10.26.05
Strategic Investment vs Venrture Investment
I have been on several panels now about this topic on what is different between corporate investor and venture capitalist. Even though there are several types of corporate investors out there, majority of them are driven by business rationales than financial returns. Financial return or IRR is very important and normally run through an approval committee to ensure money is properly used, but it is not the main criteria why a corporate invests. Think this way, if I put in $10M in a startup and it becomes pretty successful and return 100% in a year, that would only increase revenue by $10M. But if that $10M creates a new market and brings a unique advantage for corporation like HP, that investment would likely to return hundreds of millions in revenue in business terms. In a way, corporate investment is a leverage to help business to succeed, not vice versa.
Corporate investors look at a variety factors to make investment decisions, here are some examples:
- Access to proprietary technology or intellectual property such as patents
- Reach to a new market or a new customer base
- Talents or know-how that are important to the company in the long run
- Speed to market for certain offerings
- Learn about a new market and technology without internal investment
- Etc
I will address this topic in the next several blogs to bring more light why corporate investor think and structure a deal differently
