We recently talked about the absolute best way to pitch investors and how to dominate your market analysis during a pitch.

This was for venture investors (aka “VCs”).

Are you talking to strategic investors?

Take that previous advice and THROW IT AWAY.

I got first-hand, real world tips from a company that recently raised from strategic investors (or “Strategics” as we say in the biz).

• What did they learn?
• What was different between VC + “Strategics”?
• What advice would they give?

Here is everything you wanted to know —and more — about the strategic investment process, directly from founders who successfully raised money.

What is a Strategic Investor?

Here’s a helpful fancy-pants overview.

The gist:

• Usually a large company with a “venture” or “innovation” department
• Natural alignment — usually have the same customer or industry
• Potential acquirer down the road
• They put in investment money but don’t care much about controls or valuation

What’s in it for them?

• They keep tabs on new innovation
• Cross-sell or integration opportunities
• Try before they buy
  

How is the pitch deck different for Strategic Investors?

(1) Less focus on the overall market size. 

• TAM/SAM/SOM isn’t addressed (so disregard all this).
• The Strategic likely knows more about this than the company pitching them 😉

(2) More technical capabilities discussed.

• No basic tech intro.
• Expect a deep dive into expertise, operations, technology.

(3) More focus on alignment and strategic advantage.

• What our startup can do for you!
• Acceleration or expansion of internal projects is important to them.

(4) Customize each slide deck.

• Less information on Strategic’s competitors.
• Know their current priorities and initiatives.

What do Strategics care about?

(1) Their business.

Large companies will often invest, acquire, or partner to:

• Open new markets
• Increase speed to market
• Fill a strategic need internally they don’t have time or expertise to tackle

(2) Win-win outcomes.

• A collaborative relationship that leads to future growth for both partners.
• Less focus on monetary returns.

(3) Avoiding acquisition by a competitor.

• Even if it created a great financial return on their investment, they probably don’t want their largest competitor to scoop you up.
• Companies will invest (or even acquire) to prevent competition down the road.

(4) EBITDA.

• Some Strategics are very focused on when investment will produce EBITDA.
• Not used to a high growth (aka startup/VC) model where profitability is a tradeoff for gaining market share.
• Be ready to speak their language.

What is different about the investment process?

(1) Introduction and relationship building process takes longer with Strategics.

• Meet Strategics at a trade show, conference, or warm intro.
• Do not cold-call or send unrequested one-pager (which is typical and expected with VCs). 

(2) More investment in “Proof of Technology.”  

• Build (v1) technical integrations between startup and Strategic as part of the investment process.
• Startup may foot the bill and may not recover the expense.
• Worth it to do for Strategics but not VCs.

(3) More technical vetting.

• Calls with subject matter experts.
• Testing, validating, deep look under the hood.

(4) More in-person meetings. 

• Strategics visit startup.
• Startup visits Strategics. 
• Multiple trips.

Other key advice and learnings?

(1) The deal can die at any level.

• Strategic Investment team may only be 1-2 people. They are likely super excited to do a deal but investment is not a core business function of the larger organization.
• Process goes through many layers of internal approval (and external approval if the board is involved) → it can get vetoed at any level.
• It is not the same as a professional investment discussion. 
• Keep multiple irons in the fire and be prepared to win/sell at every meeting.

(2) General counsel can make investment documentation harder.

• Most VC deals use outside counsel.  
• Speed is the focus and terms are more standard with VCs.

(3) Things take longer than expected.

• Welcome to large corporates, folks.
• It’s true for investment process and internal adoption post-investment.

Exploring strategic investment?

Strategic investors can be incredible partners.

They have industry expertise, lots of customers, scalable systems and sales channels, and money to invest in new technologies.

They are a great option to consider when you’re fundraising.

Follow these tips to customize your approach and understand what matters most!

-----------

Want more? How do you maximize your strategic relationship once you’ve partnered??

We’ll continue to add to this series with additional learnings from the front lines.

‍