Financial and Strategic Investors Find Common Ground

The private equity and venture capital sector as a whole has seen a shift in recent years to a more hands-on approach. Increased competition between investors for quality companies and a less predictable and rapidly changing macroeconomic environment have prompted investors to be more involved in the businesses they invest in. Moreover, ESG campaigns and public pressure have also pushed investors to align their corporate views with those of their investments.

Finding the advantage in a more crowded and complex investment market has become harder, and some investors are willing to invest in less ‘perfect’ companies given they can take on an active role in the business to steer them towards greater value creation.

In many cases, this has made traditionally financial investors (PE, VC, family offices, etc.) take on many of the characteristics traditionally attributed to strategic investors. Most financial investors now offer both financial support and strategic advice as a way of winning deals and controlling the performance of their portfolios.

Investors have taken steps to strengthen their industry connections and strategic networks, enabling them to offer more support to existing and potential portfolio companies, as well as to identify the best opportunities in the market. Moreover, many companies have come to expect investors to be able to provide value beyond a financial investment.

The shift towards “doing it all” is, however, not just seen from financial investors. Strategic investors/acquirers have also taken a more flexible approach to their funding and M&A structures in recent years. Many corporates have built up corporate venture capital (CVC) arms, which in some cases operate practically independently of the core business, investing in companies only loosely related to the operations of the parent. In a number of cases, CVCs can invest without the explicit intention of acquiring the business for the long term.

As a result, the industry is seeing a shift from both the financial and strategic directions towards a more active and flexible middle ground. This, in turn, means companies are benefiting from a more flexible investment landscape, where the “right” investor could come in a number of different forms.