If you're a business owner, you're going to make mistakes.
But strategic investment mistakes aren't easy to recover from. In fact, if you don't know what you're doing a strategic investment arrangement can be fatal for your business.
With disaster just one wrong move away, here are the strategic investment mistakes you need to avoid at all costs.
Wrong investment arrangement. Strategic investors are not an appropriate source of capital for every business owner. Startups should consider a different investment source because (a) VCs, angel investors, and personal acquaintances aren't as concerned with securing a strategic advantage, and (b) strategic investors prefer companies who have begun to mature.
Confusing strategy with tactics. Investors are often focused on the tactical benefits of the funding relationship, i.e. short-term solutions that address specific problems or achieve a targeted purpose. But as a business owner, you should be more concerned about the strategic, long-term benefits of your relationship. Don't assume strategic investors are thinking strategically – talk it out with them and try to get commitments for multiple rounds of funding.
Giving away the store. When you cut a deal with a strategic investor, be careful to not give away too much. Since strategic investors are usually larger companies within your industry, you should avoid giving too much information to a competitor or locking yourself into an agreement that severely restricts distribution channels, future partnerships, or other important aspects of your business.
Poor choice of partners. Entrepreneurs can quickly become enamored with a strategic investor, particularly when that investor is an established industry player with a reputation as an industry leader. But reputation alone isn't a good enough reason to enter into an investing relationship. Do your research to make sure the company is financially sound and capable of holding up their end of the bargain.
Limiting your options. When you're considering a strategic investment approach, your big picture goal is to acquire the funding you need without significantly limiting your present and future options. That goal is often at odds with your investor's goals for the relationship, so you'll need to be diligent about holding the line and passing on deals that make you uncomfortable.