However, there is another source of investment that many business owners overlook - other businesses. Believe it or not, other companies could have very good reasons for investing in your company and you don't even know it.

Strategic investors are companies that engage in targeted investing in other companies either inside or outside of their own industry. Investment is typically not the primary activity the investing company.

In fact, strategic investors are most often operating companies whose interests coincide with the interests of the company they are investing in. In addition to providing an inflow of capital, the strategic investor also provides industry and personal connections that are beneficial for bringing in additional capital and/or assisting with the sale of the company's products and services.

Under the right circumstances, a strategic investment scenario can be ideal for a capital-starved small business. But the decision to bring a strategic investor onboard can also open the door to some potential problems you should know about ahead of time.

Clarity of Benefits

From an owner's perspective, the most important advantage of a strategic investment scenario is the investor's ability to advance the interests of your company through industry contacts and business expertise.

If the investment is solid, the strategic investor should always be motivated to help your company because your company's success gives their company a strategic advantage in the marketplace. In big companies that motivation is sometimes lost in layers of bureaucracy, leaving your company hanging high and dry when it comes to cashing in on the so-called benefits of the investment relationship.

In order to avoid disappointment later, make sure to flesh out the details of the relationship's benefits in advance and identify the key players who will be championing your cause in the strategic investor's organization.

Future Funding

Corporations are notorious for changing their corporate philosophy quickly and without warning. When a corporation changes its investment philosophy, the big losers are often the companies who are counting on the corporation for future rounds of funding.

Although it's impossible to completely inoculate yourself from changes in investment philosophy, you should feel confident in the corporate investor's long-term commitment to your company and (if possible) secure commitments for future funding rounds upfront.

Investor Requirements

Since strategic investors fall outside of the parameters of a typical investor, it's not surprising that they often require additional commitments from the companies in which they invest.

Be prepared to discuss things an observer board seat, notification rights, rights of first refusal, acquirer limitations, and publication blackout agreements. Even though some of these requirements may seem overly obtrusive, the strategic investor has a very good reason for seeking them - to protect their company's position in the marketplace and give them a strategic advantage over their competitors.