Financial Investor And The Strategic Investor - What Type Of Investor Will Benefit You And Your Small Business?
In the not so distant past, there was little distinction between financial and strategic investors. Investors of all types sought to safeguard their investment by taking over as many management functions as they could.
Additionally, investments were small and shareholders few. A firm resembled a household and the number of folks involved - in ownership and in management - was correspondingly limited. People invested in industries they were familiar with first hand.
As markets grew, the scales of industrial production (and of service provision) widened. A single investor (or a small group of investors) could no longer support the needs even of a single firm.
As knowledge increased and specialization ensued - it was no longer feasible or possible to micro-manage a firm one invested in. Actually, separate businesses of money generating and business management emerged.
An investor was required to excel in obtaining high yields on his funds - not in industrial management or in marketing and advertising. A manager was expected to manage, not to be capable of personally tackling the numerous and varying tasks of the business that he managed.
Thus, two classes of investors emerged. One type supplied firms with capital. The other kind supplied them with know-how, technology, management skills, marketing techniques, intellectual property, clientele as well as a vision, a sense of direction.
In many cases, the strategic investor also supplied the necessary funding. But, more and more, a separation was actually maintained. Venture capital and risk capital funds, for instance, are purely financial investors. So are investment banks and other financial organizations.
The financial investor represents the past. Its money is the result of past - right and wrong - decisions. Its orientation is in short: an "exit strategy". This is sought as soon as possible.
Exit strategies bring fast profits. The stock exchange is a popular exit strategy. The financial investor is always on the lookout, searching for willing buyers for his stake.
The financial investor has little interest within the company's management. Optimally, his money buys for him not simply a great product and an excellent market, but also great management. But his interpretation of the rolls and functions of "good management" are very different to that offered by the strategic investor.
If you are on the lookout for a financial investor, and you're on the verge of seeking bankruptcy services or corporate debt restructuring, make contact with a business consultant for assistance. The act of restructuring a company will be a lot easier for you if you have professional help.
The strategic investor, on the other hand, represents the real long term accumulator of value. Paradoxically, it is the strategic investor that has the higher influence on the value of the company's stocks.
The quality of management, the rate of the introduction of new goods, the success or failure of marketing strategies, the degree of consumer satisfaction, the education of the workforce - all depend on the strategic investor.
Indeed, gradually, the balance between financial investors and strategic investors is switching in favor of the latter.
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