In this episode we talk about strategic financing options. There are a lot of ways to raise money for your startup, and corporate investors (strategics) can be a good option. Are they right for you? What are the pros and cons of strategic investment? We are here to help! In this episode we answer questions including:

• Should you raise money from a competitor?
• What about raising from your customers?
• Are government grants a good idea?

All of these questions were submitted by listeners just like you. You can submit questions for us to answer on our website TheStartupHelpdesk.com or on X/Twitter @thestartuphd - we'd love to hear from you!

Your hosts:

• Sean Byrnes: General Partner, Near Horizon www.nearhorizon.vc
• Ash Rust: Managing Partner, Sterling Road www.sterlingroad.com
• Nic Meliones: CEO, Navi www.heynavi.com

Reminder: this is not legal advice or investment advice.

Q1: Should you raise money from a competitor?

Sounds risky, huh? Your instinct is probably right—this is a red flag! Conduct a principled evaluation. Recognize the opportunity while weighing strategic upside versus structural risk.

Here's the key: your competitors' motivation to invest in you is likely not aligned with your needs. They are not loyal to you, thus there are other incentives guiding their interest in investing. There are potential espionage risks and conflicting incentives that can cause significant issues later, especially if your startup becomes big.

The good news: you can say "no!" Competitor interest is a signal. If competitors want in, perhaps other better-suited investors will too.

Q2: What about raising from your customers?

Customer interest is validating, but tread carefully. Customer investors are risky. Information rights can severely hurt your negotiating position. Furthermore, if your customer-turned-investor churns, that can significantly hurt your market credibility.

Delay such conversations until later in the round. If you decide to raise capital from your customers, structure the investments thoughtfully, possibly through RUVs or uncapped terms. Clearly define boundaries to help manage risks while preserving relationships.

Q3: Are government grants a good idea?

Grants are not fundraising red flags. In fact, securing a grant can often signal market validation. Investors love dilution-free capital. However...while dilution-free capital is attractive, beware of grants that work outside your strategic roadmap. This can become a distraction.

While grants demonstrate external demand, their slow processes can divert focus from iterating on core product-market fit milestones. Grants are strategically advantageous only if they accelerate your core objectives rather than redirect them.

So, ask yourself: "Does the grant move us forward on our roadmap? Or does it give us a new roadmap?"

Your answer to that question gives you all the clarity you need.