I recently came across an article about Climate First VC’s collaboration with Honda, exploring the pros and cons of working with strategic investors. While I agree with their points on the benefits and challenges for startups (and could write another post or ten on that), their take on why strategic investors invest in startups doesn’t quite match my experience. Here’s my breakdown.
What Strategics Say They’re Doing
The article lists all the obvious reasons, like
1️⃣ Financial Returns – Because startups are cash cows? Unlikely. No corporation I know thinks startups are any good for generating returns. Core business is always better.
2️⃣ Net Zero Goals – If only press releases counted as emissions reductions. But startups make for a convenient smokescreen.
3️⃣ Hedging Regulatory Risks – Plausible in theory, rarely actionable in practice. Regulators don’t care about startups.
4️⃣ 21st Century Leadership – Corporations rarely think startups can teach them anything, despite evidence to the contrary.
5️⃣ Speed to Market – This is more about speed to market for existing corporate products that no one wants to buy.
These reasons sound great on paper, but they’re mostly about optics. Now, let’s talk reality.
The Real Reasons Corporations Invest in Startups:
1. Synergy (aka Captive Customer Play)“Synergy” is the corporate buzzword for turning your startup into their profit center. When strategics say they want “synergy,” what they mean is that your startup will buy their products and services. Often, at inflated prices.
2. Public Relations & GreenwashingNeed to look innovative or green for shareholders, regulators, or the media? Just point to a climate tech investment. Whether or not the startup succeeds is secondary; the PR value is immediate.
3. Individual Champions, Not the CorporationEvery now and then, there’s a visionary manager in a corporation—someone who truly believes in the potential of startups and fights to make things happen. But here’s the catch: it only last as long as the manager stays in their role. The second they move on, that “strategic alignment” melts faster than your pre-seed investors lists.
Should You Work with Strategics?
Absolutely—but know what you’re signing up for.Strategic investors can bring funding, visibility, and connections that startups can’t achieve on their own. However, understanding their true motivations is essential to avoid traps and maximize the value of the partnership.
Final Thought:
Strategic investors can be powerful allies or high-maintenance partners, so which one was yours? Drop your war stories in the comments. If you're navigating strategic partnerships, reach out! I’ve been on both sides of the table, and I’m happy to share what I’ve learned.