Negotiating a financing with a strategic investor

Negotiating the terms of any financing is difficult. For a company that has completed a few rounds of financing and is contemplating a financing from one of its strategic partners, there are additional concerns. Whether the company already has entered into a commercial arrangement with a strategic investor, or is negotiating such an arrangement concurrently with the financing, it will be important to keep the two, the commercial arrangement and the equity financing, separate.

The company should consider the extent to which it is prepared to provide a strategic investor with confidential diligence materials and provide access to sensitive information such as proprietary technology or regulatory correspondence. To the extent it is comfortable doing so, it will be important to negotiate a nondisclosure agreement with a substantial term. 

The company also may want to consider whether it will be able to prohibit the strategic investor from investing in its close competitors. Identifying and agreeing on a list of competitors may be easier said than done. Will the company be prepared to give a strategic investor an option to propose an acquisition? Or a preferential right to propose an offer should the company receive an acquisition bid? 

These are considerations that arise only in the context of negotiating with strategic partners and may make these transactions more time-consuming and more sensitive than negotiating with a cross-over investor.