In my post on non-investors investing in startups, I neglected to discuss strategic investors. While they come with more credibility and experience in handling investments, I lump them into the same category as the non-investor class. There are three main issues:
Any one of these can seriously hamper your progress not only with your investor. At worse it adds unnecessary distractions and at worst can send a torpedo through your startup whether it is blocking a potential M&A opportunity, scaring off investors or hitting you with a lawsuit for breach of contract. Remember, when you are in league with a significantly larger partner, you are the pawn to be played at their whim. They view the investment as a winner takes all strategy to advance their own agenda.
I leave you with two excellent blog posts from two investors that I have the utmost respect for. I would highly recommend following them as they write some pretty insightful stuff around early stage startups and investing.
Is it Wise to take Strategic Investment as a Start-up? – Information Arbitrage by Roger Ehrenberg of IA Ventures