4 Lessons Learned About Picking An Investment Banker

Justin recently shared his perspective on selecting an investment banker. He was on the front lines of finding and working with, our investment bankers at our last company. By proximity, I was often around during his conversations or meetings with the various bankers he was considering.

I wanted to share some of the things I learned along the way.  I should say that this is based on one really bad investment banker experience, about seven years ago, and one really amazing experience with a different firm when our company was recently acquired.

Lesson #1: Yes, you do need an investment banker

First things first. If you are considering a liquidity event or acquisition, do you even need an investment banker? In almost all cases, yes. You do. We had tons of inbound acquisition and investment interest in our company, and we never really entertained any of it. However, when one particular buyer/investor was persistent, we started considering their offer.

I am going to skip the gory details, but it was exhausting, it was a roller coaster, it was emotional, it was a lot of work, and it was very distracting. And in the end, it blew up, so all that effort and distraction was for nothing.

Investment bankers shield you from a lot of the ups and downs of deal-making, they do a ton of work shaping your message and your position, they build demand and market value, and more than anything, they are experienced. This isn’t their first rodeo and they have a tremendous amount of perspective and expertise to lend.

When you hire the right investment banker, you turn the whole process over to them. Of course, you have work to do, but they run things for you, and it is very important to have that support.

Lesson #2: Yes, you are being sweet talked by potential investment bankers

I think it’s important that founders go into the investment banker selection process with eyes wide open. At the end of the day, investment bankers are selling you their services, and you are going to pay them whether or not they attain an outcome for you. So they do have some motivation to make you like them, and to tell you what you want to hear. Don’t get me wrong—it’s not that it’s intentional. They only want to work with the types of companies that are good fits for them, and for which they get a big payout, so it’s not that they are totally blowing smoke….but, also, they sort of are making it all rainbows and puppy dogs. Many bankers we talked to glossed over the details.

I personally loved having dinner with potential investment bankers. It was fun to talk about the industry, other deals they had done, what was happening in M&A, funny stories, gossip about other companies, and more. But, when the conversation turned to our company, and why they were the right bankers for us, it was a lot of flattery, vague statements about trends, a few top-line numbers, and a whole lot of sweet talk. Many of them were really good at making you feel they understood your specific business and market, but it was a bit of a song and dance.

Usually, when I would ask specific questions about why they thought the value was what it was, or what they thought of our customer retention, or our CAC or something, they would all turn to their analyst—the youngest, least experienced person on the team—for commentary. Because that was the only person on the team who had actually given our data more than a cursory glance. The more meetings we had, the tougher my questions got and the more I realized just how shallow their grasp was on our company. Don’t get me wrong. Investment bankers have incredible knowledge and relationships and are skilled door openers, value builders, and negotiators. I think this point is just something founders need to be aware of.

The bankers we ended up picking (who I LOVE, LOVE, LOVE) did a little sweet talking. But they were also realistic and pragmatic. They talked about our company’s warts when no one else did. We knew our problem areas and we wanted real conversation about them—we wanted to know what the strategy was. The bankers we selected dug in with us and weren’t afraid of those conversations. The entire team knew our business, not just their analyst. They also talked about how hard it is to sell your company, how trying it was going to be for us, how emotional it was. They really prepared us for what was ahead. It was so refreshing. I was grateful for their authenticity and honesty.

Lesson #3: Know who you will actually be working with

At the end of the day, an investment banker is providing a service, just like an advertising agency, a PR firm, or a lawyer. Having hired enough of those in my day, it was pretty clear that the people pitching us weren’t the people who would actually be working with us, day in and day out, during the process. I don’t like being pitched by the best and then handed off to people who weren’t part of the pitch conversations. That leaves room for missed expectations, gaps in process, etc. Know who you will be working with, and make sure you are comfortable with them.

Lesson #4: The most important thing is culture fit

The most important part of selecting an investment banker is finding the right cultural fit. We were a company who lived and breathed our metrics and data. There wasn’t a number you could ask us about that we didn’t know, or know how to quickly get our fingers on. So, when we asked about how our numbers related to our value, and conversations broke down, it just didn’t feel right to us.

Likewise, when every case study and story a banker had was about helping VC-backed companies exit, I couldn’t find a storyline that fit with our bootstrapped company. When I asked about other clients that were similar to us, there was hemming and hawing and nothing concrete. And, that just felt like culture mismatch. We weren’t a VC-backed company, and we didn’t operate like one.

The investment banking firm we ending up selecting was led by an experienced business operator. So he spoke to us not only from his position as an investment banker but also from the perspective of someone who had lived in our shoes. He got us. It was so clear he understood what we were going through and what our day-to-day was like. Because of that, it just felt like a natural fit. It was also clear he was going to stay involved in our process (See lesson #3) because he spoke really specifically about what his role would be, and what the other team members role would be. He didn’t shy away from that conversation, he told us which calls he would be on, which he wouldn’t, etc.

So, which investment banking firm should you pick?

Pick the firm you can see yourself authentically, productively working with for 6-12 months, and who you trust to maximize the value of your organization.

Select your investment banker based on chemistry, culture fit, trust, and respect.

Pick the firm that feels right, deep down in your gut. That might not be the most obvious choice. It might not be the firm who throws around the biggest valuation. It might not be the firm with the fanciest deck. Or it might be the firm who checks all of those boxes.  It’s a big decision and there is no crystal ball, so pick the one that feels right and who ‘gets’ you and your company.

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