Present climate and strategic investment
The recent pandemic has reset every traditional norm and belief about the nature of investing or just how businesses operate in general. The start-up investing ecosystem in Europe had to adapt with the ever-changing nature of the world. COVID-19 has really had a diverse impact on start-ups, where we have seen specific segments of the market like cyber security, health tech, med tech, remote working, etc., flourish exponentially, and on the other hand, we have also seen businesses related to hospitality, tourism, conventional advertising struggle immensely to keep afloat. In parallel, ESG investing also had accelerated exponentially during the pandemic. Interestingly, we have also noticed that strategic investments are shaping the future in this climate of increased uncertainty. One of the most significant differences between strategic and financial investors is how they evaluate your business. Strategic investors focus heavily on synergies and integration capabilities, whereas financial investors are more interested in the numbers revolving around your business and meeting their performance indicators. It is therefore, safe to say that strategic investments are more long term in nature with a focus on overall business sustainability – making it in the best interest of long term focused businesses to have a strategic investor strategy in place. Strategic investors can also become strategic partners, when it comes to continued business growth, market access, talent acquisition and improved competitiveness.
Value of strategic investments for sustainable businesses
Although COVID-19 has led many small to medium sized businesses to liquidation or serious restructuring, there has also been a positive effect on some fronts for start-up founders and investors alike, as this period has given them the time to better reflect upon what they want to start and venture into. There’s no denying the apprehensiveness in the investment world within the initial phase of COVID-19, but once the dust settled, investors got more comfortable with the idea of investing again – now into more lasting, purpose-driven and impactful businesses. This phase also helped founders to capture the attention of strategic investors that align with their values and empowering the solid growth of their companies and teams. Strategic investors generally have more assets and skills (financial, network and expertise) to help grow a business in their chosen field, than a traditional financial investor. Strategic investors will invest in a business for both strategic and financial gains, and usually allow start-ups to be more versatile in a safe atmosphere as compared to a more cut-throat, metrics driven environment, that a traditional investor would potentially put a new business in.
Knowing your company values
In order to save time and increase efficiency in finding the right strategic investor fit for your company, it is essential that you do the work to identify your core values. Company values are the set of guiding principles or foundational beliefs that you base your work and operations on. Understanding your organizational culture is also important, as very often a successful organizational culture is heavily anchored into your company’s core values. Company values are important in all relationships related to your business, from hiring the right team member, onboarding a long term client, or finding the right strategic investor.
Searching for strategic investors
At Blue Tree we pay detailed attention to devising the right strategic investor strategy, which we then curate to target and short list potential investors, which are the right fit for a new business. Starting with the company values, we then delve deep into the market, industry, technology and growth plan. This is done to identify the key characteristics of a target investor stemming from our years of experience in the space. Whilst working with the founder and business team, we also learn from them what their ideal investor profile would be. We then blend these elements into a comprehensive strategy, that is then used to lead our search and contact efforts.
Investor-contact is an art
Contacting an investor whom you have never met before is a daunting task. This is why there are techniques and approaches that need to be mastered when doing so. Upon starting, one must make sure that they have a system that contributes to a well nurtured pipeline of investors. The investors will then need to be categorized according to industry, region, previous investment or priority.
Next, one has to do serious research – a person can never do enough asking around and researching to find out as much relevant information about the investor as possible. This includes articles written, previous investments, favourite charities or football clubs, areas of expertise, board memberships, and so on. Then, it is time to identify any connections that you may have in common, or the best contact method (email or phone) that they can be reached on. When the timing is right, such as following a relevant posting by the targeted investor on LinkedIn, or a press release of their latest investment, it’s imperative to reach out with a call or a targeted email.
Follow-up and feedback
When writing a targeted email or planning a call to an investor, whether its first contact or not, the key is to be as genuine and complimentary as possible. A relatable and value-adding proposition, or precious information sharing, is a definite way of getting the attention of the person reading the email or receiving the call. Once their attention is gained, it is important to have a follow-up action ready to activate future correspondence. The more ‘yes’ or positive reinforcement is generated in the exchange, the higher the chances for a follow-up call or meeting. In the event that the receiver of the email or call doesn’t respond favourably, at Blue Tree we have learnt from experience that it is most important to receive feedback or a reason as to why not, if possible. This is necessary for the continuous improvement of your strategic investor strategy.
Proposition of mutual growth
After the strategic investors and founders are aligned; there is a huge potential for mutual growth. In more simplistic terms, the investors can learn about, and have access to, the new technology that can potentially complement their other businesses and the founders have access to the hard-to-come-by networks of the investors, and subsequently their financial powers. A beautiful synergy is therefore realised. Good team dynamics become second nature because of the synergy between the founders and the investors. The experience that a seasoned strategic investor brings to the table is invaluable to any new company starting out in this challenging period. Strategic investors or partners can open doors to new clients, a network of other investors, and access to resources like real estate or products from their existing businesses.
Added value of repeated investments embodies trust and transparency
Unlike traditional investors, strategic investors bring in the scope of roping in repeated investments because of the comfort and camaraderie between the founders and them. Strategic investors also understand why it is necessary to re-invest in order to grow a company as they are in tune with the nature of the business. Additionally, the level of transparency within the business goes higher with strategic investors. Strategic investors by default can also be part of the board due to the knowledge they have about the business which is an invaluable asset. Trust and transparency are key to long lasting relationships and successful partnerships. Successful partnerships lead to faster business growth, increased competitiveness, improved strategies and access to better talent acquisition.
Future moving towards a more segmented and specific nature of investment and synergy/partnership between businesses.
As technological advancements alter the nature of existing businesses and make way for new businesses, the global trend of investing has become increasingly segmented and specific in nature. Investors are actively investing in areas that supplement their existing businesses or areas that they can contribute because of their experience and knowledge in the specific field.
At Blue Tree we pay a lot of attention to understanding the values and driving forces of our client’s businesses, working together to build a successful strategic investor strategy. A relevant story is how we introduced one of our clients in the blockchain space to an investor in the luxury space, and it was immediately evident to both how mutually beneficial their collaboration would be. We reflected and based our introduction on their shared new world problem, heavily ingrained in the post-covid value driven investor market – the blockchain company had a transparent and traceable solution, the investor was looking for exactly that. The blockchain company had spent years developing a certification engine for all kinds of products, specifically tracing luxury goods from assembly to final client. The investor had a business with clients in the luxury industry that was looking to be ahead of the competition, by providing transparency and traceability of its products to the end consumer – who is becoming more and more value-based in their consumption. By understanding the needs and values of both parties, we quickly identified their mutual values and direction and introduced them to each other, as envisioned, the relationship continues today.