In difficult times, strategic partners can be essential to survival. As companies fight for air in these cash strapped times, larger corporations have valuable resources. Our portfolio companies have leveraged partners in several ways.
1) Pre-paying revenue. Some customers will pay in advance of delivered goods. Future takedowns are applied against this.
2) Venture leasing: if an entrepreneurial company is investing heavily in equipment and capacity for a customer ramp, see if they can help finance it. This can be thru their in-house finance group or by helping guarantee payment of the loan. They understand that they benefit from your getting this capacity funded.
3) Distribution agreements: corporations with global distribution can expand the addressable markets and customers you can reach. If you deliver revenue to them (bundling with your product or a cut of the sale), it can be a win-win.
4) Strategic investment: corporations that see your strategic value to them may be more likely to invest in your firm than the traditional venture industry.
There are a million caveats around embracing strategics. You want to avoid firms who are known to be litigious or difficult to negotiate/ work with. More so, if they are known to absorb information and then build competing product, avoid them at all costs. There are many in the consumer electronics world that frequently do this.
Realize that corporations have limited cash themselves. But bringing solutions or ideas that bring incremental revenue or discretely reduce cost today (no “productivity gains”) and they will take the discussions seriously.
Be careful not to lock yourself into having a one acquiror situation. Getting multiple strategics engaged, having other distribution channels and creating other alternatives gives you more freedom.
More importantly, use these activites as a way to start courtships with potential acquirors. Both sides will get a chance to understand where synergies and fit are. It is an investment in the future.
So, be careful but realize that strategics can provide essential lifelines to you.