Alan Li, a recent Goldman Sachs analyst, provided the most straight-forward explanation we've ever heard on a recent episode of his new podcast, "The Vampire Squid."
"I like to compare it to a consulting firm, because everyone understands what consulting firms do," Li said. "A consulting firm has a project or an assignment from a client and they make an action or they make a plan and recommend it to their client."
He continued:
"An investment bank does something very similar. They do provide advice to their clients, but they usually do it through more of a financial lens. So using Excel a lot more, providing valuation advice - and they actually see the deal through to the very end. So if a company is going public, an investment bank is not going to recommend them to go public, and that's it; an investment bank is going to take them through every step of the way until the company is public, and even after they're public, they still maintain a relationship with the client and provide them with other services that they need."
In other words, they provide advice to companies, usually on some sort of deal, like a stock offering or an acquisition of another company.
Li, who worked in tech, media, and telecom banking in Goldman Sachs' San Francisco office, recently launched the podcast to address a "lack of transparency" around finance.
The first few episodes include an introduction to Li and the podcast, an overview of investment banking, and a detailed look at the initial public offering process. Next up will be an episode debunking Wall Street jargon and explaining different types of financial statements.
You can find the podcast on Li's blog or on iTunes here.