When Jamie Gallo, co-founder and CEO of RentWiki.com, a peer review and recommendation website that helps people find a place to live, and her partners officially launched their new business is September 2008, they never realized how bad the investment market would get. With some seed money already in place, they found themselves trying to figure out how to raise more capital at a time when people weren't giving money away. So what did this young company, with a highly-marketable product and a talented, successful management team do to brave the waters and maintain their business model? They got strategic.
During Gallo's recent interview with Bold Ventures Radio, she discussed what they had to do to overcome the financing obstacle at a time when the money well had virtually run dry, a problem many, if not most, entrepreneurs currently are facing. With VCs tightening their belts and angel investors being hard to find, Gallo and her partners turned to strategic investors for capital. A strategic investor will make an investment in a company because of a strategic interest in seeing the business succeed. For RentWiki, that meant asking their own clients to invest. Apartment owners and managers want renters to move into and stay in their buildings or communities. With RentWiki, these people can learn about the neighborhood from real people and real neighbors, making an educated decision about where to move. RentWiki, helps lower marketing costs and decreases the turnover rate for rental communities and thus creates a need for it from the apartment community itself.
Strategic investing works for RentWiki, however it may not be the solution for every entrepreneur. Those who seek such an investment should exercise caution when making the decision to approach one. According to an article in Business Week, maintaining control is the largest single consideration to make when deciding to work with a strategic investor. The article makes a few suggestions for what to do when approached by, or before approaching, a strategic investor:
1. Maintain control of intellectual property with solid confidentiality agreements and secure patents; and
2. Refuse a "first right of refusal" clause that would make it difficult to sell the company to anyone other than the strategic investor.
For entrepreneurs, this wild economic ride we're on makes it easy to think of letting go. However, the bottom line is ... being strategic naturally means maintaining control, right? That's what worked for RentWiki.
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