IBanking vs. Startups for Recent College Grads

01 March 2014

When I graduated college less than three years ago, it seemed like all my friends were going into either investment banking or consulting. Friends who were not on a deterministic pre-professional track (e.g. medicine or law) found themselves going to companies that they had never heard of before the recruiting craze in college. Ibanking and consulting describe themselves as great ways to jump into an impactful and dynamic role that serves as a great introduction to the business world, and which sets an alumnus up for any other kind of future business role.

But now, the tide seems to be turning. Established tech companies and startups are drawing more attention, portraying themselves as fun places to work that aren't bogged down by the hierarchy and rigidity of the older ibanking and consulting industries, and places where young recent graduates are listened to and given responsibility. Moreover, tech companies and startups aren't just looking for people with computer science backgrounds - new kinds of roles in business and analytics are also opening up in that industry.

Is the emergence of the tech/startup space just a bubble? Or is the tide actually shifting against 'older' industries like ibanking and consulting? On a practical level, for a college senior considering job options on these two different paths, which industry is a safer bet for the future?

Having gone from ibanking to startups, I sometimes get asked if I regret my decision to start off in ibanking. My opinion on this matter has been consistent: no, I don't regret it, and perhaps surprisingly, I am not convinced that startups are the right place to go straight out of college.

Before going any further, let me provide a couple of caveats: * I am not arguing whole-heartedly that everyone should do ibanking over tech straight out of college. I just think that on average, there is a slightly stronger argument for ibanking over tech. * I did not join consulting out of college, so I will refrain from generalizing my opinion to cover the consulting vs. startups question (though I have many friends who did consulting, and based on conversations with them, I think many of the below points hold for that decision as well). * If you have a strong technology / computer science background and want to pursue that path as a career, that's obviously a different choice. * A specific experience in either ibanking or tech will depend a lot on the specific company and group; the below arguments are generalizations that do not always apply.

So why do I still think ibanking has a shot? Here are the major reasons:

Exit opportunities

This might be the most-often cited reason that ibankers claim they went into that industry. ('Exit opportunities' are generally the kinds of roles available to you as your next career step.) The exit opps that ibankers want cover a wide range: private equity and hedge funds are common choices, corporate finance and other kinds of business roles are also logical choices, and some might even claim that business school is an exit opp. Along the same line of reasoning, ibankers will often claim that it is "easier to go from ibanking to industry X" than the other way around.

I think this reason still generally holds. If you are aiming to get into private equity (another niche industry that you may never have heard of before the college recruiting vortex), your best bet is to get in through an ibanking (or consulting) role. Hedge funds are more open to different backgrounds, but ibanking still provides a relatively well-known path in.

But what if you don't want to go to private equity or a hedge fund? Having ibanking on your resume is still valuable. First, it's a hugely positive signal for other employers, many of whom know that the major bulge bracket banks are very selective (in other words, startups can piggy-back off of the banks' strong recruitment resources). Second, they know that if you're coming out of ibanking, you most likely are willing and able to work hard, both in terms of sheer number of hours and in terms of your willingness to sacrifice for a goal. And finally, they know that you'll have gone through a structured training program, and will at the very least have a strong understanding of finance.

Coming out of ibanking, you have a sizable advantage applying to any company where there are managers who worked in finance themselves or who went to business school and thus know about the finance world. For better or worse, having a banking experience on your inbound resume gives these employers a foundation to understand your background and skills.

This situation might change over time as tech gains more influence and becomes a more popular first step for college graduates. For the time being, however, the banks still offer an advantage in terms of brand name recognition and structured analyst programs.

Learning hard skills

If you go through a bulge bracket bank's training program, you will definitely understand the basics of two useful skillsets. The first is a combination of finance and basic accounting. At a startup later in your career, you will know your way around the company's financial statements better than almost anyone aside from the accountants, especially given that you've seen way more complex financials in a pitchbook for a small client meeting for which you pulled an all-nighter.

The second skillset is modeling and general quantitative analysis. You'll be comfortable taking in raw numbers, popping open Excel, and hitting all manners of shortcut keys to clean, organize, and visualize the data. This is almost second nature to people coming out of banking; it is not second nature to many others.

Even if your next role is somewhat removed from finance or business, I think these two skillsets are pretty generalizable and come in handy surprisingly often.

Learning soft skills

Working in tech can be a very fun experience. There are usually great perks, ranging from free food to fun company outings; your fellow employees are likely younger and more similar to you in interests; and most companies in that industry appreciate the importance of work/life balance.

These great company cultures are not as common outside of tech. Even putting aside cultural differences, established companies in 'older' industries are often bogged down by bureaucracy, hierarchy, and doing things "how they've always been done", for better or worse. I think there is actually value in working in this kind of environment, not only to appreciate how tech is different, but also to have a basis for understanding business inefficiencies. Plus, your tech company might have to deal with a vendor, contractor, partner or consultant from another industry, so having an understanding of how the rest of the working world works could be helpful.

Moreover, working at a tech firm might feel very much like working on a group project in school - a very long group project, one without a definite end goal, and one that (hopefully) generates money. There are some professional 'soft skills' that you'd be quickly exposed to in banking that you might not pick up (as quickly) in tech - skills such as dealing with managers, presenting at meetings, learning how to interact with peers, etc. These soft skills can also be intuitively picked up by somebody who's paying attention, but analysts in banking have to quickly adapt to a relatively harsher working environment by picking up these soft skills early.

Learning an industry - fast

Banking groups usually focus on a particular client industry (e.g. financial institutions, industrials, technology) or a specific financial product (e.g. equity, debt, derivatives). Working in an industry coverage group is a good way to get a high-level understanding of the key players in that space, along with the financial metrics that are important in that industry.

Being at a company that analyzes and advises some of the largest companies in an industry is a great way to learn about that industry. It doesn't provide you with much insight into day-to-day operations, but the higher-level and cross-company view is rare in other roles. There is a chance that after you leave ibanking you might not ever work with the industry you covered - but there's also a chance that your knowledge about that industry will inspire you to launch a startup in that space in the future.

At a startup, you will obviously learn about your particular industry (not in the sense of an industry as broad as "tech", but perhaps online retail, or B2B tech consulting, for example). But, it will probably be a narrower sub-industry focus coming from the bottom-up, and influenced by the kind of work you do on a day-to-day basis. There is no doubt a lot of learning there, but I believe the high-level view of a role like ibanking is rarer to find.


To be fair, there are many other reasons you may hear from ibanks about why their analyst programs are the best possible programs for recent college grads. Here are some common ones I heard in school which I either don't think are particularly true, or which I don't think should be particularly influential reasons in your decision:

"You work on blockbuster, fast-paces, dynamic, industry-shaping deals"

This argument is factually true. However, working on a multi-billion dollar IPO is also not as exciting as you might think, at least from the point of view of what you do day-to-day. Aside from bragging rights and the brand-name recognition that it might bring to your resume, working on a large, live deal comes at a heavy cost (longer hours, more stress) compared to the benefit (additional learning beyond the average deal you might get).

"You will not get this chance again"

Many business school graduates go into ibanking as an associate. The work is still hard as an associate, but arguably slightly better because you have analysts working under you. If you forego your chance to go into ibanking and then have serious regrets, you can always apply to bschool for another shot.

"Where else do you work with smart, motivated people"

This is a bit of a pretentious reason, because there are so many industries and companies filled with smart, talented people. Startups are often filled with very smart and motivated people, who make for much, much more chill colleagues.

Pay

There is no doubt that ibanking provides probably one of the consistently highest pay points for a recent college grad (probably only outranked by a hedge fund analyst position). However, relatively established startups (i.e. ones that have gone through a Series A or B round of funding) can also pay reasonably, because they know they have to compete for fresh talent. You won't make as much as ibanking at a startup, but you will most likely make enough to live comfortably in your city (probably New York or San Fran). You will also probably get some equity at the startup, which might one day be worth a lot more.


And to round out the coverage of both sides of the argument, here are some of the top reasons why I think startups might be a good option for some:

Culture

Startups undoubtedly have a more relaxed culture that generally offers more flexibility (in terms of role, responsibilities, work hours, etc.) with a better work/life balance. Startup employees certainly work hard, but somehow they manage to maintain perspective and avoid burnout better than banks. This point comes with the caveat that startup cultures can vary widely, and it's important to find a culture you fit into.

Responsibility

Employees at startups do get more responsibility, and will get even more as they learn, grow and succeed. There is much less hierarchy, and much more to do. This makes startups a great environment for a recent college grad to quickly get her hands dirty working on all kinds of projects that can have a real impact on the company in the short term.

Potentially huge upside

Who knows, the ten-person startup you join today might become the next Google or Facebook. The chances of this are low, but imagine if it did...the equity payout will (hopefully) be very handsome for you, but on top of that, you might have a lot of opportunity to gain responsibility as the company grows.

Fun

Startups are undoubtedly more fun. Your colleagues will probably be younger and have similar interests. Your office might offer cool perks. There will be happy hours and events, organized either by your company or by the local startup community. You'll care a lot about the company, and you'll enjoy the feeling of creating something that is hopefully growing and flourishing.


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