The art of adding value
That’s not to say big companies are out of the running. After venture capital and private equity, our survey showed corporates were next in line as preferred funding sources. The small companies that favor corporates as investment partners told us they do so for access to marketing muscle, management talent and wide-reaching distribution networks.
Also, large companies have in-house regulatory knowledge, which gives them another edge. Half of the start-ups we polled rated regulation as one of the top two factors central to their long-term success. Big corporates with supervisory relationships across multiple jurisdictions can offer unique insights and strategic advice invaluable to new entrants.
At the same time, enterprises that open up their own value chain and offer true mentorship may gain an advantage over rivals when courting start-ups. And establishing a constructive relationship early on dramatically raises the odds of a successful result for both parties.
Making M&A meaningful
Before investing, big companies should have a clear idea of their own goals when partnering with smaller firms. Are they looking for a strategic investment or a financial return? Do they have the stomach and longevity to lock capital into a company for five to 10 years? Are they prepared to walk away and lose it all if they back the wrong horse? Corporate cash may be plentiful, but so are competing business opportunities and quarterly investor expectations.