Today's fastmoving business environment demands that businesses be fully engaged in alliances, partnerships and joint ventures.  It also demands funding.  Traditionally, these have been regarded separately, but we believe a strategic can also be the optimal funding source. Moreover, in the right situation, a strategic partner can  provide more (in terms of company value) at less cost (in terms of the percentage of the company you have to give up).

What is a Strategic Funding Partner?
A strategic (or corporate) funding partner has reasons other than pure financial return for getting involved with you. There is an almost endless list of things a corporate partner might want or need  from your company.  It could be anything from a product that fits into its distribution channels to the opportunity to become an exclusive supplier to your company.

Consider the example of Borrego Springs Bank, which we helped to find a strategic funding partner several years ago with a true winwin result. The bank needed funding to improve its capital base.  It unsuccessfully pursued traditional financial and investor sources. When we were engaged by the bank, we presented the opportunity to the Viejas Band of the Kumeyaay Indians. The tribe, successful in gaming, was seeking business diversification.  Owning a bank would also allow the tribe's members to learn more about business. It also fit with Viejas' plans to move into retail development and provided the Bank an opportunity to benefit from the fees generated by the ATMs located at the Viejas gaming facilities and outlet center. The tribe  the strategic partner not only provided funding for the Bank, but also brought new retail business opportunities.

On Seeking a Strategic Partner
We see two steps to the process of pursuing a strategic partner  first, identify the qualities or needs you are looking for, and second, identify specific corporations possessing those qualities that have ample financial resources.

To find an attractive fit, start by examining your company in depth, in terms of strengths and weaknesses in different competencies.  Do you have superior products but lack adequate distribution and sales representation?  That would suggest you look for a corporation with a strong sales force and proven channels of distribution that would benefit from selling your products.

Competencies we think you should evaluate are:

• Products;
   
• Manufacturing;
   
• Processes;
   
• Sales force;
   
• Customers;
   
• Name recognition;
   
• Distribution;
   
• Technology;  and
   
• Information systems.

Assess your strengths and weaknesses.  The perfect partner has strengths to offset your weaknesses and weaknesses to benefit from your strengths.  Another way of looking at this is to think about each company as a potential "donor" or "recipient" of these competencies.

With a general profile of a perfect strategic partner, how do you find specific corporations that match the profile?  Either do research yourself identify businesses in the appropriate sectors, evaluate Websites, search via industry associations or retain a professional.  Remember that the size of your transaction will play a large part in your ability to engage an investment banker.  Middlemarket investment bankers are normally compensated based upon the size of the transaction and typically have minimum fee levels ranging from $100,000 to $250,000 or more.

Pros and Cons of a Strategic Partner
Consider the following advantages (+) and disadvantages () when deciding the source for your funding.

Venture capitalists, in general:

• Have limited patience (-);
   
• Instill business discipline (+);
   
• Open doors (+);
   
• Have strict investment timelines (-);
   
• Can impact recruitment of talent ( and +);
   
• Provide earlystage startup funding (+);  and
   
• Are experienced advisors (+).

Strategic partners, on the other hand, in general:

• Can provide "missing links" to success (+), such as:
   
  • Research and development;
     
  • Manufacturing;
     
  • International presence;  and
     
  • Distribution.
• Have a longer investment horizon (+);
   
• Can outsource growthinduced human resource needs (+);
   
• Might get distracted by a bad year or downturn and "orphan" you (-); and
   
• Are not good for startups (you need a deliverable) (-).

While some might think that the venture capital approach allows you more autonomy and control, question the price and reality of that notion.

Notes on Efficiency and Value
Getting a strategic partner can be an efficient and costeffective solution.  For example, if your company is created on the basis of an invention, do you really need to build your own manufacturing facility?  Why not outsource it through a strategic partnership (that also brings you funding) and focus on your next great invention.

I have asked groups of CEOs if they thought this country had enough manufacturing capacity, distribution systems and sales people already in place to meet our output needs. When they think about the question, the answer is usually "yes," provided we utilize what we have more efficiently. If this is true, then why then commit the time, money and other resources to build more?

Another advantage to strategic partnering is how it plays into the longterm value of the company, in terms of eventual sale.  A company's value is determined by its growth rate and profitability. Strategic partnering can enhance and speed up both.  And, since you might retain more of the company than in a venture capital situation, your benefits may be greater on exiting.

Of course, strategic partnering can limit the range of potential future buyers. This must be factored into the equation early on. Clearly there is a great deal to think through and negotiate in such a transaction.

The ideal approach is to engage multiple potential strategic partners and let competition between them surface your company's value. That leads to the best costbenefit ratio to you and is likely to dramatically improve the final deal.  But it is very time consuming and difficult to do yourself, which is another reason to consider retaining a professional.

Phillip L. Currie is Managing Partner of Shoreline Partners LLC, a San Diego-based, middle market investment banking firm that handles sales of privately held companies with  $10 to $200 million in revenue and acquisitions for public companies.  Currie can be reached at 858/587-9800 or via Email.