EP 013: I know You Want to – But… Think Twice About Taking Capital From a Strategic Partner When You’re a Small Business
Your hosts, Tammie Miller and Tim Oleszczuk, welcome you to another Deal Team Six podcast. Today, they address the difficulties an entrepreneur endures when it comes to funding and starting a business, and how incredibly attractive it can be when a large corporation or big competitor offers up capital. Let’s listen to the different possible scenarios!
Episode Transcription
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[2:06] What is a Strategic Buyer? It is another company or potential acquirer in your industry, it can be a competitor, or someone doing something similar to your business.
[3:05] What happens if a larger business is interested in yours? If your company is struggling with capital and resources, it may seem like a great opportunity for a larger player to be part of your company.
[4:22] Why do big companies care about investing in smaller companies? Sometimes a bigger company shows interest in a smaller one due to its technology. An acquisition of a small company can be quicker than dealing with large company bureaucracy and red tape.
[7:11] What ways can a bigger company invest in your company that do not necessarily look like an investment? A specific customer arrangement could be one way (some companies can ask for exclusivity in a particular market or ask for the best pricing offered). Some companies can take a lot of your company’s manufacturing capacity, which in the long-term could really be a growth constraint.
{11:45] Tammie and Tim address the Right of First Refusal. [14:50] How do you make it work with a large customer investment?
[17:05] If you are thinking about selling a part of your business to raise capital today, it can be very difficult to sell your business later when you are trying to exit. Make sure you structure those relationships correctly.
Key Takeaways
- Strategic or corporate investments in small businesses can dramatically affect your valuation in a sale process later on but many business owners can’t see past the cash at hand.
- The capital infusion from a corporate partner can take several forms and you should be aware of what they look like.
- The capital you receive can be a welcome relief. However, this usually comes at a cost that most small company entrepreneurs don’t (or don’t want to) think about.
- When you take an investment from a large company, you are effectively giving them a low-cost option on buying your business (and the ability to do due diligence).
Additional Related Resources
Blog Post: I Know You Want to – But …Think Twice About Taking Capital From a Strategic Partner When You’re a Small Business
MEET YOUR HOSTS
Tammie Miller and Tim Oleszczuk started the Deal Team Six® Podcast because they saw that there was lack of representation for middle market businesses in the investment banking world. This podcast will include stories from previous transactions, M&A market information, and candid discussions around topics that are important to business owners contemplating a sale. Most of the topics are inspired by former clients and past transactions