There was a time when the boundary between financial and strategic investors was blurred. Investors of all stripes try to safeguard their assets by taking on as many managerial responsibilities as possible. Furthermore, the quantity of money invested was insignificant, and there were just a few shareholders. A business was akin to a family in that it was owned and managed by a small group of people. People put their money into industries in which they had practical knowledge.
As markets developed, so did the sizes of industrial production (and service provision). Even a single investor could no longer meet the needs of a single company (or a small group of investors). Micromanaging a company one had invested in was no longer realistic or possible as knowledge developed and specialisation arose.
Separate money-making and business-management enterprises evolved as a result of this. Not in industrial management or marketing, but in earning large returns on investment, an investor was expected to succeed. A manager’s role was to manage, not to be capable of handling all of the obligations of the organisation he controlled on his own.
As a result, there were two categories of investors. One type of capital was supplied to firms. The other type provided them with know-how, technology, management skills, marketing methods, intellectual property, customers, and a vision, or sense of direction.
In many cases, the strategic investor also served as a funding source. However, a differentiation was increasingly maintained. Venture capital and risk capital funds, for example, are primarily financial investors. Investment banks and other financial organisations are becoming increasingly involved.
The financial investor represents the past. Its prosperity is the result of both good and terrible actions made in the past. It is short-term oriented, with the purpose of identifying a “exit strategy” as quickly as feasible. “Exit strategy” should be used instead of “quick gains.” The financial investor is always on the hunt for consumers who are interested in his investment. A typical approach to get out of a situation is to use the stock exchange.
The financial investor is unconcerned with the corporation’s management. In the best-case scenario, his money buys him a good management team as well as a quality product and a healthy market. His understanding of the functions and responsibilities of “good management” differs dramatically from that of the strategic investor. The financial investor is pleased by a management team that maximises value.
The price of his stock is the most important sign of his performance. This is known as “bottom line” short termism among financial market participants. The financial investor has made so many investments in so many businesses and firms that he or she has neither the desire nor the financial resources to get involved in any of them meaningfully. Micromanagement is regularly delegated, while macromanagement is also frequently delegated. On a quarterly or annual basis, the financial investor attends general shareholders meetings. This is the scope of its participation.
On the other hand, the strategic investor is a true long-term value accumulator. Surprisingly, the strategic investor has the most influence on the stock price of the company. The quality of management, the rate at which new commodities are introduced, the success or failure of marketing methods, the level of consumer contentment, and the education of the staff are all determined by the strategic investor. It’s no surprise that the stock price is highly correlated with the strategic investor’s quality and decisions. The strategic investor is a discounted future in the same way that shares are a discounted future.
Indeed, the power balance between financial and strategic investors is increasingly shifting in the latter’s favour. People understand that money is plentiful, but that efficient management is scarce. When it comes to creating a brand, producing revenue, releasing new goods, and attracting new clients, money is plentiful.
These are the features that are often reserved for financial investors:
Financial Management
The financial investor is expected to take over the company’s financial management and install top management, including management layers that deal directly with the company’s finances.
1. Regulate, supervise, and implement a timely, complete, and accurate set of accounting books for the firm that accurately reflect all of its activities in accordance with relevant legislation and regulation in the firm’s operating territories, as well as internal guidelines established from time to time by the firm’s Board of Directors. This is usually done as part of the Due Diligence process and then again when financial management is implemented.
2. Establish ongoing financial audit and control systems to track the company’s performance, cash flow, budget adherence, expenditures, income, cost of sales, and other budgetary difficulties.
3. Prepare and present financial statements and reports to the Board of Directors in accordance with all applicable rules and regulations in the company’s operational regions, as well as as the Board of Directors deems appropriate and requests from time to time.
4. To comply with any capital market or capital market regulatory body reporting, accounting, and audit standards imposed on the firm’s securities that are traded, intended to be traded, or otherwise listed.
5. To prepare and present an annual budget, as well as additional budgets, financial plans, business plans, feasibility studies, investment memoranda, and other financial and business papers as the Firm’s Board of Directors may need from time to time.
6. To notify and warn the Board of Directors of any irregularity, lack of compliance, lack of adherence, lacunas, and problems relating to financial systems, financial operations, financing plans, accounting, audits, budgets, and any other financial matter that could or does have a financial impact, whether actual or potential.
7. To collaborate and coordinate the actions of outside financial service providers who are engaged or contracted by the firm, such as accountants, auditors, financial consultants, underwriters, and brokers, as well as the banking system and other financial venues.
8. Maintain and maintain working relationships with banks, financial institutions, and capital markets in order to access funds for the company’s operations, development goals, and investments.
9. Fully computerise all of the preceding duties in a combined hardware-software-communications system that will communicate with the systems of other members of the group of enterprises.
10. To the best of his ability and with sufficient time and effort, to initiate and engage in all types of activities, financial and otherwise, that are beneficial to the firm’s financial health, development prospects, and achievement of investment objectives.
Collection and Credit Assessment
1. Create and implement credit risk assessment tools, questionnaires, quantitative approaches, data gathering methods, and venues to accurately analyse and predict a client’s, distributor’s, or supplier’s credit risk rating.
2. To track and analyse payment morale, regularity, non-payment and non-performance incidents, as well as other factors, in order to determine changes in the credit risk assessment of those factors.
3. Conduct regular and timely receivables and collectibles analyses.
4. Improve collection procedures to reduce arrears and late payment amounts, as well as the average length of time that such arrears and overdue payments are outstanding.
5.. Collaborate with legal institutions, law enforcement agencies, and private collection firms to guarantee that any outstanding payments, arrears, and overdue payments, as well as other collectibles, are processed and paid on time.
6. Arrange for an educational programme to guarantee that clients, distributors, and other creditors voluntarily engage in the timely and orderly payment of their dues.
Typically, the strategic investor is in charge of the following:
Project Planning and Project Management
The technical component of the project is in the hands of the strategic investor, who is in a unique position to plan and implement it. As a result, he is responsible for:
1. Infrastructure, equipment, raw materials, manufacturing methods, and other variables;
2. Contracts and agreements with suppliers and providers;
3. Cost-cutting in infrastructure through the use of proprietary components and planning;
4. Providing corporate guarantees and letters of comfort to suppliers;
5. Design and construction of a wide range of locations, structures, buildings, premises, factories, and other structures;
6. Plan and implement line connections, computer network connections, protocols, and compatibility issues (hardware and software, for example).
7. Oversight, implementation, and planning of projects.
Marketing and Sales
1. An annual sales and marketing plan that includes market penetration targets, profiles of potential social and economic client groups, sales promotion methods, advertising campaigns, image, public relations, and other media campaigns, and sales promotion methods is presented to the Board of Directors. These projects are also implemented or overseen by the strategic investor.
2. In most cases, the strategic investor has a well-known brand name in a number of countries. It is the market leader in various markets. It has a lengthy history of reliably delivering goods and services to customers. This is a great resource that, when used properly, can attract users. The strategic investor is in charge of improving the brand’s recognition and market awareness, as well as market penetration, co-branding, and collaboration with other service providers.
3. Vendors, distributors, individual consumers, and businesses in the territory adopt the product as a preferred alternative.
4. Sponsorships, special events, and business collaboration.
5. Designing and implementing incentive programmes (e.g., points, vouchers).
6. A strategic investor typically organises a distribution and dealership network, a franchising network, or a sales network (retail chains), which includes functions like training, pricing, financial and quality supervision, network control, inventory and accounting controls, advertising, local marketing and sales promotion, and other network management functions.
7. The strategic investor is also responsible for “vision thinking,” which involves developing new business models, marketing strategies, market niches, projecting future trends and desires, conducting market surveys and research, and so on.
The company usually benefits from the strategic investor’s marketing and sales expertise. It features a drawer full of ready-to-use marketing programmes and sales promotion initiatives. It created tools and hired people who could segment any market into relevant niches and create the best media (image and PR), advertising, and sales promotion campaigns for each. It has amassed large datasets encompassing multi-year purchase profiles as well as demographic data on thousands of clients in a range of countries. Material libraries, photographs, sounds, newspaper clippings, articles, public relations and image assets, as well as proprietary trademarks and brand names, are all owned by the company. Above all, the new business strategy was the product of years of marketing and sales promotion strategies.
Technology
1. The planning and execution of new technical systems all the way to their full operational status. Engineers from the strategic partner are on hand to plan, implement, and manage the firm’s technology aspects.
2. The development and implementation of a fully working computer system (hardware, software, communication, and intranet) to manage all areas of the company’s structure and activities. The strategic investor makes proprietary software that it has developed and matched to the needs of firms in the firm’s market available to the firm.
3. Support for the creation of proprietary, in-house technical solutions to the firm’s, clients’, and suppliers’ needs.
4. Create and implement an integration programme using new technologies in the sector in collaboration with other suppliers or market technical experts.
Education and Training
All of the company’s workers, including operators, customer service representatives, distributors, vendors, and sales representatives, must be trained by the strategic investor. The corporation pays for the entire programme, which includes tours of its locations around the world.
In most cases, the entrepreneurs who attempted to bring the two types of investors together in the first place are left with the following responsibilities:
Administration and Control
1. Within 30 days of the GM’s appointment, restructure the company in the most efficient and effective way feasible, and present the new structure to the Board for approval.
2. Oversee the day-to-day operations of the company.
3. Managing the firm’s personnel and resolving any issues that arise.
4. To ensure the free flow of critical information and the company’s confidentiality.
5. To act as a representative of the corporation in its dealings, representations, and agreements with other businesses, governments, and individuals.
This is why working with investors of any kind is so tough for businesses. Entrepreneurs are experts at spotting market needs and putting technological or service solutions in place to address them. However, the same personality traits that qualify individuals to be entrepreneurs also make it difficult for them to build their firms in the future. Bringing in outside investment is the only way to solve the problem. Outside investors are not emotionally invested. They may be blind, but they are more seasoned.
They’re more interested in the bottom line than in fantasy. And, as is typical of entrepreneurs, they demand ultimate control over the business for fear of losing all of their money. These are the kinds of things that irritate business owners. They fear they are losing their creation to cold-hearted and mean-spirited corporate wolves. They refuse to give up their valued privileges, preferring to stay small or even close shop. Nine out of ten entrepreneurs fail because they don’t know when to let go.
