Strategic investors, defined as corporations that make venture investments, can be a valuable source of capital but are they critical? No. We dug through the filings of 178 tech companies and found that only 29 of them had a strategic investor (18%).
Some industries have more prevalence of strategic investment than others. For instance, 5 out of 10 hardware companies had a strategic investor.
All the companies listed above are very successful as they’re all publicly traded today or were at one point, so we’ve concluded you do not need a strategic investor to be successful given that only 17% had a strategic.
Some of the companies in our own portfolio have strategic investors such as Match.com, GE, Cisco, Salesforce, the CIA, and Survey Monkey. What we’ve found is that in most cases, strategics don’t add much value. Rather, they’ve invested because they think the company is interesting and want to be in a position to acquire if the company shows great potential. In other cases (GE and Cisco for instance), they’ve invested because they’re heavy users of the product and want to drive the product roadmap.
If you are going to take on a strategic investor, make sure they don’t have any unique controls or rights outside of those granted to normal investors. For instance, some strategics will ask for a Right of First Refusal to buy your company, which can be very damaging when it’s time to sell your business; no one will want to buy you if they know that after all their hard work, XYZ strategic can cancel the deal and buy your company themselves. Also make sure that strategics do not have control over the direction of your product. It’s great to take their advice when that advice fits into the road map, but an investment doesn’t give them the right to mandate what you build.
As always choose your investors wisely, but don’t fret if the strategics aren’t a part of your business.
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