At EARTHCORE Investments Limited, Strategic Investment is understood in two different ways.
In the first sense, it applies to investments made by individuals or companies with the goal of creating or generating safe, steady cash flow and returns. Strategic Investment refers to a company’s decision to invest in another smaller company, usually a start-up, with long-term strategy in mind, rather than simple profit.
Secondly, Strategic Investments are mostly for raising and building up capital and credibility for new companies, which are struggling to make their way in the market.
Larger companies make Strategic Investments in smaller ones for an assortment of reasons. For example, a big company might invest in a smaller company which makes similar products, or in a small company which will eventually become a client of the big company. Forward-thinking organizations may also want to make Strategic Investments in companies working on new and innovative technologies and ideas. Companies may opt for a Strategic Investment instead of an acquisition. For the smaller company, this arrangement is often beneficial as it allows the company to remain autonomous, and it encourages other investors to get involved, since they believe that they may profit from their investments. Larger companies also benefit from these arrangements because they carry less risk than acquisitions, allowing the bigger company to receive benefits from the smaller company when it does well, or to jettison the investment if the situation does not work out.
Start-ups are not the only companies which may open up themselves to Strategic Investment. Existing companies which are struggling may also promote Strategic Investment to get an influx of capital and protection. These companies rely on their past history of success to market themselves to potential investors, usually providing evidence that they are reforming their business practices or developing new products which could become profitable in the future.
When a company invests in another company strategically, it usually does so in exchange for a share of control over the company. This allows the company to protect its investment, and to shape the direction of the smaller company’s business and product lines.
Strategic Investments may also be made with the understanding that the larger company may express a desire to take over the smaller company at some point in the future, once the small company has proved itself viable and productive.
At EARTHCORE, we understand the dynamics of creating the enabling environment for such business partnerships to thrive successfully, given our vast contacts on different business models and exposure in the business world of growth.