Starting an investment bank can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful investment bank.
Importantly, a critical step in starting an investment bank is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
15 Steps To Start an Investment Bank:
- Choose the Name for Your Investment Bank
- Determine the Type of Investment Bank You Will Launch
- Develop Your Investment Bank Business Plan
- Choose the Legal Structure for Your Investment Bank
- Secure Startup Funding for Your Investment Bank (If Needed)
- Secure a Location for Your Business
- Register Your Investment Bank with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Investment Bank
- Buy or Lease the Right Investment Bank Equipment
- Develop Your Investment Bank Marketing Materials
- Purchase and Setup the Software Needed to Run Your Investment Bank
- Open for Business
1. Choose the Name for Your Investment Bank
The first step to starting an investment bank is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your investment bank:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your investment bank.
2. Determine the Type of Investment Bank You Will Launch
The next step is to determine the type of investment bank you will launch. The four main types of investment banks are:
- Full-service Investment Bank: A full-service investment bank offers a variety of services including underwriting, public offerings, and mergers & acquisitions. This type of investment bank requires significant startup capital and typically targets larger corporations.
- Boutique Investment Bank: Boutique investment banks focus on providing specialized services to smaller companies or entrepreneurs who need more personalized attention. These businesses typically focus on a particular sector or geographic region, and their services are often limited to certain types of transactions.
- Online Investment Banks: Online investment banks offer services such as online trading, portfolio management, and research tools through the internet. This type of investment bank is appealing because it has low overhead costs and can quickly scale.
- Discount Investment Bank: A discount investment bank typically offers services at a discounted rate, such as access to capital markets and financial advice. Discount investment banks are appealing because they offer clients more affordable options.
3. Develop Your Investment Bank Business Plan
One of the most important steps in starting an investment bank is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your investment bank.
- Company Overview – this section tells the reader about the history of your investment bank and what type of investment bank you operate. For example, are you a boutique or discount investment bank?
- Industry Analysis – here you will document key information about the investment bank industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your investment bank? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your investment bank make money? (e.g., retainers, success fees, etc.)
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
4. Choose the Legal Structure for Your Investment Bank
Next you need to choose a legal structure for your investment bank and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the investment bank and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start an investment bank together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for an investment bank include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for an investment bank is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your investment bank, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
5. Secure Startup Funding for Your Investment Bank (If Needed)
In developing your investment bank business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for an investment bank to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in an investment bank that they believe has high potential for growth.
6. Secure a Location for Your Business
Having the right space can be important for your investment bank, particularly if you’d like to meet clients there. An investment bank requires an office space where business transactions and client meetings can take place. You may want to consider renting a physical location or using a virtual office.
To find the right space, consider:
- Driving around to find the right areas while looking for “for lease” signs
- Contacting a commercial real estate agent
- Doing commercial real estate searches online
- Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space
7. Register Your Investment Bank with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
8. Open a Business Bank Account
It is important to establish a bank account in your investment bank’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
9. Get a Business Credit Card
You should get a business credit card for your investment bank to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
10. Get the Required Business Licenses and Permits
Every state, county and city has different business license and permit requirements. For an investment bank, common business licenses and permits include:
Investment Adviser License: Required by any person or business that provides investment advice for a fee.
Securities Licenses: Depending on the types of securities you are selling, you may need to register with FINRA and obtain the appropriate licenses from state securities agencies.
Money Transmitter Permit: Required if you are involved in currency exchange or transmitting money.
Nearly all states, counties and/or cities have license requirements including:
- General Business License: getting your Articles of Incorporation as discussed above
- Sales Tax License or Seller’s Permit: for selling products
- Zoning Approval: typically at the city or county level, this provides authorization for construction or use of a building or land for a particular purpose
- Fire Department Approval: a process by which the local fire department reviews and approves the installation of a fire alarm system.
Depending on the type of investment bank you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Investment Bank
Investment banks typically require the following business insurance:
Professional Liability Insurance: covers professional negligence, errors and omissions
Bond Insurance: provides protection against losses due to employee dishonesty or fraud
Other business insurance policies that you should consider for your investment bank include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Buy or Lease the Right Investment Bank Equipment
To start an investment bank, the equipment you will need is a computer printer, phone line, copier/scanner, software and other essential materials. You can either buy the equipment or lease it.
Leasing is a great option if you don’t have the funds to purchase all the necessary equipment upfront. It also allows you to upgrade your equipment when needed without having to incur additional costs.
13. Develop Your Investment Bank Marketing Materials
Marketing materials will be required to attract and retain customers to your investment bank.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your investment bank. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional investment bank website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your investment bank.
14. Purchase and Setup the Software Needed to Run Your Investment Bank
Most investment banks need accounting software and customer relationship management (CRM) software.
In addition, investment banks need software to manage investments and portfolio management. This software helps you to track customer investments, monitor changes in the market, and communicate with customers about their portfolios.
Finally, cybersecurity is an essential component for any investment bank. Ensure that your investment bank has the necessary security measures in place to protect customer data from cyber threats.
While there are many different software options available, some of the most popular programs for accounting include QuickBooks and Xero. Some of the most popular CRM programs include Salesforce, and Zoho.
Research the software that best suits your needs, purchase it, and set it up.
15. Open for Business
You are now ready to open your investment bank. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start an Investment Bank FAQs
Starting an investment bank can be a difficult undertaking as it requires extensive knowledge of the financial markets, strong organizational skills, and a significant amount of capital. However, with the right planning and preparation, starting an investment bank can be relatively straightforward.
If you follow the steps above, you should be able to start your investment bank without too much difficulty.
The best way to start an investment bank with no experience is to start small. The best way to start an investment bank with no experience is to start small. You can begin by researching the laws and regulations that apply to investment banks in your jurisdiction, and designing a business plan. This can help you gain insight into the market and determine which services you will offer. You may also want to consider partnering with an experienced professional or firm to help guide you through the process. Additionally, it is important to start building your network and become acquainted with the industry.
The profitability of an investment bank will vary depending on the specific industry and services offered. However, some of the most profitable types of investment banks include those that specialize in underwriting securities, providing corporate financial advice, and offering trading services. Additionally, many investment banks have found success through investing in venture capital funds, commercial real estate, and private equity. It is important to determine which type of services are most profitable for your business model.
There is no set cost to start an investment bank. The amount of money you'll need to get started will vary depending on the services you offer, the size of your business, and other factors. The typical startup costs range between $50,000 and $500,000. These costs include legal fees, licensing fees, staffing expenses, equipment purchases and other startup costs.
The ongoing expenses for an investment bank can vary depending on the type of services you offer. The typical ongoing costs are salaries for staff, the cost of hosting meetings with clients, and the cost of providing products or services to customers. Additionally, ongoing expenses typically include fees for compliance and regulatory filings, advertising costs, and other operational needs. The costs range between 1% to 5% of total revenues, depending on the size and scope of your business.
An investment bank makes money by providing services such as underwriting securities, providing corporate financial advice, and offering trading services. Additionally, many investment banks have found success through investing in venture capital funds, commercial real estate, and private equity. They may also earn revenue by charging transaction fees or commissions for the purchase or sale of securities. Investment banks can also make money by offering advisory services.
Yes, owning an investment bank can be very profitable.
The profitability of an investment bank will vary depending on the specific industry, services offered, and other factors.
Some of the key things you can do to make your investment bank more profitable include:
- Narrowing your focus to a specific niche market. This will allow you to become an expert in a specific area, and clients will be more likely to trust your advice and recommendations.
- Offering add-on services that complement your main offering. For example, if you're a marketing consultant, you could offer to manage clients' social media or design campaigns in addition to your core offering.
- Optimizing your website for SEO to increase online visibility. This will allow you to attract the right kind of client to your business, who are actively searching for a consultant in your niche market.
- Creating a unique selling proposition. Be clear about what you can do that other consultants in your niche market cannot, and communicate this to potential clients.
- Treating each client relationship like a partnership, so they are more likely to recommend you to their connections or return for additional investment bank work in future.
- Keeping your costs low by using cloud-based software and outsourcing tasks to virtual assistants.
- Targeting a growing niche market that you can expand into in the future.
- Testing out different strategies with a limited budget, so you can see which methods work best before investing heavily in these areas of your business.
- Building references from clients who are willing to recommend you to their friends. This is more valuable than testimonials on your website, as it builds social proof in the eyes of potential clients that you offer great value for money.
- Investing in training in order to keep up with industry trends, and increase your knowledge about your niche market.
- Providing outstanding client service
Investment banks fail because of poor planning and inadequate resources. Some common reasons for failure include not having enough capital to cover start-up costs, mismanagement or lack of experience in the industry, and an inability to generate profits due to a low number of clients or high overhead expenses.
One of the main reasons that investment banks fail is a lack of planning. This can include not having a detailed business plan, not doing research on the industry, and not targeting the right customers.
Another reason is a lack of marketing and sales skills. This can include not creating a sales process and not have a clear and strong value proposition.
The last main reason is a lack of financial management skills. This can include not having a realistic budget, not tracking expenses, and not investing in the business.
The investment bank market is made up of a variety of different players, including
Some of the key players in the market include:
- JP Morgan Chase
- Goldman Sachs
- Morgan Stanley
However, there are many other players in your specific target market, and it is important to research the market to identify the key players that may have the most direct influence on the success of your business.
Investment bank fees can vary depending on the type of investment bank services being offered.
However, some common investment bank fees include:
- Commission fees: These are typically based on the total value of a transaction, such as when purchasing or selling securities.
- Asset management fees: This is usually charged as a percentage of the assets being managed.
- Advisory fees: This fee is usually charged when providing advice or research services on investments.
- Structuring fees: This fee is usually charged when structuring a transaction
The best way to determine the right fee for your investment bank services is to research the rates of similar businesses in your industry, and to also consider the value that you will be providing to the client.