What to Expect at a Startup-Focused Investment Bank in India

If you want to work with tech startups in the finance industry, you might assume that you have to be in venture capital.

After all, technology investment banking groups work with larger, more established companies… right?

That might be true in developed markets, but in some emerging markets, such as India, investment banks dedicated to tech startups have been popping up left and right.

To get the full story on this trend, I recently spoke with a reader who’s working at one of the leading startup-focused investment banks in India:

Why Are Investment Banks Advising Startups?!

Q: Normally, I start with your story and background information, but I think we need to address the big question first:

Why, exactly, are startups paying for investment banks to advise them on fundraising deals?

A: The startup ecosystem in India has been booming – it’s the #3 country for startups behind the U.S. and U.K.

So many new companies are being formed that fundraising has become difficult.

It’s tough for many startups to stand out and tell their stories effectively; one company often comes up with an original idea, and then dozens of others try to copy it.

Many entrepreneurs here also try to raise funding too early, i.e. right after they have the idea but nothing else – and no evidence of traction.

As a result, they start reaching out to banks early on, assuming that bankers can help them in this situation (nope!).

Also, new founders don’t know the right set of investors to reach out to, so they go to banks to gain access to VCs.

Finally, venture capital firms have struggling portfolio companies and have hired investment banks to help them raise funds or sell the companies.

Most participating banks are boutique or middle-market firms, but bulge-bracket banks may also advise growth-stage startups.

Domestic banks, such as Kotak, Motilal Oswal, Avendus, and Dexter Capital are involved, but some international banks, such as GS, MS, and Citi, have also been getting into the market.

One example is Paytm’s $575 million round, where GS and Citi both advised.

Q: Thanks for explaining that.

How did you win your current role at one of these banks?

A: I did a degree at a top-ranked commerce college in India.

I networked my way into an IB internship in my second year in college and then used that experience to win an offer at my current boutique bank.

Q: And what did they ask you about in interviews?

A: Many of the standard questions on accounting, equity value and enterprise value, and valuation came up, but they also asked about the fundraising process, the startup ecosystem, and why startups succeed or fail.

For example, they asked me why fewer startups were filing for IPOs and what that meant about their business plans and market conditions.

I was also judged on my basic modeling and PowerPoint skills, but I did not receive case studies or modeling tests. It’s rare to get those in India unless you have full-time work experience or you’re interviewing for buy-side roles.

If you want a case study example, check out our Uber valuation.

Your academic background and grades matter a lot if you interview at banks via the on-campus recruiting process, but if you win interviews via networking, they care more about your knowledge and how well you can do the job.

On the Job in Venture-Capital-Meets-Investment Banking

Q: OK, I see.

What is your average day on the job like?

A: The overall deal process consists of doing an intro call with a startup, analyzing its business model and industry, and then preparing marketing materials such as a financial model and investor presentation.

Then, we reach out to VC funds, see who’s interested, execute NDAs with the interested parties, and start negotiating the deal.

As the process moves along, we share more and more information with the VC fund.

That process means that my average day consists of two tasks:

1. Calls and Preparing for Calls – If I do 4-5 of these in a day, that’s my entire day right there; I’ll usually do at least 1-2 per day.
2. Financial Modeling and Presentation Work – I spend time tweaking existing presentations and creating new presentations and models.

The financial models are mostly revenue and expense projections. We work with startups, so there is no “historical data,” and all the future numbers are projected.

Two banks preparing financial models for the same startup might come up with different numbers.

The biggest difference is that our models tend to be monthly – VC firms always want to see month-on-month growth rates.

We also build in cases for different amounts of capital raised and different timing, and we adjust the growth rates and break-even points accordingly.

Q: Which types of VCs do you pitch these startups to?

A: We focus on domestic VC firms, such as Helion, Blume, Kalaari, Ventureast, Artha, and Kae, but we also reach out to the foreign VC firms.

Of the domestic investment banks, Avendus, Dexter, Spark, CreedCap, and Unitus Capital have all been active in the space (in addition to the international banks I mentioned in the beginning).

Q: OK. This role seems like a mix between venture capital and investment banking, but what’s the culture like?

A: Overall, it’s more like venture capital because teams are small – often fewer than ten people – and Analysts often speak directly with MDs, senior team members, and clients.

There isn’t necessarily a clear hierarchy as there is in the traditional investment banking career path, and junior-level team members can easily source deals.

The work hours depend on the number of active deals, but the average day is about 10-15 hours, and weekend work is common as well, particular when last-minute Monday morning meetings come up.

The Long-Term Outlook: Robust Growth Expectations?

Q: Thanks for that comparison, but I want to push back on a few of your comments in the beginning.

Specifically, how much can bankers really help startups? Aren’t VCs mostly looking for traction in users and revenue?

A: You’re right that if the founder knows what he/she is doing and already has product traction and VC relationships, we can’t do much.

But there are several common mistakes that we help founders avoid:

• Story and Pitch – Many startups are horrible at presenting themselves. We help companies spin what they’re doing into sounding like they’re solving billion-dollar problems in a scalable way.

• Investor Bias – In India, investors tend to prefer consumer (B2C) businesses over B2B businesses because they believe that B2C companies are easier to scale. We help B2B businesses present themselves as a bit more consumer-oriented.

• Relationships – We’ve worked with dozens of venture capital firms, and we have key relationships everywhere. Even if a founder gets a warm introduction, it will be tough to win the attention of these firms, especially as a first-time entrepreneur.

• Traction and Key Metrics – Many startups attempt to prove their traction, but they use the wrong metrics to do so; we help them highlight the right ones. For example, many consumer Internet companies focus too much on user growth and not enough on customer acquisition costs (CAC), which all investors scrutinize.

• Process and Valuation – Many first-time founders aim for too high a valuation, which could result in an over-funded company or a failed fundraising; we help them temper expectations regarding funds and valuation and speed the process along.

Q: OK, fair enough. So, who would be a good fit for this role, and who would be a poor fit?

A: In India, it is tough to win investment banking roles unless you’ve attended one of the top IITs, IIMs, or some of the selected commerce colleges (or you’re coming from a Chartered Accountant (CA) background, and you’re applying to a bank that values it).

If you’re a career changer or you’re otherwise “off the beaten path,” you have a better shot at these startup-focused investment banks.

To do well on the job, you need to be comfortable with little structure, responsibility for sourcing and client interaction, and a different type of modeling work.

It’s feasible to get into venture capital or other banks from here, but it would be tough to win private equity roles.

So, if you have the stats to get into a larger bank, that’s probably a better initial option for exit opportunities.

But if you don’t, or you’re set on technology or venture capital, one of these firms could be a good option.

Q: Is that your plan as well?

A: Maybe! I plan to stay here for 2-3 years, as I still have a lot to learn in terms of pitching, presentations, and financial modeling.

In the long term, I want to go into venture capital or private equity, but I might switch firms and go to a larger bank first.

Q: OK, great, thanks for your time and for telling us about this sector.

A: My pleasure. Any time!