Strategic investors vs. financial investors

 The last time I posted information on investing in new ventures, I mentioned the types of investors, which are mainly divided into two categories, namely strategic investment and financial investment.

The so-called strategic investment, whether it is an investment institution of a company, the so-called Coporate VC (CVC for short), or an angel investor,  in fact, many tend to invest in a strategic way. Basically, there are two reasons, one is investment people in this field have relatively many resources to assist entrepreneurs. One is that investors are interested in certain new fields and feel that they may enter this field in the future, and theoretically there will be more resources to assist.

For example, the well-known game accelerators in Taiwan also have their own investment funds. Their main advantage is that they can provide resources such as contacts, potential customers and other resources through the power of the group to help the growth of the entrepreneurial team, and they do not set the appearance period, which is very important for the early stage. For entrepreneurs, I personally think it is quite attractive.

Financial investment is different. Financial investors look at numbers, that is, how much money I invest, and how long I can earn back several times the amount of money. According to the article on the "Findit" platform, financial investors will pay more attention to the feasibility and related planning of the exit.

According to Lin Guanzhong's article "The Dilemma of New Ventures: Looking for Strategic Investments? Or Financial Investments?", when thinking about which type of investors to look for, you can start from two aspects:

1. Development stage:

Before the growth period, that is, before the entire model is stable and can be quickly copied, it is recommended to find strategic investors. On the contrary, after confirming the company's model and it can be quickly copied to other markets, it is recommended to find financial investors.

Here, I personally think that the growth period is a vague definition. In many cases, we will find many cases that sound like or seem to be replicable, but the actual situation is likely to be different. For example: I have invested in a British company called TipJar. 

 They solve the problem of waiters in the European and American markets. Because of the epidemic situation and the government's promotion of paperless transactions, the tips they receive have dropped sharply, so they have created an app that binds a credit card to the software to pay tips.

However, I studied in Australia for a year and a half. I have never seen anyone tip, and I googled the keywords, there are two answers, one is non-mandatory, and the other is not required at all (as shown below)

Therefore, I have seen a variant. Even if it is the same brand and the same service, It is also possible to have separate companies in each target market, raising funds separately to maintain flexibility.

2. Development model:

Technology-oriented companies may be suitable for strategic investment, while market-oriented companies may need a large amount of cash to fight for subsidies in order to compete for speed, rush traffic, and may be suitable for financial investment at this time.

But I also invested in a company in Crowdcube called Advanced Blast & Ballistic Systems (Advanced Blast & Ballistic Systems -> the name also gets Super Technology), which is clearly a technology-oriented company, and the customer is the US military. They go on an equity crowdfunding platform (biased towards financial fundraising).

To be honest, Lin Guanzhong's article is very clear about the two types of investments, so I only add the parts and personal thoughts that were not mentioned in the article:

Strategic investment and financial investment can actually complement each other, and I have read two research reports, both of which mentioned the same thing, that is, the joint investment of VCs. In many cases, strategic investment and financial investment institutions can be jointly invested, while At this time, it depends on which investment institution is leading the investment, and it is more practical to directly discuss the conditions with the leading investment.

Regarding the comparison of the two investment models, "The Dilemma of New Ventures: Looking for Strategic Investments? Or Financial Investments?" is really detailed, so I will share my personal thoughts below (I didn't say I'm absolutely right, but provide a reference):

From the perspective of the target market, the traditional Chinese market is invincible and small. The second largest traditional Chinese market in the world is Hong Kong, but if you chat with Hong Kong people on the Internet, they are likely to use English. Then why not produce both Chinese and English materials on the first day of business?

If someone has produced content, they will know that the most difficult thing is the production of the content itself, and the translation only needs to find a simple tool to translate, even if it is not completely correct, it can be meaningful.

When I was working in an industrial mobile phone company, a new Canadian company came to work on a case. No one could understand the Chinese translation of their software, but the Canadians kept calm and said, "We just want you to help us correct the translation!", and even more miraculous, the new Canadian company really made the case.

in terms of how this Canadian startup,  the way they expanded their business to Taiwan is also very simple. They find a man in Taiwan who works in Taiwan (I don't know which country he is from, but he understands English anyway). There is only one "Sales manager" in Taiwan, and that is it, that is all. 

In my personal example, I personally think it is more partial, but the logic is also the same. I studied in Australia before and met some Indonesian classmates. It is the fourth most populous country in the world and the largest single market in Southeast Asia, so I searched for potential suitable talents on Linkedin while looking for my former classmates. Hopefully I found someone on Linkedin, and our chemistry looks good so far. 

At present, I see relatively good development of new startups, and many of them are brought back to Taiwan from overseas markets. Even if it is a cryptocurrency platform in Taiwan, it can really reach the world level because the company can exchange dual legal currencies - namely US dollars and the Indian rupee. This means that the company is actually targeting the US and India.

In addition, I have also talked to angel investors I know who are willing to invest in Taiwanese who are starting businesses overseas, so my personal approach is to make a minimum viable product (MVP) in Taiwan for the Indonesian market. For example, it may be tested for Indonesian migrant workers in Taiwan, and then expanded to the Indonesian market.

In terms of fundraising, Indonesia is second only to the market of Singapore, and Singapore is very willing to invest in Indonesia. In terms of the demographic dividend of the target market, as mentioned above, Indonesia is the fourth most populous country in the world.

In fact, a company needs to make a profit, so it finally returns to the four most important elements: pain point, solution, competition threshold, team, and financial status after growth (according to the data trend, Taiwan is now the second last, but after a few year is likely to be at the bottom).

Honestly fundraising is to get married on the premise of divorce, so the most important thing is how to get along and communicate with investors. But whether it is before or after finding someone with fate, it is actually the most important thing to keep improving yourself so that you can make a profit. You must first help yourself before you can get help from God and others, right?