Introduction to Finance
This week, we covered the ever-growing finance industry, as well as discussed the various career opportunities across the capital markets!
Overview of the Finance Career Landscape
- Corporate roles: This job involves helping a company with financial elements. Ex. CFO, and Corporate Development
- Money Managing roles: This job involves managing the securities portfolio of investors. Ex. Asset Management
- Advisory Roles: This job involves giving financial advice, similar to corporate roles but to external companies. Ex. Investment Banking
6 Pillars of Finance
- Asset Management, Private Equity, Venture Capital, Investment Banking, Equity Research, and Sales & Trading
The roles of buy-side professionals involve managing clients’ assets in order to make the most returns on capital
- Role: Firms that buy, sell, and manage investment portfolios for clients
- As an Asset Manager, part of your role includes making a bet on whether a company will do well in the future (Long Equity) or poorly in the future (Short Equity)
- Other key strategies include: Merger Arbitrage, Convertible Arbitrage, Capital Structure Arbitrage, and Global Macro
- The main idea is that they are investing in a company based on an educated bet of how it will do in the future
- Role: Firms that purchase companies using investor capital and debt, make improvements over 5–10 years, and then sell them for a return
- The Benefits of Using Debt: Because debt is cheaper than equity, using debt to purchase a company allows you to achieve a substantially larger percentage return (not always absolute return) compared to if you had used only your own equity
- House Analogy: Buying a house with a mortgage and renting that house out will earn you a higher return (internal rate of return) than if you bought the house with your own money and pocketed the rental income
Ideal Investment Qualities in Private Equity Include:
- Stable and predictable cash flow to pay off the large amount of debt taken
- A sustainable advantage to maintain cash flows
- Turnaround potential (company must go up in value by either cutting cost or growing top line to be worth more for potential investors when the private equity firm decides to sell)
- Role: Firms that invest in private companies but specifically in startups, early-stage, and emerging companies that have high growth potential
- Venture Capital Investment Criteria: TAM (Total Addressable Market, Growth Potential, Business Defensibility, and Company Management
- VC firms invest in many different companies to diversify their risk and usually only needs one company (Unicorn, ~1B+ Valuation) to do really well in order to make a return
- VC firms are heavily involved in making sure that their investments are successful
Do Private Equity Firms invest in specific asset classes, specifically for Real Estate?
- Yes! There are private equity firms that will invest in specific kinds of industries, asset classes, or geographies. Even within real estate, there are specific kinds of potential investments/potential investors.
Nitin’s Calistix Capital Experience
- A search fund is a form of private equity but on a very small scale. Essentially, the fund is looking to invest in one business instead of a bunch of different ones. The search fund uses the same vehicles (debt, equity) to purchase this business. Search funds are one of the most common first/second-year internships to get some great finance experience.
Rebecca’s Search Fund Experience
- At Silverstone, we were working on a live deal and I got to see how a deal was structured which was exciting. We were given the opportunity to get in-depth on one specific industry where we learned a lot.
- Currently, at Huntstone, because we are in the early stage, I am getting the opportunity to learn more broadly across a variety of different environments. At a search fund, regardless of the stage that they’re in, you’re getting a great learning experience!
Are there different tools used when looking into industries? Do you have any go-to websites or databases for research?
- It varies by your firm. Google is your best friend as it allows you to look into specific industries and geographies. Other resources to consider: IBIS World, CapIQ, Pitchbook, and Mergent (most are available through UWO databases!).
What does a typical day-to-day look like at your firm?
- Nitin, CPP: Typically, you start every day by checking your emails. Then you have calls scheduled and you try to get work done in between those calls. Most work is in Excel or PowerPoint. But the most important thing is to talk to the people around you and build relationships.
Refers to firms that promote and sell companies and securities to the buy-side — they are dealmakers:
- Financial advisors who help companies and investors manage the process of buying/selling businesses and raising money.
- Teams that conduct analysis and produce reports and recommendations to buy, hold or sell investment opportunities for clients.
Sales and Trading
- Salespeople who call institutional investors with ideas and opportunities, and traders who execute those orders in the market.
What does the sell-side recruitment process look like?
- For Gabby at CIBC, she connected with a recruiter early on which is a way to differentiate in the process because the Big 5 (Canadian Banks) have massive resume drops. Therefore, networking and making connections internally are highly recommended.
What was recruiting for banking like?
- It is a lot more streamlined and has many more formal opportunities. Nearing the end of the second year, firms will typically promote their internship on campus and allow students to meet the team.
How was it working for a small office (satellite office)?
- It was great, you get very close with your team and the type of exposure you get is beneficial. As a generalist, your role is not product or industry-specific, so you get to touch on everything.
Any tips for reaching out and networking as a first or second year?
- Being involved with school clubs is important, WCM, WIC, etc. all have postings for internships that they promote and are great resources to learn the fundamentals. Outside of that, it is helpful to cold-email people at firms you can see yourself working at and building relationships with them.
Zoom Case Study:
Case Study — Zoom Video Communications
This week’s Case Study was about Zoom Video Communications. Zoom is an enterprise-grade, cloud-based conferencing platform founded by Eric Yuan in 2011. Faced with initial challenges of raising capital prior to having a sellable product, Zoom raised pre-seed and seed (early-stage) financing of $146 million from venture capital (buy-side) firms such as Maven Ventures and Qualcomm Ventures. After scaling, Zoom eventually hired sell-side firms such as Goldman Sachs and BlackRock to structure and price their IPO, raising an additional $356.8 million!
This allowed them to develop their products, acquire clients, and cover their overhead costs. Now, Zoom has a market cap of $79.11 Billion, and equity research firms publish reports on Zoom that provides retail and commercial investors with knowledge and insights that can influence their investment decisions.
- All areas of finance can be involved in the life cycle of a company.
How to Get Involved
- Participate in polls, play Kahoot games, and win prizes!
- Don’t be afraid to ask questions!
- Week-in-Review: Recap interesting business news and events and draw implications! (1 person/week)
- Topic Spotlight: Work on specific cases as part of our weekly educational under mentorship from the Educations team! (1 person/week)