A number of start-ups in our portfolio have considered taking an investment from a strategic customer. The idea is the large company will care more about the relationship if they own a percentage of the start-up company. The large company also feels better perhaps because they get upside if the start-up becomes extremely valuable.
Simply put, I have seen this play out in three different ways after such an investment:
Strategic partner is helpful.
Strategic partner is not helpful.
Strategic partner is painful.
With financial investors, the incentives are typically aligned with the founders, but strategic customers that own equity in your start-up have different interests – they care about their own company first, as you would expect.
A few suggestions to keep in mind:
Put together an outline/termsheet of a business relationship…
