Has Wall Street lost the talent war against Silicon Valley?

Last week, Airbnb announced that Mr. Laurence Tosi, Blackstone's former CFO, will join their management team as CFO. Mr. Tosi was the latest top Wall Street executive to head west, following many others like Ruth Porat of Google or Anthony Noto of Twitter.


Silicon Valley is also increasingly attracting talent from Wall Street. Ruth Porat in May joined Google Inc. as CFO from Morgan Stanley, where she had the same role. Anthony Noto, Twitter Inc.’s finance chief, joined the company last year from Goldman Sachs Group Inc., where he co-led telecommunications, media and technology investment banking.

Certainly, $15 million that Mr. Tosi made last year at Blackstone is incomparable to the huge potential upside of carrying out the Airbnb IPO, which is currently valued at over $25 billion. But not only the top executives are fleeing Wall Street, more students from top schools are now choosing Silicon Valley as their destination after graduation.


In 2008, Harvard sent 28% of its graduating class to firms where they would become bankers, traders or investors. By 2010, Harvard was sending just 17% of its graduating class. Yale graduates entering the finance business fell to 14% from 26% during the same period. Even Princeton, traditionally the most finance-friendly school, fell to 35.5% from 40%.

Thoughts monkeys? Is Wall Street suffering a secular decline in both their reputation and upside potential? We hear stories of Wall Street people joining Silicon Valley firms, which crave Wall Street's financial expertise and discipline, but is it an one way street situation when only Wall Street people make the move to Silicon Valley? By offering more money and better lifestyle than Wall Street, is Silicon Valley winning in the talent war?

Original: http://www.bloomberg.com/news/articles/2015-07-23…

http://www.wsj.com/articles/SB1000142412788732362…

 

Not this again.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 
 
Best Response

I do think it's a one-way street in the sense that no startup kids are leaving to go join GS or Citadel. Culturally they are ruined after a couple years of wearing jeans and a hipster beard to work and rolling into work at 10:45am, so they can't really get hired into traditional finance roles. You can't sit these kids in front of a management team of a "real" company like you would need to for an investing role either. Huge optionality it seems in the tech world out here. Even if you spend a year or two at a "failed" startup (of which there aren't many of these days it seems as the VCs just continue to pour money into ill conceived conceptual startups), they just jump on to the next one, and eventually you are going to land at some unicorn-to-be after which you are basically set for life. Finance offers a more predictable, and still compelling, comp progression over time, but it's gotten pretty rare to see finance kids just knock it out of the park and retire at 32. It happens (esp on the HF side), but it's rare.

Frankly tech adds a lot more value these days than finance anyhow imo, so it makes sense that the best and brightest should gravitate there. I think most of finance has basically been reduced to financial engineering and gimmicks, strong sales relationships, and casino games offering mostly asymmetrical return profiles. There's some big data guys bringing some innovation to finance & investing but again these are basically software startups rather than BB/HF/MF/PE types. I wish I had the technical skills to go work for a startup. Everyone tells me you don't need any coding skills, just got to know a guy from India... maybe they're right.

 
jankynoname:

Even if you spend a year or two at a "failed" startup (of which there aren't many of these days it seems as the VCs just continue to pour money into ill conceived conceptual startups), they just jump on to the next one, and eventually you are going to land at some unicorn-to-be after which you are basically set for life. Finance offers a more predictable, and still compelling, comp progression over time, but it's gotten pretty rare to see finance kids just knock it out of the park and retire at 32. It happens (esp on the HF side), but it's rare.

That easy huh? Jump from start up to start up until you make 50 million by the time you're 32?

 

Haha, yeah I'm obviously being a bit flippant, but I think the general message is basically true. In either finance or tech you've got to "get lucky" in order to retire that young. But I just think the odds of getting there are quite a bit better in tech than in finance at the moment. I like to gamble so I'll actually put odds on it if you want... I think you're probably 2,000-to-1 or maybe even 5,000-to-1 to be worth over $5mm in early 30s as a finance person (assuming you're competent/smart/target track etc.), whereas in the tech world I would guess you're closer to 100-to-1, maybe even 50:1 if you start hustling early (again assumes smart, ambitious, good programming skills etc)

Obviously I'm not talking about socking away $50mm, but it's not really all that uncommon for young techies to be worth something like $2-$5mm by their early 30s. I can think of a handful i know here in the silicon valley. But on the finance side, I don't think I know anyone worth that kind of money at 32. Maybe one ex-Citadel guy who probably could retire if he really wanted to but he's by no means crushing it.

We're talking about MD level or equivalent positions, which are just extremely rare these days for finance ppl in their early 30s. There's a progression, a sense that you've got to "do your time" etc etc. In tech, all you need is some janky app that becomes a hit for a two week window on the itunes store, and you're golden. Easy game.

 

I cannot believe that no one has stated this, but there really is no talent war. Anyone can do investment banking. Harvard grads, state school grads, whatever...as long as you are intelligent and hard working, you can do investment banking. Silicon Valley needs designers, programmers, etc. from top schools because those top schools usually have leaders in the field teaching their programs. That of course translates to graduates who have an edge in designing, programming, etc. None of this is needed in investment banking. So, the only real thing that has changed is that banks will have to do a better job evaluating candidates as opposed to relying on Ivy league admissions to essentially screen candidates for them.

 
junkbondswap:

The title includes all of Wall Street which includes HFs and quant driven strategies. There is certainly a talent war going on. Skilled/technical talent is in high demand across both industries. It's a huge ebb and flow. Again, look at admissions/recruiting data after the tech bubble.

I agree with you. I was referencing IB and ignoring HFs and quant drive strategies because these "IB is dying" type threads pop up on a weekly basis.

 

What you said sounds like a vicious cycle for ibanking recruiting at top schools like Harvard/Stanford. I think the students there would feel like they can do better than just getting a banking job, which they think is the type of job that a Top 15 MBA grad can get, and instead aim for jobs that are perceived as harder to get into like Google/Silicon Valley/Startup type.

 

Most MBA grads are going into late Series startups so that ability to hit it big is def not 1:100. Someone already said this but tech is in now, it's more popular to say you're in tech than finance these days and it's totally cylical. When you have Kleiner giving out 100mn @ 2bn for a startup w no sales, then you know there's a bubble. The bubble will last longer BC startups are going farther in the Series alphabet but eventually there has to be a public exit.

Ask the PhDs if they are more inclined to go to a quant fund or a tech firm and I think that will really answer who's winning the talent war.

 

Fintech startups have become more sophisticated and influential over the past few years, and yes, there is a large contingent of people who would have gone to IB 10-15 years ago and are instead joining startups. However, it will take decades before startups will overtake traditional banks.

 

Lending and investing at the institutional level is too sophisticated to be disrupted meaningfully by technology in the near term. Software and cloud tech could change the way Wall Street goes about doing things but tech companies won't really have any opportunity to replace banks for a very long time, especially on the corporate side.

Retail may be a different story though. P2P lending is getting heated, and even SMB lending has become contested. Interested to hear what others think.

 

Definitely agree with your statements about the institutional/corporate side of things. I think the importance of trust is often understated in these discussions. Wall Street will definitely need to adapt to new software/cloud technologies, but I think the brand names will go a long way. It will take a long time for tech companies to be able handle larger transactions, and I personally think the big banks will figure out a way to better leverage their size/brand name with new technology to maintain a competitive advantage.

 
7xEBITDA:

Retail may be a different story though. P2P lending is getting heated, and even SMB lending has become contested. Interested to hear what others think.

Supply, meet Demand. P2P lending has a ceiling--if it gets too popular, the returns will not be worth the risk for non-institutions. Currently, you're talking about a return on well-diversified portfolios of about 6-7% on average, after default, in P2P lending, which is pretty good, although not amazing. You've got institutions who are starting to troll the P2P sites for excess returns. Once the institutions fully take over, you're going to see garbage returns--returns only worth it to institutional money.

Financial vacuums must always be filled. The Wall Street institutions will rule "P2P" lending by the end of the decade. It's basically a mathematical certainty.

 

What I find more interesting is that bitcoin enthusiasts can now convert cash directly to bitcoin using services provided by https://www.bitquick.co/. Companies like https://www.expresscoin.com/how even accept personal checks. These practices, along with P2P lending and traditional Cryptocurrency services could fully replace services provided by retail banks. Too bad bitcoin prices have a tendency to fluctuate.

>Incoming Ash Ketchum, Pokemon Master >Literally a problem, solve for both X and Y, please and thank you. >Hugh Myron: "Are there any guides on here for getting a top girlfriend? Think banker/lawyer/doctor. I really don't want to go mid-tier"
 

What I've been told by some industry vets I've talked to is that Silicon Valley isn't the biggest threat to finance, it's that corporations are starting to shift some of the functions traditionally performed by Wall Street firms to their own internal finance departments.

Also do not underestimate the long term damage that has been done to the mainstream Tech sector due to the NSA revelations. A lot of foreign companies are in the process of ditching their American produced software and Hardware.......China is in the process of removing Windows from all their systems and replacing it with Unix, and Germany has been warning not to use windows 8:

http://rt.com/news/windows-8-nsa-germany-862/

 

I agree with the above and I'd also add that there's the fact of having, or at least having the access to, the massive amounts of capital necessary to replace traditional lending. Peer to peer ideas like the Lending Club can create and fill a niche, but there aren't enough small investors to meaningfully disrupt mortgages, credit cards, auto loans, receivables, and so on. Or they'd just be another conduit lender tapping into the securitization market to recycle their capital base.

I'd actually like to see some innovation in the banking industry but between regulations and the amount of capital needed, I don't think it will happen anytime soon. If a tech firm invented new disruptive software or some widget that would seriously pose a threat to banking, any of the big banks could buy it without a second thought.

Dimon's just blowing smoke because he wants regulators to ease off big banks.

 

Yes, it will happen.

There are already start ups that are removing the banks from the IPO process. Considering that the top flow of the IPO business as of late has been other tech companies the banks could see their influence wane much faster than they think is possible. Take JPM for example, they are closing down traditional Wall Street banking sectors of sales and trading, and IB is next on the chopping block. The industry has harmed itself given it's rather defiant attitude in the past 5 years. Tech won't replace the banks tomorrow, but they can and will replace the banks sooner than you think. To those who think P2P lenders are just a niche product, wait until the traditional banks are cash starved because capital is chasing higher returns and it puts a squeeze on their ability to lend due to lack of capital.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
heister:

Yes, it will happen.

There are already start ups that are removing the banks from the IPO process. Considering that the top flow of the IPO business as of late has been other tech companies the banks could see their influence wane much faster than they think is possible. Take JPM for example, they are closing down traditional Wall Street banking sectors of sales and trading, and IB is next on the chopping block. The industry has harmed itself given it's rather defiant attitude in the past 5 years. Tech won't replace the banks tomorrow, but they can and will replace the banks sooner than you think. To those who think P2P lenders are just a niche product, wait until the traditional banks are cash starved because capital is chasing higher returns and it puts a squeeze on their ability to lend due to lack of capital.

which startup remove banks from IPO process last decades? I can only remember GOOG and it was a disaster. I actually see more wall st presence in silicon valley these days than a few years ago

 
youayou:

The term "Wall st" is over-generalized here. Commercial bank and investment bank are very different. I can see some investment bank businesses got disrupted by tech like S&T and brokerage. But everything on corporate level - (bond/equity offering, advisory) will not be affected (at least in near future)

Have you ever worked for a commercial bank? 90% of its functions are dominated by the Federal Reserve and/or its regulator, its stock price, C/MBS/ABS, and its ratings. Commercial banking is fundamentally, inextricably tied in with Wall Street. The American banking system, from Bank of America to 5th Street Nowhere Bank of the Ozarks, is Wall Street.

 

I think that outside of IBD, it’s already happening. Startups are changing consumer lending and banking, and automating trading and investing. Wall Street has been able to be a part of the automation, but at the expense of lower fees.

"There's nothing you can do if you're too scared to try." - Nickel Creek
 

CEO of Avant had an interview with Cramer tonight- Avant (pretty much like a new prosper.com) is now giving personal unsecured loans w/ rates from 9.99-34.99% (thought usury was technically 25% but apparently not), and Avant is rolling out an institutional platform to securitize the loans to sell to institutions which invariably will wind up as a subprime ABS holding in another closed-end fund w/ 33% leverage. That to me is the darker side of tech's entry into lending (no doubt sowing the seeds if of the next write-down wave - and I thought subprime auto loans would be the next shoe to drop); a less ominous tech lender however would be SOFI for student loan refis - Not sure if anyone has had any dealings w/ them but their rates seem good.

"Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it." - Peter Lynch
 

I don't think "top talent" is a broadly appropriate term. Many people who go to investment banking have no business/finance background whatsoever (ie there are a large number of accidental investment bankers). The same cannot be said about top tech firms: you won't be getting into Google without a relevent degree. I would therefore argue that someone in your example (dual major in computer science and finance) would be inherently more interested in a tech career than investment banking

 

Wall Street: -more money -"sexy" -shitty lifestyle

Tech: -less money -"sexy" -great lifestyle

Depends what you want and what your endgame is. Wall Street may be taking a small step back, but they aren't going anywhere. I don't think anyone is "winning" in talent attraction, they're both getting the cream of the crop. That said, it also depends on what jobs you're talking about.

"You stop being an asshole when it sucks to be you." -IlliniProgrammer "Your grammar made me wish I'd been aborted." -happypantsmcgee
 

Silicon Valley is a bit of a false promise, in my opinion. The starting salaries are great (sometimes their starting all-in compensation is better than those at finance jobs, even), and the lifestyle can be nice, but the salaries don't ramp up all that much, and there is no guarantee of a great lifestyle either. A few people, some lucky, some brilliant, get wildly rich, but most level off very young, and far too many find themselves replaced by people far younger (who are equally skilled, and can be hired for less money).

In finance, there is also a "lottery"-style system, where a few lucky and brilliant stars end up crazy rich, but those who are merely bright and hardworking can reasonably expect a successful career with steadily rising earnings over a fairly long time horizon.

Also, setting aside the horrors of banking at the analyst level, finance jobs don't necessarily have a worse lifestyle than tech jobs. It'll depend on the finance job and the tech job.

As for whether or not the jobs are more or less interesting, I find doing research into weird and interesting companies is tons of fun, whereas the classes I did in college that involved coding were mind-numbingly dull. Others may disagree; to each his own. I don't think I'm the only person who thinks like this, however.

 

I think (like I mentioned in my reply) this comes down to what jobs you're talking about.

If you're talking about taking a corpfin job with Google versus WS, a lot different of a debate than going to work for a start-up vs WS, and a lot different than a programming job at Facebook vs WS.

I was thinking more established tech with my response. You get stability and a better lifestyle for decent pay but nowhere near the upside potential of WS.

"You stop being an asshole when it sucks to be you." -IlliniProgrammer "Your grammar made me wish I'd been aborted." -happypantsmcgee
 

They are both attracting talent. However, the tech scene is way too hyped up right now. It won't be soon before the bubble bursts. Everyone wants to make a quick buck starting some shitty company hoping it is acquired by some tech giant.

 

Until the day you enter the executive managerial ranks, I have no doubt that Silicon Valley generally offers the better lifestyle (and weather), whereas the bonuses on Wall Street remain superior.

All the world's indeed a stage, And we are merely players, Performers and portrayers, Each another's audience, Outside the gilded cage - Limelight (1981)
 

My 2 cents: compensation has been reduced across the board; therefore, naturally more people are going to gravitate to industry when compensation is neutralized.

Having spent time in both camps – WS (SF/NYC) and SV – it doesn’t need to be one or the other. There are a lot of jobs in Tech that are effectively industry versions of Wall Street: Corporate Development (Banking), Corporate Strategy (Research), and Product Management (Consulting). Each side has its strengths and weaknesses, but at the end of the day, if you really want to shift from one side of the fence to the other, it is not impossible (sure, it might require B-school). Some of my on WS have had difficulty breaking into industry, and others from industry breaking onto the street – it’s competitive out there,

With regards to Work/Life balance, it’s pretty short sighted to assume that all the jobs in the valley are 9 to 5. Deadlines are deadlines, and getting the pitch/proposal/analysis done in tech is just as important (sometimes more important) as to hammering out the details in banking.

Personally, I have always enjoyed the thought industry considering you are actually bringing something to market.

 

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