On Strategic Investors

What about strategic investors and what do they look for?

Answer: Strategic investors, being “players” in the particular industry, normally wish to acquire outright control of the companies they acquire. In addition, they usually have a clear idea what they want to do strategically with the company. Frequently they would put their own management in to run the company. The founder/owner may remain with a minority share of the business (with pre-agreed exit conditions) or he may sell his entire shareholding outright to the strategic and exit the business.

Is it better to sell directly to a strategic investor or is it better to partner first with an investment fund?

Answer: With a fund, a founder/owner seeks to create additional value in a first step while he still has a majority (or significant minority) of the company while it is in a fast-growth stage. The idea is to sell to a strategic later at even better conditions, since such investors typically pay a significant premium for the (future increased value) of the shares.