Strategic investment is legitimate source of capital for many small and medium-size companies.
The way it works is that larger companies (usually located within the same industry) invest in smaller ones for both financial gain and one or more strategic advantages. Although the strategic advantages vary, they often give the investor unique access to a technology or a distribution arrangement.
From a small business owner's standpoint, one of the initial challenges of strategic investment is identifying the right investment partner. There are no "directories" containing lists of pre-qualified, potential strategic investors. Instead, it's up to you to identify your own prospective investment partners and then vet them to make sure they are a good fit with the business.
- Access to technology. Some of the most successful strategic investment collaborations have occurred in the technology sector. It's not uncommon for a larger company to seek out a smaller one for purely technological reasons–and vice versa. Consider looking for a larger corporate investor that is capable of giving you access to critical technologies.
- Access to distribution channels. Likewise, an effective strategic investment partnership has the potential to improve either or both parties' distribution capacity. As a smaller company, you can target investors who have an established market presence and larger distribution networks.
- Industry relationships. The value of a strategic investor isn't exclusively limited to what they can bring to your business. Sometimes successful strategic investment is a factor of who your investor can bring to your business. Larger industry players give your company instant credibility and the ability to attract other investors.
- Prior track record. Business interests who've already made strategic investments in other companies are frequently open to new investment opportunities. Conduct basic research and ask around your industry to determine which companies have participated in successful strategic investment in the past.
- Personal connections. Finally, there's a good chance you already have a relationship with a potential strategic investment partner since the most successful strategic investment scenarios involve committed, long-term partnerships between like-minded companies.