Are you interested in industry partnerships for science-based startups, but feel unfamiliar with the role of a strategic investment versus venture capital?
Industry partners – the most common type of strategic investor – can be a game-changing resource for a young company.
Strategic investments by industry are fundamentally different than financial investments. Before deciding which approach to take for your startup, it’s important to understand the differences.
Financial investors are fundamentally driven by making returns on the individual assets in a portfolio.
While investing in a young emerging technology company may have some effect on the value of other assets in the financial investor’s portfolio, that’s not what drives the investment. The goal of a venture capital operation is to make a return on a specific asset by buying a security and later reselling it at a higher price – usually several years later.
The financial investor is always thinking about the gain on the sale of the asset – that’s the goal of the investment. The gain can stem from happen from an IPO (in rare cases), from a “trade sale” to an industrial company, or some combination of recapitalizing the asset, selling to management, or selling to another financial investor.
With this type of investment, there is no plan for the investor to use the technology directly.
In many cases, strategic investors have the opposite outlook of financial investors. They are motivated by the prospect of incorporating the technology into their business. An industry partner that wants to make a strategic investment in your company is going to want to see different information than a venture capitalist would.
An industry investor usually wants to get involved in a new technology venture because their scouts have an interest in deploying the technology to benefit their firm’s business. They want to know if, and how, they can incorporate that technology in their business over the long term.
Assessing Partner Fit
If you’re looking for capital and other resources, there are a few strong reasons to look into industry partnerships. Fundamentally, resources from strategic investors can provide a great deal of scope and support for a startup as it scales and commercializes new technology.
What kinds of resources do you need for your development plan? Perform an inventory of your required resources against potential in-kind contributions from a prospective industry partner. Industry partners could provide any of the following:
• Money (which can be turned into something else that your team needs, such as salaries or equipment purchases)
• Physical assets (pilot facilities, manufacutring capacity, distribution networks)
• Intangible assets (scale-up insights, customer access, deep ecosystem knowledge, a place at the table)