Capital Markets vs. Investment Banking: Deals, Careers, Recruiting, Exits, and Offer Decisions

Even though we’ve covered industry groups vs. product groups and teams such as M&A, ECM, DCM, and Leveraged Finance, we continue to get questions about capital markets vs. investment banking.

The questions usually go like this:

• Are capital markets teams (ECM, DCM, and LevFin) “real” investment banking?
• Do you work or get paid less in capital markets? Do you learn anything? What about the exit opportunities?
• Should you accept a capital markets offer at a larger bank over an M&A or industry group offer at a smaller bank?
• If you’ve won a capital markets offer, should you delay accepting it so you can target “better” groups?

I’ll answer all these here, but let’s start with a quick comparison:

Capital Markets vs. Investment Banking: Deals

The basic difference is that in “investment banking” groups, such as technology, TMT, healthcare, or consumer retail, you work on various deal types: sell-side and buy-side M&A, leveraged buyouts, IPOs, follow-on offerings, and bond issuances.

You also pitch prospective clients on deals and spend time learning your industry.

But in capital markets, you work on just one category of deals, such as equity-related transactions (IPOs, follow-ons, convertible bonds, convertible preferred, etc.) or debt offerings (investment-grade or high-yield bonds).

Some of your work may support other deal types (M&A, LBO, restructuring, etc.), so you may look up stats on recent issuances and share them with the lead team – but you are not heavily involved in the process.

The advantages of capital markets are that you will learn your specific product(s) very well, you’ll spend less time on pitches, and you’ll have more predictable and lighter hours than bankers in other groups.

Note that while Leveraged Finance is technically in “capital markets,” it is closer to groups like M&A because most of the work relates to funding for acquisitions and leveraged buyouts.

This deal type distinction matters because your deal experience determines your skills, hours, compensation as you advance, and exit opportunities.

And all of these differ in capital markets vs. investment banking.

Is Capital Markets “Real” Investment Banking?

Returning to the first question at the top, yes, capital markets teams are “real” investment banking, but they’re more like a subset of investment banking.

If you consider just the ECM and DCM teams, they remove the worst and best parts of traditional IB roles.

You work shorter, more regular hours but get paid less at the senior levels, get worse exit opportunities, and learn fewer technical skills.

Many firms put capital markets groups within “Investment Banking,” but some include it within Sales & Trading or “Global Markets.”

And then other banks, such as Goldman Sachs, do not separate their product and industry groups, so there are no separate capital markets teams.

Because of these classification differences and the nature of the job (more “monitor the markets and respond quickly” tasks and fewer long-term projects), capital markets roles are closer to sales & trading, but most people still consider them IB jobs.

Capital Markets vs. Investment Banking: Skill Sets

The main difference here is that ECM and DCM are far less modeling-intensive, so you’ll spend more time in PowerPoint drafting market update slides and sharing information with different groups.

You work in “flow” mode, where you process requests as they come in but do not get pulled away to work on deals that take months to complete.

In a good industry group, you might build a 3-statement model for a client based on a detailed review of its business, and you would use the output in the CIM and management presentation to market the company.

By contrast, you’ll do far more PowerPoint work in ECM / DCM, and the “modeling” work could more accurately be called “data gathering.”

You’ll find information on previous issuances and shareholders / investors, and you might occasionally work on a simple model for an IPO or bond issuance.

You’ll also draft sales team memos and registration statements and conduct due diligence if you’re leading the offering.

But you won’t get the same in-depth exposure to revenue, expense, and cash flow modeling, or any experience with M&A or LBO models.

Capital Markets vs. Investment Banking: Lifestyle

You will work more regular and shorter hours in ECM and DCM than in other investment banking groups.

On average, you might work from 7 AM to 7 PM, so you start earlier but also finish much earlier.

There will be occasional spikes, but you’re far less likely to get forced into all-nighters or weekend emergencies.

We’ve covered normal investment banking hours dozens of times, but they’re long and unpredictable – and even when deal activity is low, they remain long because you do more pitching.

You should expect to spend 70 – 80 hours in the office per week, with improvements as you move up the ladder and longer hours when deals heat up.

But the worst part is the unpredictability, which makes it hard to plan your life (even with “protected weekends” and other measures banks have introduced).

Capital Markets vs. Investment Banking: Recruiting and Interviews

Very little about the recruiting process is different, partially because each bank does it differently.

Some ask you to specify a team upfront, while others assign you to a team only once you’ve won an offer.

You can expect the same early recruiting timeline in the U.S., the same need for 1-2 solid internships before you apply to the large banks, and the same need to network and prepare for common fit and technical questions.

The questions are ~90% the same regardless of the group; they won’t suddenly ask you obscure questions about convertible bond analysis just because you’re interested in ECM.

So, prepare for the usual categories, but shift some of your time away from merger and LBO models and learn about IPOs and convertibles for ECM or bond math for DCM.

Again, LevFin is the exception; expect just as many M&A and LBO interview questions there.

Capital Markets vs. Investment Banking: Salaries and Bonuses

Analyst and Associate salaries and bonuses are standardized at mid-sized and large banks, so you won’t see a difference between capital markets and investment banking.

However, that starts to change as you move up the ladder because the fees charged by ECM and DCM are split between more banks and groups.

To illustrate, let’s say that a $1 billion public company sells itself in a sell-side M&A process.

The bank advising it might charge fees of 0.5% – 1.0% for something in this range; let’s assume 0.75%, which equates to $7.5 million in fees.

This $7.5 million might be split with another bank or the industry group, but the team that did the bulk of the work usually gets most of the fee.

If this same $1 billion company went public in an IPO, it might sell 10 – 20% of its shares to investors.

Banks might charge a 5 – 7% fee for an IPO in this $100 – $200 million range, so the fees would be around $7 – $10 million, which seems like the M&A fee above.

But in an IPO, these fees are split between multiple banks and may even be split with other groups at the same bank.

Just look at the Instacart S-1: It lists GS, JPM, BofA, Barclays, Citi, and then ~14 smaller banks.

As a result, the fees per bank are lower, translating into lower compensation for senior bankers.

I’ve never seen great data on Managing Director compensation by group, but my guess is that it’s probably 20 – 25% lower in capital markets teams.

You can still earn $1 million+ per year, but getting there is more difficult, and the ceiling is lower.

Capital Markets vs. Investment Banking: Exit Opportunities

Reading everything above, you might be thinking, “Wait a minute, capital markets jobs sound pretty good. You work less, have more of a life, and get paid about the same for many years. Why not accept a capital markets role?”

For most people, the answer is “inferior exit opportunities.”

Specifically, private equity is not feasible from most ECM or DCM teams, hedge funds are also challenging, venture capital is a stretch, and you won’t have the right skills for corporate development.

That leaves you with a few options: Corporate finance at normal companies, investor relations, fundraising at financial sponsors, and maybe credit analyst roles.

(Again, LevFin is the exception and provides realistic exits into private equity, direct lending, mezzanine, etc.).

These exit opportunities are fine, but they all pay less than private equity and hedge funds and are seen as less desirable for the hyper-motivated crowd.

So, in practice, most Analysts who want traditional exit opportunities will transfer out of capital markets into other investment banking teams.

How to Move from Capital Markets to Other Investment Banking Groups

On that note, it is possible to move from capital markets to investment banking industry groups or even teams like M&A.

To do it, you should focus on aggressive internal networking and make a move once you have at least 2-3 solid deals to point to; it’s often wise to move after ~1 year on the job to make sure you have enough experience and your year-end bonus.

If you need to network discreetly, you can use an outreach email like this one to contact bankers in other teams:

SUBJECT: Introduction – [Group Name] [Position Name] at [Firm Name]

“[Name],

I hope this email finds you well. I just wanted to reach out and briefly introduce myself – I am [Your Name], and I’m currently working in [Group Name] at [Firm Name].

I saw that you’re currently working in [Other Group Name], and I am very interested in learning more about your team and the work you do there.

Would you happen to have 5 minutes to grab coffee on [Propose Dates and Times]?

Thanks in advance, and I really appreciate your time.

Regards,

[Your Name]”

In interviews, avoid negativity about your job and say nothing about deals being “boring,” the work being “repetitive,” or you not gaining modeling skills.

Instead, focus on the more interesting bits of your work and any results you can point to:

• ECM Work: Recommendations for co-managers and deal economics; an investor targeting analysis where you found other institutions that might want to buy an offering; a due diligence discovery that changed perceptions of the company; an analysis of the stake size that would be most appropriate to sell in a secondary offering.
• ECM Results: Client issued shares at a lower-than-expected discount to its current share price; investors exited at a favorable time; IPO drew more interest than expected or priced at a higher-than-expected level; the company attracted new, promising institutional investors.
• DCM Work: A debt capacity analysis where you determined the most appropriate interest rates and covenants based on the debt comps; an analysis where you found the conditions that might lead to violated covenants; a trade-off analysis where you measured the impact of paying a penalty fee to refinance debt at a lower interest rate.
• DCM Results: The company raised funding more quickly than expected or on better terms; it saved $XX in interest expense by refinancing at a favorable rate; it improved its leverage and coverage ratios via refinancing; it raised enough debt to meet an upcoming cash crunch.

You’ll also have to spend time learning/reviewing the technical questions, as the day-to-day work in ECM and DCM is far removed from subjects like Equity Value vs. Enterprise Value or a DCF model.

Should You Accept a Capital Markets Internship or Job Offer?

And now, we return to questions #3 and #4 at the top of this article:

3) How would you compare capital markets and traditional IB offers?

4) Are capital markets offers “worth” accepting? Should you hold out for something better?

If you want a long-term finance career (stay in banking or switch to private equity, corporate development, hedge funds, etc.), I recommend accepting a capital markets offer over pretty much any non-IB offer.

Yes, ECM/DCM beats options such as the Big 4 firms, small PE/VC firms, corporate banking, corporate finance, valuation firms, etc.

On the other hand, I do not recommend capital markets over something like a private equity mega-fund offer, even if the capital markets offer is at a bulge bracket.

If you have a capital markets offer at a bulge bracket and an M&A or industry group offer at a smaller bank, the best decision depends on “how small” the other bank is.

If it’s a 5-person regional boutique, take the BB capital markets offer.

But if it’s one of the top few middle-market banks (e.g., Jefferies, Lincoln, etc.), I recommend the M&A or industry group offer.

In either case, you’ll have to make a lateral move for the best exit opportunities, but if you work in an industry or M&A team, you’ll gain a more useful skill set over the next year.

I do not recommend delaying acceptance of a capital markets offer in search of something “better” unless you are very close to getting a superior offer (e.g., 1-2 weeks away).

Especially in tough market environments, like the one we’re currently in, your attitude must be “Take what you can get and move around later.”

And if you have a capital markets offer you’re not sure about, ask away in the comments.

Want to learn more?

Take a look at:

• The Definitive Guide to Corporate Banking
• Investment Banking Internships: The Ultimate Guide
• Private Equity Exit Opportunities: How to Check Out of Hotel California
• Venture Capital Careers: The Complete Guide
• The Hedge Fund Career Path: The Complete Guide
• Corporate Development Careers: The Definitive Guide
• Or take a look at this tutorial that shows you how to color code in Excel
• Business & Professional Services Investment Banking: Can You Outsource Yourself?