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15. Strategic Investors

1

Investors where return is a secondary goal

One group of investors not listed on the table back in Chapter 3 are the so-called strategic investors. A strategic investor is a potential partner who decides, for a variety of reasons, that they not only want to partner with your startup but invest in it, as well.

Earlier in my career, when Medio Systems was selling search and advertising services to mobile phone operators, Verizon and T-Mobile both decided to invest in the company. Both Verizon and T-Mobile were negotiating multi-million-dollar service contracts with Medio when the offer to invest was brought up by them. Both saw the investment as a way to better understand the market, to entice Medio to prioritize their specific needs first, and, lastly, to make a profit in case the mobile search and advertising market started growing. (This all took place a few years before smartphones, Android, etc.)

Many of the large, Global 1000 companies have similar investment groups. The mission of these groups is to find companies that can increase the sales of the parent company through partnerships, new ideas, new products and services, etc. Some of these investment are later acquired by the parent company.

This dual mission makes strategic investors a bit different than Angels and venture capitalists. The cost of capital (see Chapter 21) is often lower, but the relationships far more complex. For example, despite being investors, neither T-Mobile nor Verizon were ever invited to the Medio board meetings, as in those meetings we discussed confidential information about our customers, which included not just those two companies but also other mobile operators, along with major publishers and advertisers. Taking that strategic capital thus added to the complexities of company-investor relations.
 

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