Every startup wants to be Google or, at the very least, secure an investment from Google Ventures.  Strategic investors, the investment arms of larger parent companies that focus on both financial and strategic returns, often offer tantalizing funding opportunities.

But is venture capital money from strategic investors all it’s cracked up to be?

As the corporate venture capital market continues to grow, we’ve made a list of pros and cons of accepting strategic investments:

Pros

• Resources – Strategic investors can offer greater resources for startups than typical venture funds, including R&D, business and marketing insights, and distribution channels.
• Environment – Strategic investors can provide startups with a safe environment in which to experiment with new approaches and ideas for their products.
• Connections – Strategic investors are often significant players in their industry, giving fledgling startups an opportunity to build a relationship with both the strategic investors themselves and their contacts.

Cons

• Culture – Strategic investors operate in a more formal, corporate context, whereas startups typically operate in a more experimental, casual environment. This can create a dissonance between the two, with additional hurdles (e.g. approvals and requirements) that may slow down a startup’s momentum.
• Expectations – Funding from strategic investors often has “strings attached,” and these “strings” may not align with a startup’s goals and timelines. Startups may be forced to compromise their vision for the strategic goal, and may have a harder time getting traditional investors interested down the road.
• Resources – Strategic investors, backed by vast resources, can afford to be fickle. Should a startup fail, or no longer serve the investor’s strategic goal, a strategic investor can simply move on—find another startup and start over.
• Exit Inhibitors – Strategic investors can chill the potential interest of other strategic companies as potential acquirers of the startup, often due to rights of first refusal or first offer that are negotiated as part of the investment agreements.

Startups should note—the line between pro and con can blur when it comes to strategic (or traditional) investors.  When weighing funding options, startups should also consider if and how the pros and cons of accepting money from a particular investor may change over time.