Finance has evolved into a multi-layered industry in which investors specialize in different sized companies of different ages, assuming that a business will naturally develop along a path from startup to mega-cap market leader. While not all firms will get that far, they all will progress towards that end of the spectrum, so investors and the financiers who help them have begun to specialize in working on firms at one part of that spectrum.
As venture capital, private equity, and public company equity research have evolved, it has become harder and harder for specialists in one part of the spectrum to move to another part of the spectrum. For those fortunate enough to specialize in one part of the financial world early on, it is crucial to identify where one finds the work most enjoyable, rewarding, and stimulating. Some benefit from working on early-stage funding projects, whilst others will be happiest doing research on companies like Apple (AAPL) and Amazon (AMZN).
It may not be easy to know where you fit, but it’s best to start by knowing the landscape. At the beginning of a company’s birth are the seed investors or angel investors. These provide seed funding to entrepreneurs who have a basic idea that they then want to begin developing but lack the funds to develop from scratch. Seeing the potential in the idea, angel investors will provide some startup capital and probably some mentorship along the way to get them going. While angel investors will sometimes employ analysts to help them research, this is a much more informal part of the financial industry.
Following the germination of a startup, successive rounds of funding will follow the “Series A”, “Series B”, etc. naming convention, and ideally each round of funding will result in the company’s valuation getting higher and higher. A startup will acquire capital from these investors, known as venture capital investors, who will employ analysts to use a variety of analytical tools both to model future revenue and earnings for the company as well as to model how the company will operate and evolve over time. This job involves perhaps the least amount of financial knowhow and the highest amount of technical and technological knowledge relevant to the sector that the startup functions within.
Following this is the private equity world of large investments both in equity and debt at the “late stage fundraising” stage. Here a developed startup has significant revenue (and likely significant losses) and needs a large investor with significant institutional capital and diversification to buy into it. This requires technological knowledge, but is much more geared towards financial analysis than previous series’ funding.
Finally there is the IPO and public company levels, which involve investment bank analysts operating at much higher levels of financial sophistication but probably lower levels of technological understanding. Their job is to track the likely financial trajectory of the company and identify financial and operational risks to the business in the future, and to make those known to potential investors. They will rely on previous rounds to prove the technological feasibility of the company if not the financial viability of the company.
As you can see, there is a significant different in the knowledge base at each level, which is why analysts often prefer to be at one point in the ecosystem (and why they are often pigeonholed at that point in the future). To know where you will best fit you need to first know what your strengths and weaknesses are and what kind of job you ultimately want to be in.