively focused on equity investments. After raising a certain amount, the fund is invested in a certain sector. The PE funds then work on those companies to improve them and sell them off at a profit in a few years’ time. So, unlike a hedge fund, private equity is long-term investing. Some PE funds might focus on young companies with high growth prospective and a promising management team, while others might be interested in established companies with stable cash flows, LBO transactions. PE funds also invest in distressed companies, an area that is in overlap with hedge funds.
So, this is what most Private Equity deals try to achieve – acquire a majority stake in a business, work on the growth of the business, improve it’s profitability, and then exit the investment in a 5-10 years period. We further dive deeper into the world of Private Equity to analyze ins and outs of it. Check out more for further insights about PE!
The world of VCs
Let us break down the term Venture Capital. Venture, meaning a new business that ventures, and capital, meaning the capital investment needed for the new venture. Hence, VC firms(or venture capitalists) facilitate new businesses by the capital needed for them in order to grow, expand or establish the young ventures.
Venture Capital firms raise money from different sources – family offices, pension funds, endowments and invest in early-stage high potential growth companies. If someone is extremely passionate about startups and wants to use the role to learn and build a network, then VC is certainly a place to be in. VC firms want people who are passionate about startups, highly articulate, and capable of understanding the market/customer side in addition to the technical product details. Late-stage and growth equity firms care more about deal execution and financial analysis skills, such as the ones you might gain in IB and PE roles, while early-stage firms care more about your ability to network, win meetings, and find promising startups. Most venture capitalists spend the bulk of their time on deal sourcing, deal execution, and portfolio company support. Junior VCs spend more of their time on deal sourcing and deal execution, while senior VCs, such as the Partners, spend more of their time on portfolio company support.
We have a dedicated section where we discuss everything about Venture Capital. How the VC firms operate and how they invest in an early-stage startup, the different rounds of funding, how they are different from angel investors, and how do they make an exit. Follow along to read more about the fascinating world of startups and VCs!
What exactly a Hedge Fund does?
Just like we did in the case of Private Equity and Venture Capital, let us break the term Hedge Fund to understand it more intuitively. The term hedge means to protect money and the term fund means a pool of money. So essentially hedge funds are meant to protect money. If you’ve been following the hedge funds, you’d be knowing that they are not that simple. With time, hedge funds became riskier and riskier because of the investment they made, and hence it’s not fair to say that Hedge Funds are meant to “protect money”, especially in the modern-day world.
Like PE funds, hedge funds take money from their clients and invest it in the financial market. But unlike PE funds, hedge funds take a huge amount of risks – that means it can either have a huge profit or it can face huge losses. One reason why hedge funds have the luxury of taking higher risks is that they are not that as regulated as the other parts of the financial markets. Hedge funds also use a lot of leverage. Leverage typically means magnifying your trades by taking debt. So basically you’re borrowing money from someone else(that isn’t yours, obviously) and you’re using that money to invest in the market in order to get more return.
We further discuss more hedge funds in detail in our hedge funds section. Although hedge funds are not that popular in India, we cover some exciting terms related to hedge funds, some crazy and insane past performances, and their roller-coaster working in the financial services industry. Check out our content for more exciting concepts!
