Let me give the perspective of someone that’s taken money from a corporate VC and pitched many more.
In our particular case, the introduction to the strategic (corporate) came through one of our existing investors. Gill knew someone on the board of the potential strategic investor.
Gill’s introduction led to a meeting at our facility with the CEO.
So, we gave the CEO our standard investor pitch, and the CEO liked what he heard. He said “we fit a hole” in their business model.
He then passed it off to his team for the rest of the process. In many ways the process of getting money from a strategic is similar to a traditional VC, but here’s a key way it’s different:
You usually need a division head sponsor at the corporate investor.
I’ve seen this with every strategic I’ve ever tried to raise money from. Early on in our history, we got very close to getting funding from a $1B/year public company (Cypress Semiconductor) in our space.
Cypress’ investment team liked the idea of investing in our company, and we had a sponsor inside the company. This meant that a VP of one of the company’s divisions was essentially going to “own” the success of the investment inside the company. It would be his ass in a sling if we didn’t pan out.
Near the end of the process, the VP took a CEO job at another company. And there went the investment.
In the case of the current funding, the VP didn’t leave, and the investment went through. It’s obvious, but I can’t help saying it: Form a strong relationship with your sponsor VP.
Expect the technical diligence to be far superior to anything VCs do.
One of my pet peeves in dealing with VCs is the expert they will have pass technical judgement on you is no expert at all. More often then not, the expert wants to perform a business review instead of a technical review.
However you should expect the strategic to go really deep technically. From my perspective, I actually thought this was great because it gave you an ability analyze the quality of the people you were dealing with.
Your engineering team, if they’re good, is going to want to work with really good people, so the interaction between your team and the strategic’s engineering team is important.
Strategic’s are more price insensitive and rarely will lead a round.
As the name implies, a strategic is usually after more than just a great ROI. You have something they want (your business and the ability acquire the business), so giving you some money to get a look under the hood and observe is a great deal for a strategic.
This leads to the final difference between VCs and strategics:
The strategic will ideally want a right of first refusal on any acquisition.
The one thing you want to avoid is a long term Right of First Refusal (ROFR) where the strategic gets the chance to match any offer to acquire the company. This is bad for you because a ROFR will reduce the selling price of your company.
Instead negotiate a Right of Notification where the strategic is told there is an offer to acquire your company within a certain time period after you receive the offer. The strategic isn’t told the price or who is making the offer, just that there is an offer.
In our case, we ended up giving the strategic a one year ROFR. After one year, the deal changed to a straight Right of Notification. Your lawyer will be crucial in helping you negotiate these terms.
For more, read: The Nine Facts Of Fundraising You Need To Know