More About Non-Investor Investors
In my post on non-investors investing in startups, I neglected to discuss strategic investors. While they come with more credibility and experience in handling investments, I lump them into the same category as the non-investor class. There are three main issues:
- Onerous terms and performance metrics
- Tenuous relationship with rest of firm
- Signaling issues for other investors and acquirers
Any one of these can seriously hamper your progress not only with your investor. At worse it adds unnecessary distractions and at worst can send a torpedo through your startup whether it is blocking a potential M&A opportunity, scaring off investors or hitting you with a lawsuit for breach of contract. Remember, when you are in league with a significantly larger partner, you are the pawn to be played at their whim. They view the investment as a winner takes all strategy to advance their own agenda.
I leave you with two excellent blog posts from two investors that I have the utmost respect for. I would highly recommend following them as they write some pretty insightful stuff around early stage startups and investing.
Is it Wise to take Strategic Investment as a Start-up? – Information Arbitrage by Roger Ehrenberg of IA Ventures
Should a startup bring on a strategic investor? – Bijan Sabet of Spark Capital
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