Merchant banks are private financial institution. Their primary sources of income are PIPE financings and international trade. Their secondary income sources are consulting, Mergers & Acquisitions help and financial market speculation. Because they do not invest against collateral, they take far greater risks than traditional banks. Because they are private, do not take money from the public and are international in scope, they are not regulated. Anyone considering dealing with any merchant bank should investigate the bank and its managers before seeking their help.

The reason that businesses should develop a working relationship with a merchant bank is that they have more money than venture capitalists. Their advice tends to be more pragmatic than venture capitalists. It is rare for a merchant bank to fail. The last major failure was Barings Bank (1992). It failed because of unsupervised trading of copper futures contracts and buybacks. When the DotCom Bubble burst in 2001, scores of venture capital firms failed. The greatest merchant bank failure in history was the Knights Templar. After the Crusades, the Order became immensely wealthy controlling and funding the trade between the Middle East and Western Europe. They foolishly loaned money to the French Government. To avoid repaying the money, King Louie had the Pope declare the Order heretics. Thousands of monks lost their lives, but France balanced its budget.

To understand Merchant Banks, you should know something of their history. Modern merchant banking started in Italy during the 7th Century. The banking practices evolved from the financing structure of the Silk Road Trading that predates the Roman Empire. The basic financing structure was the advance payment for goods by merchant bankers at a great discount to the delivery value of those goods. In the case of Italy and then Germany, wheat was the product. The merchant banks purchased the wheat soon after planting. They accepted the risk of crop failure. They profited when they sold the wheat. In most countries today, the national government accepts the risk through government crop insurance.

As the British Empire expanded in the 18th and 19th Centuries, merchant banks prospered in London. For instance, merchant bankers funded Canada’s Hudson Bay Company. This period saw the rise of such merchant banks as Schroders, Warburgs or Rothschilds. Amsterdam benefited from the trade created by the Dutch East Indian Company. Since the 18th century, the role of the merchant banker has been considerably broadened to include a composite of modern day skills. Such skills are inherently entrepreneurial, managerial, financial and transactional.

While the American Triangular Trade and Clipper ships of the 19th Century should have created major merchant banking centers in Boston and New York. Unfortunately, the American global trade wasn’t a major catalyst for merchant banking growth. However, the Rockefellers and Back Bay Wealth in Boston owe their fortunes to ancestors involved in merchant banking activities.

In the 1920s, American merchant banks began to become involved in investor relations and financing public companies. The Kennedy fortune comes in part from Joseph Kennedy’s involvement as a merchant banker to the pre-Crash Stock Market. By the 1960s, the cost of going public in the States began to increase. Many American brokerage house clients lacked the resources to pay these costs. Major brokerage firms responded by creating merchant banking departments. These departments became known as Investment Banks. Their role was to loan the parent brokerage firm’s client companies the money to go public. They recovered the loan from the proceeds of the Initial Public Offering (IPO). For their service, they received a large bloc of shares in the new public company. Their secondary job was to arrange acquisitions that made the client company a more attractive IPO candidate. Successful M&A work is very rewarding.

Today, North American merchant banks have taken the form of "boutiques"- whereby, each offers its own specialized services. The hallmarks of these merchant bank boutiques are that they typically charge fees payable in cash and/or the client's stock for each service rendered. You can find a merchant bank that meets any reasonable set of needs.

American merchant banks offer many of the following services:
1. Consulting advice on going public and international business.
2. Advice and help in taking your company public. If they are unwilling to supply Investment Banking bridge loans, they have a low cost strategy for taking your company public.
3. The do PIPE (Private Investment in Public Equities) financings.
4. They can advise or help with a company’s M&A strategy.
5. They are essential advisors for companies seeking to become multinational corporations.
6. They off pragmatic general business advice for real world situations.

In providing advice and assistance, merchant bankers must possess a complete understanding of all facets of capital markets. This includes every type of debt and equity financing both domestically and internationally. Merchant bankers cognizant of capital costs, seek optimum sources of capital. It is fundamental to acknowledge that interest rates are not the only standard relating to capital costs. Restrictions on funding availability, repayment terms, and operating effectiveness often outweigh what might appear to be inexpensive capital. Too frequently capital costs compel a growing business to take undesirable actions. Some action might be necessary - or advantageous - but in the long run - inordinate capital costs can be detrimental. The traditional merchant banker understands capital limitations and is able to structure transactions which are beneficial to all parties - not just the capital source. A knowledgeable merchant banker knows how to substitute one kind of capital for another - sometimes utilizing internal sources by way of either asset or corporate repositioning or equity creation. Above all, a merchant banker fully comprehends the "risk" versus "return" element necessary to complete the capital procurement process.

Beowulf Investments is a merchant bank. We offer far more than the financial services listed in this article. Also, we try to educate our clients.

Municipal bonds fail. There is no investment without some level of risk. It is easy to prove mathematically and historically that the Venture Capital Investment Model is the path to the Poor House. It is equally easy to show that the Merchant Banking Investment Model is the road to riches. The Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] is the only Venture Capital Club that applies the investment principles of merchant bank to risk capital investing. It is why GVIC is now the largest Venture Capital Club in the world.

If you are a company seeking to grow, retain a Beowulf Investments to advise and help you. If you are an accredited investor, park your wings and become a merchant banker. And investment model that has survived two millenniums works.