A lot of major decisions are to be made when startups are in their earliest stages, each of which are more or less the “make or break” type. One of the most critical decisions amongst these are whether entrepreneurs should be on the hunt for partners or investors in order to proceed.

A lot of major decisions are to be made when startups are in their earliest stages, each of which are more or less the “make or break” type. One of the most critical decisions amongst these are whether entrepreneurs should be on the hunt for partners or investors in order to proceed.

Partners versus Investors

Very generally speaking, partners play an active role in making businesses flourish, whereas investors are more passive by writing out checks in exchange for partial ownership of the business. But it’s important to note that there is also such a thing as inactive partners, just as there are also exceptional investors that go above and beyond by offering business advice, introductions, and through ongoing dialogue with the management team.

The truth is, there are pros and cons to both.

The pros to taking the investor route include not having to share in managerial control, and the fact that equity capital isn’t a loan and doesn’t have to be repaid. The cons to working with investors include the loss of control over the business if defaulting on a loan, and loans having to be repaid.

The pros to bringing on a business partner include shared responsibilities, and the ease of borrowing capital when multiple owners are involved. The cons typically revolve around legal matters, such as claims/debts filed against the partner, and partners potentially entering legal agreements without prior consent.

With all this in mind, it’s safe to say that (if possible of course) startups are better off with partners (both individuals and/or businesses) over investors. Three of the main reasons include:

  • Corporate teams that seek innovation are usually from the business units that are not typically interested in investing and/or not at that stage.
  • Startups fail to understand how corporations work. As a result, strategic partnerships would usually support the startups’ end result better compared to an investment as they will get to know the corporation better
  • Partnerships are easier to develop and can lead to a more extensive cooperation leading to an investment

 

Business Partnerships

In the case of business partnerships, there is much to consider that would result in both more money and a greater product.


Have a Business Development Setup

If able, entrepreneurs should designate an individual (or team) to conduct operations similar to that of mergers and acquisitions teams of larger corporations. Their main task would be to keep a close eye on technology companies and products that show potential, and sifting through the best ones for partnership consideration. This requires reading a series of columns and business magazines, as well as attending relevant events to seek opportunities that may be worth exploring.

This is how companies such as video creation platform Powtoon managed to secure fascinating partnerships that were beneficial for all parties. They partnered with Facebook and YouTube to ramp it up on social; Vimeo and Slideshare for an edge in content; Flicker and Storyblocks to offer an extended media collection; and Hubspot and Wistia for adtech.

Understand their Strong Points

It’s important to understand that the combined strengths of all partners of the company will yield benefits that go far beyond that of individual expectations. This works best when each partner possesses expertise that none of the others have. Business partnerships should be complementary and non-competitive, and once engaged, all parties should be treated as equals (even if that isn’t technically the case from a legal standpoint) to ensure the best collaborative environment.

Compromise

When it comes to the collaborative aspect, things can get challenging as different parties may be accustomed to collaborating in different ways. For instance, one partner may be accustomed to using team collaboration apps, while another is accustomed to project management platforms, and another may just prefer to send out a slew of emails. At that point, compromise would need to be made, and it will be all for the better as new tricks and software is introduced and learned.

 

There may be points in which compromises cannot be made. If there comes a point in which disagreements are far too intense to the point things may get more destructive than productive- that is when it’s time to bring out the big guns. If it isn’t possible to bring in a mediator to handle disagreements, it may be time to get legal involved. However, the best way to avoid situations getting to that point, is through complete transparency, and clearly stating the end goal at the beginning of the collaboration.


Top Three Best Practices before Striking Partnerships

There is clearly much to go over before contracts are signed. When it comes to listing out best practices, the list can get extensive depending on all that is potentially at stake. However, the following guidelines are universal and evergreen:

Identify the Problems and Goals

Much like content that would go into the creation of investors decks, one-pagers, and other marketing materials, it’s crucial for prospective partners to establish a problem statement early on, and proceed onto discussing goals and motivations. Doing so will encourage detailed discussions between both sides, which includes benefits and drawbacks.

This discussion will also help both parties determine whether the partnership would be a good fit. It’s important to bear in mind that a decision cannot be made after a single discussion, as feedback and input trusted advisors and relevant business units would prove to be essential for a productive partnership.

Shorten the Formalities

It is advisable for legal and security processes to be streamlined before agreeing to a PoC. There are several ways to efficiently go about with this process. There are services such as Intelligo, which taps into AI and machine learning to conduct background checks on people and companies, which helps eliminate the pain points of time, resources, and inaccuracies that may come from the hands of human analysts. Then there are services such as prooV, which simplifies the PoC process through custom-made testing environments. These processes are also possible to conduct manually, they will just take longer to complete.

While going through due diligence, it’s helpful to steer clear of redundant questions, to avoid drawing processes out much longer than necessary.

Establish Strong Communication

As mentioned earlier, communication is key, and compromises may need to be made to ensure strong communication and ongoing dialogue in terms of ongoing management, and significant business decisions. If the business ends up having four or more partners, it would be beneficial to create a board of directors, with a chairman of the board.

Startups have far more to gain through partnerships than investors, if they are able to take that route. When done right, the long-term benefits are bountiful.