Crucial Shareholders: Investors Who Want More Than Money
Companies or personnel who invest to get crucial benefits rather than financial rewards are known as crucial shareholders. An example is pumping resources into a new product to have a significant say in its future development, instead of making lots of money from its sales. This is another source of funding for a new business.
A crucial shareholder is a more prominent company, usually in the same industry as yours. Compared with investment capital, a crucial shareholder is usually less aggressive on valuation, ready to take a relatively fair position in the upcoming business for a certain amount of money. The shareholder will look for a position in your company that is attached to something else, and that something else is what makes this investor different. It may be a license arrangement, a marketing or distribution arrangement, a cooperative development agreement, or even an option to buy your company. A producer may give a certain amount of money to an artist, film producer or musician to produce a painting, movie or album which will be sold for a certain period of time.
If your business requires nothing but money, an investment capitalist is the finance source. Don't pursue crucial shareholders only because you think you will get a better valuation. If you wish for a relationship with a big player in your industry, go for a crucial shareholder. Here is what to consider.
Choice of partner: would your company benefit from working with a leader in the industry who has the sales and marketing strategies which your firm lacks, the standing giant? Examine where your business needs help and locate the crucial shareholders who can give your business exactly what it lacks.
Access: make a plan of how to approach them. Does anyone in your network know how to get to one? Lawyers or bookkeepers may help, and so may an investment bank.
Evaluate their motivation: envision what they will want from your company and see whether you are willing to agree. If they look for a license to your technology, consider whether you can afford an exclusive or non-exclusive license, how long the rights will last, and in which region. If your exit strategy leads to the sale of your company, try to persuade them to take the first negotiation right instead of the first right of refusal, since the latter affects getting other bids.
Give more time for the funding process, because approval usually comes from within its administration. Negotiate terms carefully, so you can pull out if you suspect it wouldn't be the best option.