There are words in the English language that spread like wildfire the moment they’re used. “Exit opportunities” is one of them. I don’t think I ever had a call with a student interested in our services without hearing “exit opps” at least twice. It’s almost a parody by now.
Anyway. Aside from making me laugh, exit opportunities after investment banking are a real subject. It’s top of mind for many students interested in a career in finance.
Since they want the best for their careers, it’s only normal if they think strategically about which doors will be open to them after a few years in investment banking (and which doors are the most beneficial to them).
That’s why I wanted to write an article to share my view on the subject, even if you already have a zillion articles online talking about the same.
In this article, you will learn:
Spoiler alert: My take is slightly different than what you may have seen elsewhere…
First, let’s talk about the typical paths that are open to you after investment banking. Note that any path is possible. If you want to, nothing prevents you from becoming a yoga teacher in the Nepalese mountains… But the career paths I’ll present below are the ones that tend to be the most popular and seamlessly accessible after a few years in investment banking.
What is it: PE firms buy companies, increase their value by optimizing their financial performance, and typically sell them a few years later to achieve a high ROI. PE firms typically use leverage to buy private or public companies, hence the term “Leveraged Buy Out” or “LBO” to designate operations involving significant amounts of debt.
Private Equity is a very popular career exit for investment bankers. It’s typical to see GS investment bankers move to the “buy side” by accepting offers from reputed PE firms like Blackstone, TPG, or KKR. PE firms tend to recruit their talents almost exclusively from top-tier investment banks, because the skillsets you develop in IB and PE are very similar. Hence, transitioning to PE after 2-5 years in IB is a very logical step.
What is it: Hedge funds are investment funds managing money on behalf of institutional investors and very wealthy individuals. Their goal is to achieve active returns for their investors by employing a diverse range of investment strategies designed to outperform the market.
Hedge funds are a common exit path for investment bankers and equity research analysts (people performing research on traded equities). The recruiting process at hedge funds is typically much less structured compared to that at IB. Each firm has its own way of recruiting and assessing candidates.
Unlike IB interviews, which can be prepared in a consistent way, HF interviews are usually highly unpredictable. You can’t just prepare a list of interview questions, just like in IB. Here, you need to genuinely know what you’re talking about, and you need to demonstrate your market intelligence in real time, improvising on questions that you’ve never seen before.
In other words, in IB, you can fake it (to a degree), but in HF, you can’t. You just have to be extremely competent, or you’re out. For that reason, the world of HFs is the closest thing to a meritocracy you can find. Top performers stay and thrive; bad performers don’t last; and pretenders are systematically rejected.
What is it: Venture capital is the equivalent of private equity for early-stage companies. VC funds invest in startups and often provide founders with financial and strategic advice to grow the business. Just like PE, the primary goal of VC funds is to sell their stakes at an attractive ROI after a few years post-investment.
In VC, there is also a great emphasis on deal experience, which means that previous M&A experience will be appreciated. A key difference with private equity is that VC investments are typically much higher risk as the startups they invest in have a high probability of failure (a new company is more likely to go bankrupt than a mature, established one). While VC firms are taking riskier “bets” by investing in early-stage startups, payoffs can be significantly greater than in PE, if things turn out well for these portfolio companies.
Culture-wise, VC firms have a way more laid-back environment compared to the high-pressure vibes of PE and IB. People tend to dress more casually and behave with fewer personality restraints.
What is it: Corporate finance is another common path for investment bankers. It’s a rather vague career term that encapsulates every role within a corporation involving financial operations, from fundraising to capital budgeting to cash flow management. Your goal is to make sure the company is growing, maintain a strong balance sheet, and create value for shareholders.
A common move after investment banking is to do an MBA at a top grad school, before joining a company as a senior corporate finance professional. With experience and good relationship skills, you may even become a CFO and therefore a member of the executive management team. A CFO at a large-cap, publicly traded company can earn seven figures per year, including bonuses.
What is it: Launching your own business alone or with partners. I know that many of you get stars in your eyes when you hear the word “entrepreneurship”. But trust me, this path is not as glamorous as it seems. In fact, for most people, following this path is not a good option. They would be better off in PE, VC, CF, or elsewhere. That said, it comes with its rewards.
In this final part, I would like to address the common danger of thinking about exit opportunities.
Countless candidates share the exact same line of thinking:
If we look at this line of reasoning, it appears to make sense. The problem is: it is tragically flawed. Many students genuinely believe in this reasoning because they see it everywhere online and because their peers think the same. But in reality, it works very differently.
First thing, PE is not as glamorous as you think it is. I noticed that many candidates have a highly idealised vision of PE that strongly differs from reality. The pay can indeed be significantly higher than IB when you reach the most senior echelons of the hierarchy (partners can make mid-single digits per year), but it won’t be that much higher in the initial years of your PE career.
Second, work-life balance is not necessarily better. If you work at PE “megafunds” (KKR, BX, TPG, etc), you can expect to work just as hard as in IB, if not harder. Hours will tend to be less crazy in smaller PE funds, but don’t expect a normal 9-5 either. At any respectable PE firm, you can expect to work at least 70 hours a week, and the intensity of work can be even higher than in IB.
Second, do not underestimate the competition for top PE firms. Even with several years of IB experience at BB, nothing guarantees that you will make a successful move to the buy-side. There are thousands of elite candidates with premier IB experience and pristine academic background who are in direct competition with you.
Third, assuming you have no IB experience, you don’t even know if IB is for you or not, and you’re already thinking about exiting the industry? If your primary goal is to exit the IB industry as soon as you can to go to the buy side, what does it say about your motivation to work in IB? If we go one step further: how do you know if PE will be a suitable career path for you if you don’t even have a realistic taste of it?
PE and IB are very similar in many regards (intensity of work, mindset of people, work-life balance, culture, etc). If you don’t like IB, there is a chance you won’t like PE either. So before thinking about “exit opps”, think about “learning opps”: get some quality IB experience, let yourself feel the job, and decide if you like it or not.
Only then the question of “exit opps” should scratch your mind.
Aurelian Tran is the founder of Alpha Lane and an ex-Goldman Sachs analyst who has spent 4+ years working in the investment banking industry.
He founded Alpha Lane to help students and young professionals achieve their highest professional ambitions, by securing offers at top-tier financial institutions.
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