1. Market validation
Corporate VC funds can provide access to established customers and accelerate a startup's ability to find its product/market fit. Most companies creating these funds tend to have large installed customer bases and can identify early adopters for new technology. Gaining this type of entry can be difficult for an unknown startup still trying to build its credibility. The value of nailing down product/market fit cannot be understated as it sets the stage for acquiring a company's first set of paying customers.
2. Revenue growth
Once market validation is achieved, developing a commercial agreement can generate much-needed revenue in the early days of a startup. This should be set up as a stand-alone agreement -- not tied to the investment agreement -- that provides market value to both sides. By securing paying customers, you can lessen the requirements for outside capital and, at the same time, demonstrate a sustainable business model.
3. Domain expertise
Since large companies have a history of being in business, they possess institutional knowledge that can help startups think about issues related to their target market. Daily interactions with customers produce insights that may have implications to a startup's product or marketing strategy. Furthermore, a startup can improve its visibility in a competitive landscape.
4. Access to capital
Securing an investment from one strategic investor can encourage others to do the same, because if a strategic partner understands the market and the problem and it's willing to put money into a company, then there must be value there. Plus, many corporate investors, whether they are investing from the parent company's balance sheet or a dedicated fund, will invest in multiple rounds. This renewed commitment is a positive market signal and can ease the burden of additional fundraising.
5. Inherent exit option
Unsurprisingly, investors often choose to liquidate their positions in a business, particularly if they acquire new companies with pre-existing commercial relationships. Over time, as a relationship develops, dependencies can occur that spur an acquirer to want to own the assets, for offensive or defensive reasons. Diligence for these types of deals is a bit easier as the acquirer is already familiar with the company's business and executive team, which makes things move along more quickly.
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