Loading...
Answers
MenuWhat could be the disadvantage for a startup of receiving an early stage investment from a large corporation?
The large corporation is a target customer and a potential competitor to other target customers.
Answers
The disadvantage(s) are:
These answers address the question assuming the large corporation is the largest shareholder in the investment round or at least 40% of the investment offering.
Public perception: You raised the issue in your question. How many of your potential customers would perceive this negatively? You might actually consider doing some basic market research here with existing or potential customers.
Deal-structure and negative signal concerns: Often these investments come with terms that can weaken their appetite for investing. Also, if they decline to invest further, this will often be perceived as a negative signal (i.e. management didn't live up to its promise/expectations).
Influence in your business: Regardless of percentage interest, board control, etc., there will expect to wield influence in your product or service offering, and potentially (and most damagingly) make it difficult for you to sell to companies who they perceive as a threat, even if such terms aren't part of the deal.
No value-add: Often, these deals end-up creating little to no value, and this is most frustrating to a company when you made specific concessions and have had to deal with concerns I've raised above only to find the only thing they were good for was their money.
A great way to ensure you get the most value out of a corporate investor is for you to make the deal competitive and possibly bring in another corporate investor, or better yet, bring in great value-added investors whose total investment value makes the corporation's investment a small part of the round.
Happy to talk through the specifics of your concerns and ways to manage or address them in a call.
I think you have to follow your gut here. If its telling you that this investor is going to be a more of a headache and will take up most of your time then don't take the investment. You want to make sure you are focused on building a great company.
I would also have a conversation about how the investor feels about you approaching their competitors as potential customers. Get it all out on the table before signing the dotted line.
Several potential disadvantages:
1. A commitment to use the corporate's resources (even if inadequate)
2. Lack of flexibility to deviate from the corporate's plans and roadmaps when the market changes
3. Difficulty in getting other types of investors in down the road.
Related Questions
-
Does anyone know of a good SaaS financial projection template for excel/apple numbers?
Here is a link to a basic model - http://monetizepros.com/tools/template-library/subscription-revenue-model-spreadsheet/ Depending on the purpose of the model you could get much much more elaborate or simpler. This base model will help you to understand size of the prize. But if you want to develop an end to end profitability model (Revenue, Gross Margin, Selling & General Administrative Costs, Taxes) I would suggest working with financial analyst. You biggest drivers (inputs) on a SaaS model will be CAC (Customer Acquisition Cost, Average Selling Price / Monthly Plan Cost, Customer Churn(How many people cancel their plans month to month), & Cost to serve If you can nail down them with solid backup data on your assumption that will make thing a lot simpler. Let me know if you need any help. I spent 7 years at a Fortune 100 company as a Sr. Financial Analyst.BD
-
how to start earning on clarity.fm
Most of the earnings come from the people you are in contact with. The platform is not that big at the moment but it can be earned. My recommendation is to create content on your private page web, facebook, instagram ... and leave a clarity link through your work. If you need extra help call me for 15 minutes.DB
-
What does it mean to 'grandfather you in' in the tech world?
It stands for allowing someone to continue doing or use something that is normally no longer permitted (due to changing regulations, internal rules etc.)OO
-
What do (bootstrapped) startups offer to new sales hires? Commission only? What are some good examples to keep people motivated and still survive?
Generally bootstrapped startups should avoid salespeople, for a few reasons: a. they typically can't afford the base and overall comp required to attract sales people who can actually sell / or afford to support them with marketing, management, etc b. it will be very difficult to find the rare person with the right mix of sales and startup DNA along with the critical domain knowledge, consequently the startup is likely to settle c. the founders need to be very involved in the selling and customers will demand it That said, if the plan is still to hire a salesperson, find someone who has demonstrated sales success in startups and is excited by the early stage in company building. Create a comp plan heavily leveraged on sales results (unless you are in an industry where 100% commission is a common practice, would recommend against $0 base as this creates the false impression that your hire isn't passing time with one company while looking for another job with a richer comp plan - you want your rep focussed). Sell the vision and opportunity to be part of a growth story. I have written a several blog posts on hiring sales people into start-ups. You might find these useful: http://www.peaksalesrecruiting.com/ceo-question-should-i-learn-to-sell-or-hire-a-sales-person/ http://www.peaksalesrecruiting.com/start-up-sales-and-hiring-advice-dont-stop-selling-once-you-hire-your-first-sales-rep/ http://www.peaksalesrecruiting.com/hiring-start-up-sales-reps/ http://www.peaksalesrecruiting.com/startups-and-salespeople/ Good luck!EB
-
What is a normal churn rate for b2b saas company with an average monthly revenue of $850 per customer? Is 10% of the total monthly sales high or low?
10% of the total monthly sales churning on an absolute basis is near fatal. That means that within 5 months, you have 50% absolute churn per year, which reveals fundamental flaws with the service itself. Anything above small single digit churn is telling you and your team that customers are not seeing enough value in your product. I'd start by doing as many exit interviews as you can with those that have churned out, including, offers to reengage at a lower price-point while you fix the issues that matter to them. Happy to talk through this in more detail in a call.TW
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.