As a founder and one of the leaders of Intel Capital, one of the world’s most successful corporate venture groups, I am frequently approached by entrepreneurs seeking advice on securing investments from strategic investors.

Strategic investors primarily invest to bolster their strategic objectives. For example, during my tenure as Corporate Vice President of Business Development (1991-1999), our primary mission, as expressed by Intel’s CEO, Andy Grove, was to expand the Personal Computer Market. Intel, at the time, had approximately 85% of the market share, trailed by AMD and a few others. It was clear that increasing the market size would not only benefit us but would potentially benefiting our competitors. But given are market share, that did not really matter. Our focus was on stimulating demand for high-performance personal computers, as we were the leading supplier of these high-performance microprocessors.

We actively sought opportunities to grow the market. We were open to investing in companies that presented innovative applications for personal computers. Some notable early examples include Audible, Ancestry, Match, Broadcast.com, and Launch Media in the consumer sector.

During my tenure, we always invested in conjunction with a professional venture capitalist. This is the optimal strategy if a company is seeking strategic investors. A venture capitalist typically has a more objective perspective on valuation than strategic investors. Strategic investors are more focused on the potential benefits to their own business if the venture succeeds. The valuation of such success often exceeds any profits from the eventual sale of the early-stage company. This bias might even lead to the strategic investor promoting strategies that may not be in the best interest of the company. Nonetheless, strategic investors can offer valuable benefits such as customer access, endorsements, and PR opportunities.

At times, early-stage companies may prefer to exclusively partner with a strategic investor, believing they can secure a higher valuation. While this may be true in the short term, it may lead to complications in subsequent fundraising rounds. If the strategic investor loses interest and opts not to participate in the next round, the company could face a down-round due to the previous high valuation.

Strategic investors often seek a business relationship with the company. While this can be beneficial, it requires careful consideration. Financial investors may view this as effectively reducing the price the strategic investor paid. Sometimes, strategic investors may demand certain terms, such as the first right of refusal on a sale, which can significantly decrease a company’s value.

Having a seasoned board and advisors, particularly independent board members not employed by the investors, is crucial. Those with extensive deal-making experience can weigh the pros and cons of various configurations. Competent lawyers with relevant experience can also provide valuable advice and recommendations.

In conclusion, while strategic investors can add substantial value, it is recommended to diversify and include investments from professional venture capitalists.