What Do Investment Banks Actually Do?
Investment banking is one of the most misunderstood corners of finance. Most business owners associate the term with Wall Street trading floors, complex derivatives, and billion-dollar IPOs. The reality is far more practical — and far more relevant to anyone who has built a company of meaningful size.
At its core, an investment bank is an intermediary. It sits between parties who want to transact — buyers and sellers of companies, issuers and investors of capital, companies seeking strategic partnerships — and facilitates the process. The bank's job is to structure, negotiate, and execute transactions that create value for its clients.
Investment banks typically operate across four main divisions: mergers and acquisitions (M&A) advisory, capital markets (debt and equity issuance), restructuring, and sales and trading. For business owners, the M&A advisory function is the most directly relevant. This is the team that helps you sell your company, acquire another business, or raise growth capital. According to Dealogic, global M&A advisory fees exceeded $36 billion in 2024 — a figure that reflects how central these services have become to the business lifecycle.
Understanding how this world operates is the first step toward making better decisions about your own company's future. For a deeper look at the full M&A process from a founder's perspective, see our comprehensive guide to mergers and acquisitions.
Bulge Bracket vs. Boutique: Understanding the Tiers
Not all investment banks are created equal, and the differences matter enormously depending on your deal size, industry, and objectives.
At the top of the pyramid sit the bulge bracket banks — Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America, and a handful of others. These firms handle the largest transactions on the planet: multi-billion dollar acquisitions, sovereign debt issuances, and cross-border mega-deals. They employ thousands of bankers across dozens of offices worldwide. Their minimum engagement threshold typically starts at $250M in enterprise value, and their fees reflect their institutional overhead.
Below the bulge bracket sit the elite boutiques — firms like Evercore, Lazard, Centerview, and PJT Partners. These firms compete with the bulge brackets on deal quality but with leaner teams and a focus exclusively on advisory. McKinsey & Company's 2023 analysis of M&A advisory market share found that elite boutiques captured 28% of global M&A advisory revenue, up from 18% a decade earlier, reflecting a structural shift toward specialized, conflict-free advice.
Then there are middle-market investment banks — Houlihan Lokey, William Blair, Baird, Harris Williams — that serve companies with enterprise values between $50M and $500M. These firms offer deep sector expertise and hands-on senior banker attention that larger firms often cannot match at this deal size.
Finally, there are regional boutiques and business brokers that serve the lower-middle market, typically handling transactions below $50M. This is where the majority of business sales actually occur, and it is also where the quality of representation varies most dramatically. Understanding where your company falls on this spectrum is critical to choosing the right partner.
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How M&A Advisory Works in Practice
When an investment bank is engaged for an M&A sell-side mandate, the process typically follows a well-defined sequence. Understanding this sequence demystifies what you are paying for and why professional representation consistently produces better outcomes.
The process begins with preparation. The bank's team will work with you to understand your business inside and out — its financial profile, competitive positioning, growth trajectory, and potential risks. They will help you assemble a data room, normalize your financials, and build a compelling investment thesis. This preparation phase alone can take four to eight weeks, and it is where much of the value is created.
Next comes market outreach. The bank identifies and contacts potential acquirers — strategic buyers, private equity firms, family offices, and other investor types. A well-run process might involve contacting 100 to 300 potential buyers, with the goal of generating genuine competitive tension. Deloitte's 2024 M&A trends report found that deals with four or more bidders achieved valuations 15–25% higher than single-bidder negotiations.
The bank then manages the indication of interest (IOI) phase, selects parties for management presentations, oversees due diligence, solicits letters of intent (LOIs), and negotiates final terms. Throughout this process, the bank acts as a buffer between you and the buyers — protecting confidentiality, maintaining competitive dynamics, and keeping the process on track. For a complete walkthrough of these steps, our guide on understanding M&A covers each phase in detail.
Why Business Owners Should Care
If you have built a business worth $2M or more, the decision of how to exit or recapitalize that business is likely the single most consequential financial decision you will ever make. PitchBook data from 2024 shows that the median founder derives more than 70% of their net worth from the sale of their business. Getting it right matters — and the margin between a good outcome and a poor one is often the difference between professional representation and going it alone.
The challenge is that most business owners only sell a company once. They lack the pattern recognition, the buyer relationships, and the negotiation experience that comes from doing this repeatedly. An investment banker or M&A advisor brings all of those elements to the table. They know what buyers look for, how to position your company to command premium multiples, and how to navigate the dozens of decision points that arise between signing an engagement letter and closing a transaction.
This is not to say that every business owner needs a Goldman Sachs-level engagement. But every business owner deserves competent, professional representation that is aligned with their interests. That is why understanding the landscape — who the players are, how they are compensated, and what they actually do — is essential preparation. As we explore in why you need a selling agent, the ROI of professional representation is consistently measurable and significant.
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The Fee Structure: What You Pay and Why
Investment banking fees are a perennial source of confusion and frustration for business owners. Understanding the typical structures will help you evaluate proposals and negotiate with confidence.
The most common fee model for sell-side M&A advisory is the success fee — a percentage of the total transaction value paid at closing. For middle-market transactions ($10M–$250M), success fees typically range from 1% to 5%, with the percentage declining as the deal size increases. Some banks use the Lehman formula or a modified version: 5% of the first million, 4% of the second, 3% of the third, and so on. Others quote a flat percentage.
In addition to the success fee, many banks charge a retainer — a monthly fee paid during the engagement, typically ranging from $5,000 to $50,000 per month depending on the bank and deal size. Retainers serve two purposes: they compensate the bank for the upfront work of preparation and outreach, and they signal the seller's commitment to the process. Some retainers are credited against the eventual success fee; others are not.
There are also minimum fees. A bank might quote a 3% success fee with a $150,000 minimum, meaning you pay the greater of 3% of the deal value or $150,000. According to a 2023 survey by the Alliance of M&A Advisors (AM&A), the median minimum fee for lower-middle-market engagements was $125,000.
The key question for any business owner is whether the fee is justified by the incremental value the bank delivers. In most cases involving competitive processes, the answer is a clear yes — the increase in valuation achieved through professional representation typically exceeds the fee by a significant margin.
When to Engage a Banker vs. a Broker
The distinction between an investment banker and a business broker is one of the most important choices a seller must make, and it is often poorly understood. The difference is not just semantic — it reflects fundamentally different levels of service, capability, and fiduciary responsibility.
A business broker typically handles transactions below $5M in enterprise value. They often represent both buyers and sellers (dual agency), list businesses on public marketplaces, and charge success fees in the range of 8–12%. Their process tends to be reactive — list the business, wait for inquiries, facilitate introductions. Brokers serve an important function in the market, particularly for main-street businesses like restaurants, retail shops, and service companies.
An investment banker or M&A advisor, by contrast, runs a proactive, structured process. They build tailored buyer lists, conduct targeted outreach, create professional marketing materials, manage multi-party negotiations, and typically represent only the seller. Their fees are lower as a percentage (1–5%) but higher in absolute terms, reflecting the institutional quality of their work. For a detailed comparison, our guide on the broker vs. advisor spectrum breaks down the differences across every dimension.
The right choice depends on your deal size, complexity, and objectives. As a general rule, if your business has an enterprise value above $3M and you want to maximize value through a competitive process, you should be working with an M&A advisor or investment banker rather than a traditional broker.
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How Technology Is Changing the Landscape
For decades, the investment banking model has remained essentially unchanged: a pyramid of junior analysts, associates, vice presidents, and managing directors, all working on a small number of high-value mandates. The economics of this model made it impossible to serve smaller deals profitably — which is why businesses below $50M in enterprise value have historically been underserved by quality advisors.
Technology is fundamentally reshaping this equation. Artificial intelligence and automation are collapsing the cost of the highest-labor activities in the deal process: buyer identification, outreach, document preparation, and pipeline management. A single AI-augmented advisor can now execute a process that previously required a team of five or six — without sacrificing quality.
Bain & Company's 2025 report on AI in financial services found that AI-enabled deal platforms reduced the average cost of executing an M&A mandate by 40–60%, while maintaining or improving outcome quality metrics like time-to-close and final valuation multiple. This cost reduction unlocks a massive market: the tens of thousands of businesses between $2M and $50M in value that were previously too small for institutional-quality representation.
At Napkin Deals, we have built our entire model around this thesis. By combining experienced human bankers with AI-powered execution tools, we deliver the same quality of M&A process that a $200M seller would receive — but to business owners at every deal size. We operate worldwide from our bases in Canada and the U.S., and our blended model means that the seller never sacrifices the human judgment that matters most in negotiations and strategy. As we discuss in M&A for the rest of us, this represents a structural shift in who gets access to professional-grade deal execution.
The era in which quality M&A representation was reserved for the largest deals is ending. Technology is not replacing investment bankers — it is extending their reach to the businesses that need them most.