Financial Investor - Strategic Investor
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In the not so
distant past, there was little difference between financial and strategic
investors. Investors of all colors 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 people involved – in ownership and in management – was
correspondingly limited. People invested in industries they were acquainted with
As markets grew,
the scales of industrial production (and of service provision) expanded. A
single investor (or a small group of investors) could no longer accommodate 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 making and business management emerged.
An investor was expected to excel in obtaining high yields on his capital – not
in industrial management or in marketing. A manager was expected to manage, not
to be capable of personally tackling the various and varying tasks of the
business that he managed.
Thus, two classes
of investors emerged. One type supplied firms with capital. The other type
supplied them with know-how, technology, management skills, marketing
techniques, intellectual property, clientele and a vision, a sense of direction.
In many cases,
the strategic investor also provided the necessary funding. But, more and more,
a separation was maintained. Venture capital and risk capital funds, for
instance, are purely financial investors. So are, to a growing extent,
investment banks and other financial institutions.
investor represents the past. Its money is the result of past - right and wrong
- decisions. Its orientation is short term: an "exit strategy" is sought as soon
as feasible. For "exit strategy" read quick profits. The financial investor is
always on the lookout, searching for willing buyers for his stake. The stock
exchange is a popular exit strategy. The financial investor has little interest
in the company's management. Optimally, his money buys for him not only a good
product and a good market, but also a good management. But his interpretation of
the rolls and functions of "good management" are very different to that offered
by the strategic investor. The financial investor is satisfied with a management
team which maximizes value. The price of his shares is the most important
indication of success. This is "bottom line" short termism which also
characterizes operators in the capital markets. Invested in so many ventures and
companies, the financial investor has no interest, nor the resources to get
seriously involved in any one of them. Micro-management is left to others - but,
in many cases, so is macro-management. The financial investor participates in
quarterly or annual general shareholders meetings. This is the extent of its
investor, on the other hand, represents the real long term accumulator of value.
Paradoxically, it is the strategic investor that has the greater influence on
the value of the company's shares. The quality of management, the rate of the
introduction of new products, the success or failure of marketing strategies,
the level of customer satisfaction, the education of the workforce - all depend
on the strategic investor. That there is a strong relationship between the
quality and decisions of the strategic investor and the share price is small
wonder. The strategic investor represents a discounted future in the same manner
that shares do. Indeed, gradually, the balance between financial investors and
strategic investors is shifting in favour of the latter. People understand that
money is abundant and what is in short supply is good management. Given the
ability to create a brand, to generate profits, to issue new products and to
acquire new clients - money is abundant.
These are the
functions normally reserved to financial investors:
investor is expected to take over the financial management of the firm and to
directly appoint the senior management and, especially, the management echelons,
which directly deal with the finances of the firm.
supervise and implement a timely, full and accurate set of accounting books of
the firm reflecting all its activities in a manner commensurate with the
relevant legislation and regulation in the territories of operations of the
firm and with internal guidelines set from time to time by the Board of
Directors of the firm. This is usually achieved both during a Due Diligence
process and later, as financial management is implemented.
continuous financial audit and control systems to monitor the performance of
the firm, its flow of funds, the adherence to the budget, the expenditures,
the income, the cost of sales and other budgetary items.
regularly and duly prepare and present to the Board of Directors financial
statements and reports as required by all pertinent laws and regulations in
the territories of the operations of the firm and as deemed necessary and
demanded from time to time by the Board of Directors of the Firm.
To comply with
all reporting, accounting and audit requirements imposed by the capital
markets or regulatory bodies of capital markets in which the securities of the
firm are traded or are about to be traded or otherwise listed.
To prepare and
present for the approval of the Board of Directors an annual budget, other
budgets, financial plans, business plans, feasibility studies, investment
memoranda and all other financial and business documents as may be required
from time to time by the Board of Directors of the Firm.
To alert the
Board of Directors and to warn it regarding any irregularity, lack of
compliance, lack of adherence, lacunas and problems whether actual or
potential concerning the financial systems, the financial operations, the
financing plans, the accounting, the audits, the budgets and any other matter
of a financial nature or which could or does have a financial implication.
and coordinate the activities of outside suppliers of financial services hired
or contracted by the firm, including accountants, auditors, financial
consultants, underwriters and brokers, the banking system and other financial
To maintain a
working relationship and to develop additional relationships with banks,
financial institutions and capital markets with the aim of securing the funds
necessary for the operations of the firm, the attainment of its development
plans and its investments.
computerize all the above activities in a combined hardware-software and
communications system which will integrate into the systems of other members
of the group of companies.
initiate and engage in all manner of activities, whether financial or of other
nature, conducive to the financial health, the growth prospects and the
fulfillment of investment plans of the firm to the best of his ability and
with the appropriate dedication of the time and efforts required.
Collection and Credit Assessment
- To construct and implement credit risk assessment tools, questionnaires,
quantitative methods, data gathering methods and venues in order to properly
evaluate and predict the credit risk rating of a client, distributor, or
- To constantly monitor and analyse the payment morale, regularity,
non-payment and non-performance events, etc. – in order to determine the
changes in the credit risk rating of said factors.
- To analyse receivables and collectibles on a regular and timely basis.
- To improve the collection methods in order to reduce the amounts of
arrears and overdue payments, or the average period of such arrears and
- To collaborate with legal institutions, law enforcement agencies and
private collection firms in assuring the timely flow and payment of all due
payments, arrears and overdue payments and other collectibles.
- To coordinate an educational campaign to ensure the voluntary
collaboration of the clients, distributors and other debtors in the timely and
orderly payment of their dues.
investor is, usually, put in charge of the following:
Project Planning and Project Management
investor is uniquely positioned to plan the technical side of the project and to
implement it. He is, therefore, put in charge of:
of infrastructure, equipment, raw materials, industrial processes, etc.;
and agreements with providers and suppliers;
costs of infrastructure by deploying proprietary components and planning;
of corporate guarantees and letters of comfort to suppliers;
and erecting of the various sites, structures, buildings, premises, factories,
and implementation of line connections, computer network connections,
protocols, solving issues of compatibility (hardware and software, etc.);
planning, implementation and supervision.
Marketing and Sales
- The presentation to the Board an annual plan of sales and marketing
including: market penetration targets, profiles of potential social and
economic categories of clients, sales promotion methods, advertising
campaigns, image, public relations and other media campaigns. The strategic
investor also implements these plans or supervises their implementation.
- The strategic investor is usually possessed of a brandname recognized in
many countries. It is the market leaders in certain territories. It has been
providing goods and services to users for a long period of time, reliably.
This is an important asset, which, if properly used, can attract users. The
enhancement of the brandname, its recognition and market awareness, market
penetration, co-branding, collaboration with other suppliers – are all the
responsibilities of the strategic investor.
- The dissemination of the product as a preferred choice among vendors,
distributors, individual users and businesses in the territory.
- Special events, sponsorships, collaboration with businesses.
- The planning and implementation of incentive systems (e.g., points,
- The strategic investor usually organizes a distribution and dealership
network, a franchising network, or a sales network (retail chains) including:
training, pricing, pecuniary and quality supervision, network control,
inventory and accounting controls, advertising, local marketing and sales
promotion and other network management functions.
- The strategic investor is also in charge of "vision thinking": new methods
of operation, new marketing ploys, new market niches, predicting the future
trends and market needs, market analyses and research, etc.
investor typically brings to the firm valuable experience in marketing and
sales. It has numerous off the shelf marketing plans and drawer sales promotion
campaigns. It developed software and personnel capable of analysing any market
into effective niches and of creating the right media (image and PR),
advertising and sales promotion drives best suited for it. It has built large
databases with multi-year profiles of the purchasing patterns and demographic
data related to thousands of clients in many countries. It owns libraries of
material, images, sounds, paper clippings, articles, PR and image materials, and
proprietary trademarks and brand names. Above all, it accumulated years of
marketing and sales promotion ideas which crystallized into a new conception of
- The planning and implementation of new technological systems up to their
fully operational phase. The strategic partner's engineers are available to
plan, implement and supervise all the stages of the technological side of the
- The planning and implementation of a fully operative computer system
(hardware, software, communication, intranet) to deal with all the aspects of
the structure and the operation of the firm. The strategic investor puts at
the disposal of the firm proprietary software developed by it and specifically
tailored to the needs of companies operating in the firm's market.
- The encouragement of the development of in-house, proprietary,
technological solutions to the needs of the firm, its clients and suppliers.
- The planning and the execution of an integration program with new
technologies in the field, in collaboration with other suppliers or market
Education and Training
investor is responsible to train all the personnel in the firm: operators,
customer services, distributors, vendors, sales personnel. The training is
conducted at its sole expense and includes tours of its facilities abroad.
– who sought to introduce the two types of investors, in the first place – are
usually left with the following functions:
Administration and Control
- To structure the firm in an optimal manner, most conducive to the conduct
of its business and to present the new structure for the Board's approval
within 30 days from the date of the GM's appointment.
- To run the day to day business of the firm.
- To oversee the personnel of the firm and to resolve all the personnel
- To secure the unobstructed flow of relevant information and the protection
of confidential organization.
- To represent the firm in its contacts, representations and negotiations
with other firms, authorities, or persons.
This is why
entrepreneurs find it very hard to cohabitate with investors of any kind.
Entrepreneurs are excellent at identifying the needs of the market and at
introducing technological or service solutions to satisfy such needs. But the
very personality traits which qualify them to become entrepreneurs – also hinder
the future development of their firms. Only the introduction of outside
investors can resolve the dilemma. Outside investors are not emotionally
involved. They may be less visionary – but also more experienced.
They are more
interested in business results than in dreams. And – being well acquainted with
entrepreneurs – they insist on having unmitigated control of the business, for
fear of losing all their money. These things antagonize the entrepreneurs. They
feel that they are losing their creation to cold-hearted, mean spirited,
corporate predators. They rebel and prefer to remain small or even to close shop
than to give up their cherished freedoms. This is where nine out of ten
entrepreneurs fail - in knowing when to let go.
About the Author
Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and
"After the Rain - How the West Lost the East". He is a columnist in "Central
Europe Review", United Press International (UPI) and ebookweb.org and the editor
of mental health and Central East Europe categories in The Open Directory,
Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor
to the Government of Macedonia.
His web site:
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Article Published/Sorted/Amended on Scopulus 2007-11-03 20:36:05 in Economic Articles