Wall Street is (Still) Interested in Online Video – Maybe You Should Be Interested in Wall Street
For some people it’s easier to explain the difference between AJAX and RSS than common Wall Street terms like buy-side and sell-side. In fact, for many people, Wall Street itself is a nebulous term that they do not understand. And in today’s economy, they may prefer not to. But Wall Street isn’t just mortgage-backed securities and overpaid executives. Some financial professionals would enjoy hearing the difference between AJAX and RSS explained. More so, they would like to know the impact said technologies will have on companies. That after all is the goal of many on Wall Street; learn as much about something as you can and then figure out who the winners and loser are going to be. However, it can be a symbiotic relationship, as venture capitalists and online video startups both stand to gain if they find the right partners. You could gain too if you know who the players are and what they can do for you.
Where Wall Street Fits In
Let’s start at the beginning.
After coming up with a business plan the founders of a company will typically seek out a venture capitalist (VC) to help bring their idea to fruition. Typically a VC will raise financing from outside sources like wealthy individuals or institutions. The proceeds from the financing will be put into a fund that will broadly focus on an area like Internet or online video. The VCs are interested in investing in early stage companies and consequently lock their investors in for several years.
The key for an aspiring entrepreneur is to have a good Rolodex or at the very least start to know what VCs are backing other companies within your sector, since they are likely to have some understanding of what it is you are trying to do and are most likely interested in funding other companies in the space. In exchange for financing your idea, the VC becomes part owner in your company. To help ensure its success, they may bring in their own people or help dictate strategic direction. Private equity (PE) firms are similar to VCs; however they usually invest in more mature industries or companies where the market is already proven.
When it comes time to sell the company or do an initial public offering (IPO) you will normally use an investment bank (IB) to help in the process. Typically the IB that is selected already knows the company and/or has a relationship with the VC or PE firm. These relationships are usually formed months or even years before and help ensure that the IB knows what the company does and who may be interested in investing in it. The IB will also be able to help decide when is the right time to complete a transaction based on what they are seeing in the market in the form of demand and pricing. Thus, it is important that as your company develops and matures that you start to forge these relationships.
If the hope is to be acquired by another company the list of potential IBs is very large and can involve very small banks that consist of a handful of specialized bankers that focus on certain industries and spend all their time learning about the space and forming relationships with those in it. If the hope is to complete an IPO, the list typically narrows to full-service IBs that have a sales force, trading desk and research team, which is referred to as the sell-side.
The sell-side is essentially selling an investment idea. When it comes time to start the IPO process the sales force will go to their institutional investors, known as the buy-side, to gauge interest. This is a very involved process. In addition, the IB usually has an equity research analyst who is focusing on the space that the company is in.
The research analyst may have met the company when it was private. Both the sales force and the research analyst help provide information to potential buy-side investors about the company that is trying to go public. On the buy-side are money managers, such as mutual and hedge funds, but also include large pools of money such as school endowments or pensions.
Once a deal is completed and the IPO begins to trade in the open market, the trading desk of the IB will become involved. Since it was the IB’s sales force that helped place the stock with investors they can efficiently pair buyers and sellers. The research analyst most likely will launch coverage on the stock at a later date to help provide knowledge to investors on the company going forward.
How Wall Street’s Involvement Could Help You
In all situations, from the beginning when the VC becomes involved to later on when the company is either sold or brought public, those within the industry are most likely dealing with some form of Wall Street that is very interested in you and what it is you are doing. It is advantageous to build some of these relationships early on—particularly in a downturn—since they can help provide advice not just on the financial side of your business but also the operational skills they have gained by doing this with other companies in the past.
And even if you do not own a company, there is an advantage for you to get to know some of these people as well. They can provide another perspective on the company you work for or the industry you are in, or help introduce you to a company that you may be better suited to work for. And of course, when it does come time for you to put your own business plan together you will already have a Rolodex that will help make the process that much easier.