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Not all investors are VCs: Who are strategic investors?

The legal experts at Ballard Spahr explain why corporations are getting involved in startup investing — and why founders may want to partner with them.

Strategic investors can provide other benefits besides capital. (Photo by Edmond Dantès via Pexels)

This is a sponsored guest post by Ballard Spahr. Ballard Spahr is a Technical.ly Ecosystem Builder client.

One of the most important tasks for a founder is to find and secure funding.

Initial funding typically comes from a founder’s personal funds and credit cards or from friends and family. One of the most popular sources of financing for startups was personal funds. Furthermore, a lack of personal funds is among the most prevalent reasons that startups fail. However, not all founders have the capital to finance their own startups.

For many bootstrapping founders, it is critical to find compatible angel investors and venture capitalists who can help jumpstart their businesses into high growth. In the last several years, corporations, or “strategic investors” in particular, have increasingly invested time and funds into the venture capital space.

This corporate venture capital (CVC) from corporate strategic investors are becoming more active in the earliest parts of the startup life cycle. Corporations participating in this trend see investing in startups, especially at an early stage, as a strategic move, one that brings the corporate investor innovation and stimulates demand for the corporate investor’s own products or services. Such CVC is also a financial move, as corporations look to get a positive return on their investments. Forbes reported these stats:

“Corporate venture capital reached new levels in 2021. CVC-backed funding grew 142% to reach $169.3 billion. What’s more, 221 CVCs were set up in 2021, a 53% increase compared to 2020. … CVCs also led more mega-rounds in 2021 compared to previous years.”

Like venture capitalists and angel investors, strategic investors are interested in a return on their investment. Strategic investors, however, may also have a commercial interest in the startup. For example, a strategic investor may want access to your startup’s service or product to support synergies within the strategic investor’s own offerings.

We interviewed leaders from three corporations that have developed captive venture capital funds or divisions to invest in startups. These corporate investors are all corporations — Comcast, Cigna and one Fortune 50 company that asked to be unnamed — that have been around for a long time. We looked at their recent publications concerning venture capital investing and spoke to representatives to get a sense of their goals in “venturing” into the venture capital space. Here’s a snapshot of their responses.

What motivates your company to invest in emerging companies?

Reps for the companies told us they generally make investments in emerging companies where they have an interest in the technology being developed by the emerging company and want to learn more about the technology or the space. They also sometimes make investments where they intend to enter into a commercial relationship with the emerging company and the company has a capital need that would benefit their commercial relationship (e.g., the need to build a new production line to meet our demand for supply of product).

How does your company identify emerging companies to invest in?

One company previously had a venture capital arm through which it actively pursued these types of investments. Since it disbanded that venture capital arm, most of these types of investment opportunities come to it now through business people. Occasionally, it’s approached by a banker or a venture capitalist regarding participation in a financing round.

Does your company view emerging companies as competitors?

Reps for the corporate investors noted definitively that they do not view startups as competitors.

When your company invests in emerging companies, does it try to do so on terms similar to venture capital firms?

One company rep said ideally, they let a third party lead the valuation in a round and we try to piggyback on those valuations with our investment. Where we cannot do that, we typically negotiate a commercial relationship and try to get the equity for free.

Similarly, according to Cigna’s venture page, Cigna believes that investing is more than just a capital investment. Cigna particularly chooses to partner with entrepreneurs who share the company’s goal of making health care more affordable. Its support beyond capital often takes the form of providing an entrepreneur access to a network of people and resources to enable partnership opportunities.

Comcast notes on its own venture investment page that it partners with entrepreneurs who aim to redefine the next generation of areas important to the company, such as digital health and energy.

What kind of return is your company looking for when it invests in emerging companies?

Certain company reps noted they are not focused on a specific return on our invested capital.

They are typically more focused on:

  1. Our ability to learn more about the technology/industry through our involvement with the emerging company, or
  2. Whether any corresponding commercial arrangement makes sense from a business perspective.

Has your company found the emerging company market to be an easy market to navigate or has it been “hit or miss” in terms of finding value?

The companies said they are opportunistic — they are not in the market trying to navigate and seek out profitable investments.

Comcast and Cigna, both of which have robust investment arms, also publicize their motivation to invest in startups based on what will be advantageous for the growth of their own companies.


Strategic investors are opportunistic — they invest in young startups in the hopes that they will be able to use the startups to benefit their businesses. They usually seek something in addition to an equity position in the startup company. This something else could range from a license or marketing arrangement to an option to buy the startup company. This also means that strategic investors may be less demanding on valuation and could potentially take a smaller equity position in the startup as compared to venture capitalists. A strategic investor will ultimately play a larger role in your startup company than a venture capitalist or an angel investor would, because, as reflected above, a strategic investor is focused more on its ability to learn about the technology or industry through its involvement with the emerging company than on a return on its invested capital.

As the founder of a young startup company, it can get overwhelming to research the various forms of venture funding that are available. Strategic investors are one of many options and can often participate, rather than lead, a capital raise. Obtaining strategic funding can have many benefits, including: access to resources, insight to navigate scalability across all areas of your business, credibility of your company due to its association with one or more strategic investors, new business development opportunities, and the ability to work with an investor who has experience in your industry.

A strategic investor may be your best option if your startup needs help growing, needs access to people and resources in your industry, and you are looking for an investor that is interested in the long-term growth of your company. While a strategic investor can help propel growth for a startup, it is important to remember that strategic investors may have multi-faceted goals — some of which could conflict with the founders’ vision for the startup.

Accordingly, it is important to ensure that your strategic investor is the right fit for you and that the parameters of the investment align with your long-term vision for your company and to work with counsel familiar with the types of terms often requested by strategic investors and how these can impact a company’s opportunities going forward.


Kim’s Korner is a series of articles by Ballard Spahr’s emerging company and venture capital attorneys. The column is not legal advice. The substance of the column is derived from our experience working with founders and details many of the current critical issues facing startups.

Learn more about Ballard Spahr
Companies: Ballard Spahr / Cigna / Comcast
Series: Kim’s Korner by Ballard Spahr

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