Need some strategic advice? We’re here for you!
We always hear about strategic types of investments every single day. These comes in two different types: off balance sheet investments which are generally one-off in nature and handled within organizational structures that already exist. The second is a venture capital fund that is geared specifically toward investing in startup companies. Businesses such as GM, Time Warner, and Google have done this very thing and are now part of something huge. It is estimated that approximately 53 brand new corporate venture capital units were deployed during the first half of 2016.
Financial venture capitalists are also now competing with potential buyers for startups since CPGs are looking to both build relationships and invest in startups as early as possible. Of course, there are also differing opinions on strategic venture capitalists in the financial investor community as well.
Corporate R&D spending in the United States is absolutely commendable in terms of international standards; however, it’s barely sufficient enough to keep larger-sized countries at the forefront of any kind of innovation. Corporates tend to pursue one of the following three strategies:
- Obtain a startup for talent, tech, and team
- Launch and/or partner an accelerator and work with startups that have products relevant strategically to the company
- Engineering paid products that are not recurring in which the corporate provides resources and payment in exchange for the startup completing a specific project
Regardless of the strategy, the corporate will more than likely consider the startup to be an experiment of sorts in terms of whether or not their tech works, there’s a product market fit, and if it makes sense to purchase the startup.
Being innovative can also be a great thing in terms of marketing purposes for large corporations. Accelerators and internal incubators can take the opportunity to get wheels turning far beyond just factors including perception management.
In terms of early stage companies, financial venture capitalists don’t really invest in startups after a strategic has already invested in it as well. Most of the time, this is because of a relative price in-elasticity compared to early stage financial venture capitalists. It’s always normal to assume that a strategic will always be fine with paying up because anyone who doesn’t have dedicated funds are never really in the market every day and, therefore, aren’t aware of what good deals are getting priced at.
Strategics can always be brought on board later on if desired, such as off of the back of the growing relationship between a customer and a vendor. Seed-stage financial investors can help greatly as well, as their value can assist in terms of product launch, hiring, and funding. They don’t just help the startup itself grow, they run the corporation to the benefit of the shareholders themselves. However, whenever standard work begins to take over, mentoring startup experiments can easily go to the bottom of their list.