Monday, July 02, 2007

Pitching for Strategic Money

How does a pitch for funding from a strategic investor differ from the one you would make to a VC? The answer lies in the mandate the investor - whether it's a business development group, a specially-designated ventures unit, or a fund with a corporate LP - has been given by its corporation.

Many corporate investors are not driven by the need to generate venture capital level returns (although it woudl be pleasant). Instead, many corporate investors effectively act as a hedge on the company core business and strategic thrusts. They provide a way to tap into new technologies and business models which are still emerging but, if successful, could radically alter the company's business. For example, Nokia Ventures used to invest in micro-payment applications and other applications that might differentiate its parent company's mobile phones in the marketplace and/or generate another stream of revenue by transforming the wireless phone into an application platform.

When pitching to a strategic investor, I always recommend that companies think of the business case that the investor will haveto make to its own internal management. Try and shape the pitch so that it includes answers to some of these items:

- What is the immediate and long-term fit of the proposed investment with the overall strategy of the company? How does it link to the company's strategic thrusts?

- What potential is there for increased shareholder value, public image, or operational gains?

- Are there any conflicting (or positive) relationships between the proposed investee and other initiatives within the company?

- Why is investing better than building, buying or partnering?

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