An investment banker who is also an entrepreneur explains how to select a good investment banker.
Business owners, take heart: if you feel that the investment-banking community is trying to pigeonhole you into a corporate reality that doesn't fit the entrepreneurial world, relief may be in sight. That's because a small but growing cadre of investment bankers is rising not from the ranks of business schools or Wall Street brokerages but from fast-growth business ventures of their own.
One such person is Bill Vogelgesang, a senior vice-president at Brown, Gibbons, Lang & Co., an investment-banking firm based in Cleveland that concentrates on middle-market companies. "I've crossed back and forth between the two worlds -- most recently when I helped start a company called TBN Holdings. We launched it with two computers, a desk, and an idea, which was that the resource-and-recycling industry was ripe for consolidation and better management. By the time I left the company, it was on track to do $70 million in revenues. There's a tremendous allure that comes from creating value.
"But entrepreneurs don't realize that investment banking is also a very creative, high-energy job -- especially when your clients are smaller, fast-growing companies. You can't rely on cookie-cutter approaches. You often have to stretch for solutions that are outside the box.
"But then, there are differences between the two worlds -- really important ones. Investment bankers are historically well compensated. It's sometimes difficult for them to understand the real pressures that entrepreneurs face every single Friday, when they've got a workforce of people that they've got to figure out how to pay.
"As for hiring an investment banker, it's risky when an owner just hires whichever banker knocks on his or her door and displays any interest in the company. Owners need to take control of the relationship by considering a range of bankers.
"To do that, they first have to figure out exactly what problem they need to solve. Do they need capital or a strategic partnership? To go public or simply to borrow funds at the lowest available rate? Is their industry so specialized or complicated that they need an expert's aid? Once they know the answers, they can start to select the best banker.
"Business owners should ask everyone -- accountants, lawyers, other entrepreneurs -- for suggestions of investment bankers who have solved similar problems. Then they should interview a handful of candidates, asking for details on similar transactions they have completed, a list of client referrals, and specifics about how they believe they would solve the problem at hand.
"Most important of all, though, entrepreneurs should trust their personal instincts. They are hiring a person, not a firm. I believe it is essential to feel an emotional connection as well as a rational one."