With the flurry of venture money pouring into India, the other class of investors that are equally upbeat is strategic investors and corporates. I have met a few entrepreneurs who have received “investment offers” from these investors, and especially in absence of any pure financial offers, the option seems compelling — “they will put in the money, and then also help me build a business!”. Few things to consider before you take that offer:

– If the corporate investors are going to add significant value to the company, its good to quantify that value and test waters before you jump. Work on a few customers jointly and see if this partnership is working, and intended benefits are being achieved. If it is, the partnership can translate into a strategic investment.
– Objectives of strategic investors vary. Some like to invest in businesses that improve overall demand of their products and services – and they are ok taking minority stakes. Having a minority strategic investor with an operational partnership is also a good potential exit route. Others look at immediate consolidation, i.e. majority stake. While there might be promise of buying rest of the shares at a later point at a higher valuation, remember that you will never get the best value through this route.
– Sometimes, strategic investors will impose conditions on future rounds of financings, or have a first right of refusal on exit, and such other terms. While some of these sound benign because they are apparantly on the same valuation that anyone else is paying, remember that if an investor knows that their offer can be taken to another party which has right of first refusal, this investor is probably not too keen to make an offer anyway. So be careful of such terms, and how the exact process will work so as to not deter other potential investors.

In summary, if you are landing up selling the company today (for whatever value), you should know that is the case!

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