In the not so distant past, there was little distinction between strategic and financial investors. Investors of all types sought to safeguard their investment by taking over as many management functions as they could.
Also, 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 familiar with first hand.
As markets progressed, the scales of industrial production (and of service provision) widened. A single investor (or a small group of investors) could no longer cater to the needs even of a single firm.
As knowledge improved 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 required to excel in obtaining high yields on his investment capital - not in industrial management or in marketing and advertising. A manager was expected to manage, not to be capable of personally tackling the numerous and varying tasks of the company 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 as well as a vision, a sense of direction.
On many occasions, the strategic investor also supplied the necessary funding. But, more and more, a separation was actually maintained. Venture capital and risk capital funds, for example, are purely financial investors. So are investment banks and other financial institutions.
The financial investor represents the past. Its money is the result of past - right and wrong - choices. Its orientation is in short: an "exit strategy". This is sought as soon as possible.
Exit strategies bring speedy profits. The stock exchange is really a popular exit strategy. The financial investor is always on the lookout, searching for willing buyers for his stake.
The financial investor has little interest in the company's management. Optimally, his money buys for him not simply a very good product and an excellent market, but also excellent management. But his understanding of the rolls and functions of "good management" are extremely different to that offered by the strategic investor.
If you're on the lookout for a financial investor, and you're on the verge of seeking bankruptcy services or corporate debt restructuring, make contact with a business consultant for help. The act of restructuring a company will be a lot easier for you if you have professional help.
The strategic investor, however, 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 stocks.
The type of management, the rate of the introduction of new goods, the success or failure of marketing strategies, the degree of consumer satisfaction, the training of the workforce - all depend on the strategic investor.
Indeed, gradually, the balance between financial investors and strategic investors is shifting in favor of the latter.
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