What distinguishes a strategic investor from a financial investor?

A decis?o de um founder para aceitar um investidor estratégica é bastante difícil e bastante relevante para o futuro da startup. Os caminhos que vir?o a seguir devem ser considerados, pois os investidores estratégicos muitas das vezes tem seus interesses declarados quanto a forma de continuidade do negócio quanto na forma de novas capitaliza??es, dilui??es, dentre outros aspectos.

Streategic investors would add value to the business and they are not very strict about the exit points. They believe in the long term value creation.

The value of collaborative synergies is higher than the dollar value. (For the investor) that’s strategic investment. Synergies may include tech , sales , Design, products , geography , team etc etc. For instance a large bank from india may invest in a small payment tech company in Maldives. While the natural markets of Maldives may be smaller the gateway that Maldives brings to reach other countries may be larger.

The most important thing here is to understand that most strategic investors are looking to buy on the cheap (and in the future) whilst most founders are looking to sell expensively. Those two objectives obviously can result in an inherent conflict. That doesn't mean to say that you shouldn't accept investment by a strategic partner, they can help scale and support your business enormously, but be very careful, and employ good lawyers when you do so!!

The major difference between the two i.e., Strategic and Financial Investors, lies in their motivation and goals. A strategic investor is motivated to gain more advantages and synergies from the existing business, which can help them expand their market share or enter into a new market, acquire new technology, create strong vertical and horizontal integration, and position them as a strong player in the market. They look for long-term growth.

A financial investor typically provides capital with the expectation of a return on investment, while a strategic investor offers not only funding but also industry-specific expertise, networks, and resources that can accelerate your company's growth. To make the right choice, consider what you need beyond funding. If you're seeking guidance, connections, or access to specific markets, a strategic investor might be the better fit. Evaluate how well your vision and values align with the investor's strategy and culture, as shared goals and philosophies can foster a more productive partnership.

Investidores financeiros como os investidores de capital de risco est?o alinhados no potencial que a empresa tem em se tornar grande, relevante e escalável. O founder precisa pensar que ter um sócio de Venture Capital irá requerir dele este alinhamento. Por isto definir sua estratégia de funding o mais cedo possível é super importante.

The main motivation for financial investors is a financial return. There's nothing wrong with that, but as a founder you have to know the business model of the investor. Their aim is literally to sell shares in your company to someone for a higher price than they bought it. You need to be aligned on this motivation.

Para startups em estágio inicial, optar por um investidor financeiro pode ser uma jogada estratégica. Esses investidores n?o apenas fornecem capital, mas também trazem 'smart money' para o negócio, oferecendo insights, mentoria e redes cruciais para o crescimento. Ao se associar com investidores financeiros, startups podem aproveitar esse suporte para acelerar o desenvolvimento, otimizar opera??es e aumentar sua presen?a no mercado. Isso posiciona a startup para uma valoriza??o significativamente melhor em rodadas de financiamento futuras ou saídas, tornando-a mais atraente para investidores estratégicos posteriormente.

The pros and cons are described well here to the left, but just know that one does not exclude the other. You don't have to pick a strategic investor OR a financial investor. You can have both on your cap table.

For early-stage startups, choosing a financial investor can be a strategic move. These investors not only provide capital but also bring 'smart money' into the business, offering insights, mentorship, and networks crucial for growth. By partnering with financial investors, startups can leverage this support to accelerate development, optimize operations, and increase their market presence. This positions the startup for a significantly improved valuation in future funding rounds or exits, making it more attractive for strategic investors later on.

Esta é um vis?o importante. Pois os founders buscam ter sócios alinhados e é nisto que deve ser pensado. Ambos oferecem o máximo de valor possível para a empresa, só que com estratégias diferentes de saída e governan?a sobre a empresa investida.

Its all about the need (demand and supply gap). If the founders are well capable of driving the business and just need money to do so, they can very well look at pure Financial investor. But in some cases where the market is highly competitive and to get edge over others, a differentiator needs to be created for which the Strategic investor can be onboarded who has strong domain expertise, network in industry to help founders navigate to desired outcomes.

When possible, the best is to create a pool with financial investors AND strategic investors. Financial investors will focus on maximizing the value of your company, their trackrecord and portfolio is important. You should not select strategic investors based on how famous their brand is but rather based on the strategic value you are expecting from them (joint research, go to market, expertise etc..).

One way to make simply this is to look consider the startup stage. If you are raising Series A and below you will need a lot of strategic help and that’s why Strategic investors seems to be more logical choice. If you are raising Series B and above then at this stage your company must be having a solid growth team to grow revenue YoY. In this case a financial advisor seems to be more logical. Of course exceptions exists! Make the choice based on your situation.

There is no a fixed formula to make a choice between a strategic and financial investor, it would depend upon the business requirement. If you are looking to build few muscles in a niche area , you might look for a strategic investor who would help you build that particular strength. Alternatively, if founding team has ample strength and they just require a round of funding , they could consider using a financial investor .

The most obvious part to consider is of course the strategic value, but here are some less-discussed parts: First of all, understand their setups. People often overlook the fact that a strategic investor can be set up in many ways. Are they a spinoff or investing off the balance sheet? Who's on their IC? How does their team fit into the grand scheme of their mothership? This sets the tone for your engagement. Another factor is the objectives of their strategic investment arms. What's the functional purpose of the team? Is it an external R&D engine? Is it a pipeline for M&A? Understanding their goals can help you understand what you are getting into. Lastly, feel out the "vibes." Just make sure you see yourself working with these people.

Entender o que o seu futuro sócio busca e o que você quer da sua empresa no médio e longo prazo antes de pensar no recurso financeiro de curto prazo. Autonomia sobre a empresa depende da mentalidade do seu sócio investidor e das estratégias que ele busca.

I believe a mix of the two is always best. However, I also think it's imperative to "match" the investor type with the stage you are at and the spending plan.

A company is not about money. It's a mix of spreadsheets and humans in a team. A true strategic investor would be able to see the human aspect and bet on it.

There should be common agreement between any investors and founders about company's vision. This helps identify actions needed to reach those pre-decided milestones as well as flexibility to change the course if needed. Mutual trust and transparency is key for fruitful relationship. It should be very clear, Founder/s are Boss/es and control these engagements.

Strategic Investor - Strategic investors may have a broader market focus, investing across multiple sectors or industries where they see strategic value or growth potential. They leverage their industry expertise and market insights to identify emerging trends, disruptive technologies, and investment opportunities that align with their strategic priorities. Financial Investor - Financial investors may specialize in specific sectors, stages, or geographies based on their investment thesis, sector expertise, and competitive advantage. They target opportunities with attractive risk-return profiles, market dynamics, and growth prospects, optimizing their investment strategies to capitalize on market opportunities.

In today’s fast moving world where valuations and technology change ; I prefer strategic investors to financial ones. They pay for synergies even when the startup may not be profitable. For a financial investor it’s only money ; but for a strategic investor it’s about success in their own line of work which hinges on your success. They work harder.

Simply put, if things go well: - the endgame of a strategic investor is to buy your entire business to accelerate their own growth. - the endgame of a financial investor is to sell it with a good ROI. Strategic investors can bring invaluable knowledge, access to clients, and strategic direction. However, their influence may prioritise their own interests over the founder's vision, potentially altering the business's direction. Additionally, their presence in the capital may deter other strategic buyers during a sale process. Financial investors seek profitable returns and offer expertise in finance, governance, and process optimisation. Be aware that their typical 10-year investment horizon may not align with your business timeline.

One notable challenge associated with Strategic Investors lies in their potential to discourage other strategic investors from investing into or acquiring a startup, thus reducing exit options. Strategic investors will typically not agree to terms allowing the startup to bring onboard competitors arguing "risk of knowledge transfer". Competitors will presume information sharing from startup to strategic investor has occurred thus compromising competitive advantages gained through investment or acquisition. In fact, the intention to acquire the startup serves as a signal from competitor to strategic investor. The strategic investor can readily exercise right of first refusal, effectively seizing the opportunity ahead of the competitor.

Financial investors typically raise LP capital to deploy as per an agreed mandate, targeting an IRR hurdle as a key criteria along side some adjoining metrics (impact etc.). They are therefore fast and commercially focused on value creation and returns, and value add tends to be via introductions, hiring, advise, expansion, etc. Strategics (in the form of Corp Dev teams or Corp VC firms) typically represent their parent's interests, usu. invest from an allocation in parent's balance sheet, need parent involvement in mandate setting, DD and investment decision making (thus slow movers), and can be helpful in striking partnerships or commercial arrangements with the parent / their network - particularly useful for novel technologies.