Q:Hi, sorry about the insecurity here but am I really ready for banking? I'm 19 but feel 12 when it comes to 'real world' things, and don't feel I'm near competent enough at all

lololfaggottron-deactivated2013

In the beginning, everyone who knows what they are getting into, feels overwhelmed and under prepared. I felt the same way, even after my summer investment banking internship.

The key is faking it until you make it. I know you’re creating your first resume right now. Focus on finding a template online or try copying one of your peer’s formats.

At the end of the day, don’t let common objections slow your progress. Definitely apply for the position and focus on networking. At your age, there is really nothing to lose and everything to learn.

Good luck.

How To Purchase Facebook IPO Shares If You Decide To

Everyone’s talking about Facebook’s upcoming IPO. Regardless of if you want to invest, this post should help you understand the IPO process, find out if you’re qualified to purchase Facebook shares, and provide some opinion on the valuation.

To become more familiar with the offering, immediately check out the most recent SEC S-1 filing and the road show video. Focus on the filing, if nothing else check out the: prospectus summary (p. 1), selected consolidated financial data (p. 38), business (p. 84), and description of capital stock (p. 148).

As expected, the video is heavily scripted, biased, and focuses on the potential with their number of users. However, you don’t have to watch all 30 minutes; here’s a link to summarization. Also, if you want to balance out the melodramatic Zuckerburg, glimpse at the Facebook tag on Tumblr.

Facebook’s IPO Process
There are many reason why a company may want to go public, most notably, to raise capital and provide a liquidity mechanism for investors. There are no earnings, cash flow, profitability requirements for a company to IPO (outside of exchange requirements). This means a good IPO candidate can be a new, untested company.

Here’s the Facebook IPO timeline:

  • February 2012: The company files a S-1 with the SEC. The SEC and investors approved of the IPO.
  • April 2012: Facebook chose to be listed on the NASDAQ - getting a pretty sweet deal and will be given the FB ticker.
  • Current Stage: Investment bankers solicit interest from institutional clients during what is called a road show. Right now the price range is $28 to $35 per share. The approximately 337 million shares will bring in $9.4 billion cash at the low end of the range.
  • As early as May 18, 2012: Shares will be priced.
  • Sometime after May 18, 2012: FB will IPO, receiving cash for their shares. Plus, a few of FB’s executives, employees, and relatives will celebrate the NASDAQ opening bell. After which, the shares are open to the public.

The type of IPO auction is important to note. FB will be using the traditional allocation method, while 5 years ago, Google used a dutch auction. This partly decides which retail investors (you and I) will have access to the shares and how shares are allocated.

Participating in Facebook’s IPO
20% to 25% of the 337 million shares could be allocated to brokerage firms like TD Ameritrade, Charles Schwab, E*Trade, or others catering to small investors. Here is the general process to participate:

  1. First thing you should do is call your brokerage house. The brokerage should have an IPO department. This department will first see if your account is qualified, confirm you’ve read the prospectus, and understand the risks. For Charles Schwab, qualifying means having over $100,000 in household assets or having traded more than 35 times in the last year. Sometimes you’ll be asked to fill out an additional IPO form; I know E*Trade does this.
  2. Place a conditional offer to purchase IPO shares. Tell your broker the number of shares you want to purchase and the maximum price per share you are willing to pay.
  3. Once the price is set by FB’s underwriters, everyone has to reconfirm their conditional offer. The window for the reconfirmation is small (sometimes 1 trading day or 8am to 4pm EST) so make sure you check your IPO center and sign up for email updates. You will be able to change the price OR quantity of your conditional offer while the window is open. Remember, this also means changing the quantity to 0.
  4. Distribution of shares will depend on the allocation of shares your brokerage receives, demand for those shares, and finally how valuable you are as a client in terms of length and assets.  
  5. Standard commission rates will apply. You can’t, however, flip the IPO. If you’re planning on selling your shares the first day, think again. The brokerages will be upset and possibly penalize you (refer to your broker’s policy) by freezing your account. Normally, you will have to hold the security for 30 days after the IPO date.

Demand for shares will influence if shares will pop or drop on IPO day. FB is likely oversubscribed, meaning there is high demand and the syndicate of underwriters will not have to support the price. So now let’s talk about one of the factors driving demand, the valuation.

Opinion: FB Valuation
Now that you know if you’re eligible or not, let’s talk about FB’s $100B valuation. Firstly, not many IPOs have been successful (refer to the image).

There is a lot of information and opinions on the valuation. Below are a few points that have influenced my opinion in the recent weeks:

  • There are 2 main sources of revenue for FB: payment integration and advertising. The ability for payment integration has created an opportunity for companies like Zynga to thrive. When you have 3rd party developers building apps, it increases interaction of your platform like it has for Apple. At the same time companies are users to sign-on using FB making the business pervasive like Microsoft. On the other hand, because of the information supplied by users, advertisers can have more targeted campaigns than possible on Google. Both of these have great potential for growth.
  • Zynga and other developers are diversifying onto other platforms. Additionally, many services allow you to sign-on with Twitter instead of FB.
  • It is cheap to start a social network, but costly to run one. More employees, servers, and infrastructure will need to be added in the future, decreasing margins.
  • I don’t like the FB interface. Zuckerburg boasts about FB’s hacker mentality - creating a program with the minimum viable features and letting the user decide if it’s successful. Personally, I think FB needs a much better design. This culture is great when a company is just stating out and the innovative users are excited about the product (see next pt.); however, as the company grows, it should better its products.  
  • As the number of FB users increases, the coolness factor decreases. Many have thought that is the sole reason for $1B Instagram purchase. The market is only going to grow more competitive and so the number of acquisitions will have to increase. That compared with social media fatigue will impact revenues and time spent on FB. On the other hand, the more people on LinkedIn, Twitter, and Tumblr the better the service since people want to connect, follow, and increase their exposure. The more friends you have the less you can interact with each of them and FB is a personal network first.
  • I believe the valuation is too high. You can test your own valuation using this FT valuation tool. Refer to the table below for my logic:

          

  • FB had an awesome move made about the founder and the company: The Social Network. This matters because the glorification of the company has an impact on the oversubscription of IPO shares. People who have never bought an IPO before, will seriously think about participating in this one.
  • Users are important to FB and it’s priced at $1.11 per user and around $1.50 per active user based on a $100B valuation. That is much less than the $33 per Instagram user. Plus, the market potential outside the US is still great. Even in the US, young people create accounts and use them almost as soon as their born.

All in all, I may participate in the IPO if I’m confident the pop on the first day of trading will be large enough. For that to materialize, the shares would have to be priced at the very bottom of the range. At the same time, I believe the shares will drop significantly in the short term (60 days or less) presenting a buying opportunity well below the IPO price. Furthermore, in the next five years, the market capitalization has the potential to reach Google’s size.

I’ll be posting my thoughts and final decision on Twitter as the IPO date moves closer. Tweet me and let me know what you think. Also, read the investment disclaimer.

*Update 5/15*: Shares are 25 times oversubscribed according to a recent NYT Dealbook article. Subsequently, FB is raising their price range to $32 to $38.

Additionally, Bloomberg predicts online advertising to grow to $10 billion within the next year. Plus, FB is planning on adding diversity to their company by searching for female executives. The changes in management will be announced after the IPO.

Finally, today is the last day to decide if you would like to purchase IPO shares.

Q:Hello, as a young person about to start college and still undecided about careers, I've been looking into investment banking or stock brokerage.But I've heard it's incredibly harder to get these jobs without connections to investment banks and firms without connections and contacts. Since I have none of these "connections", is it worth pursuing? Or is there a way to somehow build contacts?

unsalted-butter

Hi, you should check out my advice to freshman and my post on overcoming your objections.

Connections would be great, but many bankers didn’t have them before they started networking. You’ll have plenty of opportunities to network once you’re in college- career fairs, alumni, and lots of other events.

That said, do you live in Australia? I’m not very familiar with banking “down under”, but a friend of mine who studied there told me it was harder to cold call, not because the culture is formal, but because bankers are usually more senior. Honestly, regardless of your background, connections, or the countries culture, you can’t go wrong be simply trying. In fact, my friend ended up with a summer internship in banking.

45 posts, 10 templates, 300+ flashcards, and over 20,000 words later, I have finished my ibanking recruitment series. Today I went back to: Organize - All the posts are now under the “page” on the left bar of my site. Additionally, I re-tagged everything. Check it out here. Edit - As I noted earlier, I was aiming for completion. As such, the quality of the posts and grammar suffered. That should now be fixed. Add Information - Quite a few posts have been completely revamped with summaries, formatting, and new information. Recruitment doesn’t change drastically from year to year; however, if it does, I’ll go back again and add even more information. Insert Pictures - Finally, I added Mad Men pictures to each of the posts for some added fun. This season looks great! Okay, so I guess the section isn’t entirely complete. While all the posts are complete, I’m still adding details here and there. Namely, a few of the links in the Finance Q&A Guide are missing (will be fixed soon); however, no new posts will be added. Whew! Now that that’s accomplished, look forward to a few changes to the appearance of the site, and of course, new posts. Cheers followers!
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45 posts, 10 templates, 300+ flashcards, and over 20,000 words later, I have finished my ibanking recruitment series. Today I went back to:

  1. Organize - All the posts are now under the “page” on the left bar of my site. Additionally, I re-tagged everything. Check it out here.
  2. Edit - As I noted earlier, I was aiming for completion. As such, the quality of the posts and grammar suffered. That should now be fixed.
  3. Add Information - Quite a few posts have been completely revamped with summaries, formatting, and new information. Recruitment doesn’t change drastically from year to year; however, if it does, I’ll go back again and add even more information.
  4. Insert Pictures - Finally, I added Mad Men pictures to each of the posts for some added fun. This season looks great!

Okay, so I guess the section isn’t entirely complete. While all the posts are complete, I’m still adding details here and there. Namely, a few of the links in the Finance Q&A Guide are missing (will be fixed soon); however, no new posts will be added.

Whew! Now that that’s accomplished, look forward to a few changes to the appearance of the site, and of course, new posts. Cheers followers!

Investment Banking Networking Guide

       Street of Walls Image

Your strategy should reflect the amount of time you have left. Refer to the recruitment timeline image above and focus on the immediate future (within a year) when setting goals. Generally, you should follow this schedule:

  • Make a list of contacts and start contacting people
  • Get referrals and focus your efforts on the most helpful contacts
  • Set up informational interviews
  • Set up a couple weekend trips
  • Follow up with everyone you connected with
  • Rinse and repeat until applications are due

Quantity and quality are important when formulating a networking strategy. Here are my tips so that you can maintain both efficiently.

  1. Quantity - Keep a list of contacts in Excel. As you can see from the worksheets, list prospective contacts and people who you have already contacted. Add another tab if you’d like to separate even further by categories where you met the people. The number one mistake you could make is not reaching out to everyone. Look at the researching banks post for more guidance.
  2. Quality - You’ll be sending a lot of emails. Check out my templates and process for build a relationship (cold and warm) with your contacts. The goal is to build a relationship not simply contact a bunch of bankers.

                               

Finally, utilize the right tools to achieve your goals. Email has been around ever since the dawn of the Internet, yet it hasn’t evolved very much. Here are some ideas to help increase your organization and productivity:

  • Instead of using Excel as your relationship database, I would recommend using a CRM (customer relationship management) system. In hindsight (20/20), the situations you are in, are very similar to something an enterprise software sales rep deals with. There are several free CRMs available. Personally, I like Insightly, however you do need Google Apps for the software. Base CRM is a decent alternative.
  • Keeping with the same trend, I would suggest tracking your emails. Yes-ware is a free Chrome extension that allows you to see who has opened your emails.
  • Finally, the number one mistake you could make is not contacting everyone available. Utilize social networks, career databases, and friends to the fullest. Refer to the Excel file above for some more ideas.

Interview preparation is quite standardized since there are guidelines and an established process. In my posts, I have attempted to do the same for networking. However, your interactions will never be the same, since each relationship is unique. Remember, interview preparation is a science and networking is an art, but both can be improved through practice.

Practice For Interviews With Flashcards

                                    

At one point, when I was going through recruitment, I practiced with flashcards. Three quarters of the cards were passed on to me from a previous candidate. Now I hope the deck will help you.

Since you can’t always practice with peer, career service representative, or banker, flashcards are the best way to practice independently. As you get a handle of each of the questions, work on making your answers more focused, making your answers interesting, and practicing improving your etiquette. I would recommend:

  1. Practicing out loud
  2. Recording your voice (a test for a phone interview) or tape yourself using the webcam (a test for in-person interview)
  3. Showing off your interview etiquette while practicing

By the time you evolve to mock interviews with other people and informational interviews, you should be very well prepared for investment banking interviews.

As you can see in the Finance Q&A Guide, there are two types of interview questions: behavioral and technical. Each of the posts have questions and answers set up. If you would like to practice your behavioral interviews, check out:

For technical interviews, the decks are embedded in the posts. As time passes, I will be adding more questions and decks with your help.

Again there is a thing as too much practicing. Remember the Pareto 80/20 rule when it comes to interview preparation verses networking. Practice a dozen to half a dozen times and then move forward.

Finally, if you want to see all of the cards in one location or on you iPhone, you can. All of the cards are located in Quizlet, where my username is Cap_Concept. Shoot me a quick message if you would like to share your own deck or add Q&As. Quizlet makes the process convenient.

Researching Investment Banks

                                     Analysing the Banks

I have mentioned many times that it is important to do your homework before approaching an interview. But what does that entail? This post is designed to help you get the most of your research, and a long the way, learn a little bit about the differences between banks.

Ranking Investment Banks
Banks generally fall into 5 main categories:

The “Rep. Level” corresponds to the reputation of the category as perceived by the industry. Additionally, your experience, bonus, and exit opportunities will vary depending on the level. Hours depend on the deal flow.

At the end of the day, this information is important for your application strategy. Similar to college applications, diversifying where you apply will increase your chances of getting an offer at a bank. Your goal is getting banking experience, if you get an opportunity, sign.

List of Banks
Whether you’re cold calling or just applying, it is helpful to have a list of banks. Take a look at these links:

How to research the bank before your interview
Okay, now you have your application strategy down. Finding out more information about the bank’s culture and its people is crucial to increasing your response rates and preparing for an interview.

The goal when researching a bank is to identify how it’s unique, find people who you share a background with and can contact, and learn the firm’s history. Here’s how you can accomplish these goals:

  1. Visit the banks website. Teams are listed with their bios and contact information directly on most regional boutique banks. Additionally, don’t overlook bank presentations. Even big banks will list a few people who worked on the deck and include their contact information.
  2. Check out LinkedIn. Then Google the person to find even more information about them, what you share, and how you can reach out to them.
  3. Take a look at the current M&A landscape. Keeping up with deal news regularly helps. Regardless of if the trend is strong or weak, you have a bullish long-term outlook.
  4. Once you are offer an interview, lookup at the bank’s recently closed deals. Identify the deal type, size, and result. You may want to know if they are currently working on a big deal so you can converse with them about it.
  5. One of my friends got an offer at Bain Consulting because he found out all the office hold an annual soccer match. He brought this up during the interview and was able to build a connection with the interviewer. Most banks will conduct sustainability, volunteering, or networking events annually. Figure out what these are and tie them into your interview answers.

Conclusion
Refrain the urge to rank every bank in excel. That’s what league tables are for. Regardless of your application strategy, focus your time and energy learning about the banks culture and people so that once you get an offer, you’ll be able to judge the best fit.