Questions

Is it possible to structure a strategic alliance between the Department of Cultural Affairs in my state and my company?

We are a IT company and we are looking to set an alliance specific strategy with the DCA. We are not dependent on the DCA for any of our internal developments since we are an asset light startup with an acceptable team. The reason for our interest in such an alliance with the DCA is their asset heavy structure at the present moment and coming future developments. Is something like this possible? Has this type of strategic alliance happened before? Never heard of this type of thing happening with DCAs before so I figured I'd ask the good people over at Clarity.fm for feedback. Have a great day! Manuel

2answers

Hi Manuel. While I have never structured partnerships between companies and DCA's, I have worked on many strategic alliances with govt agencies (or the like) and companies. Increasingly this is becoming more and more common. Which State are you in? It may be worth reaching out via your network to explore who the right people are within the org to discuss. From there you can get a better idea of where the real opportunity is for future engagement. Realize that these types of partnerships do take time but will be worth it in the end. Happy to discuss further if you are interested!


Answered 6 years ago

It is possible to structure a strategic alliance between the Department of Cultural Affairs in my state and my company but keep in mind the following to make the process work smoothly:
1. A cash investment from a strategic partner can enhance the visibility and perceived viability of a fledgling company. In addition, it may be expected that the corporate partner will support the cash investment with valuable expertise and strategic guidance from key members of management. A strategic investment exceedingly early in a company's development, however, may place that company «off limits» to the strategic investor's competitors. This can create challenges for an emerging company in expanding its market reach and in attracting future investors. In addition, strategic investors often require investment terms that may be unacceptable to a purely financial investor. For example, most institutional venture investors will require that the investment documents of its portfolio companies contain a “dragalong” provision, requiring all stockholders to support and approve a sale of the company that is approved by a certain threshold of the company's stockholders. An emerging company would thus be well-advised to consider the ramifications of accepting a strategic investment and to explore the strategic investor's track record and reputation in terms of being supportive to its investee companies.
2. A warrant is the right to purchase equity in your company for a specified price prior to an expiration date. The revenue goals may be set in terms of a short-term time horizon or perhaps in terms of annual quotas over a longer period. Key considerations in issuing strategic performance warrants are matching the incentive to performance and providing realistic incentives. Thus, both the duration of the performance period and the attainability of the performance goals need to be assessed. Warrants that are either earned too quickly or vest based on unattainable metrics may each result in a strategic partner losing its motivation to continue to provide support. Naturally, the longer the period over which the warrant targets are achievable, the more likely your partner will be motivated to add value. In addition, you should expect that your company will increase in value over time and thus the targets you set should also increase over time commensurately.
3. There is no need to immediately stop discussions with a potential strategic partner because exclusivity is raised. In fact, a request for exclusivity in a business relationship can be used to your advantage. It is important to understand the rationale for the request for exclusivity. If, on the other hand, your strategic partner appears to have a solid business rationale for its request for exclusivity, then it is incumbent upon you to take advantage of this desire, consider the commitments that you would want from your strategic partner to support your business, and then carefully balance the value to your business of these commitments against the risks of the specific type of exclusivity that is sought.
4. As with other terms, try to understand your partner's point of view in making the request. Your partner may feel that because of its vital role in fostering the growth and development of your company, it should be afforded some sort of special «insider» right if you decide to sell the company. Your partner may also want to prevent having your company fall into the hands of one of its competitors and thus request notification when you propose to sell and to whom.
5. This term may have a “chilling effect” on potential buyers. First, a potential third-party buyer, upon learning that another party has a right of first refusal, may not be willing to do the legwork required in exploring an acquisition opportunity. Second, if the right of first refusal has a long notice period, the third-party buyer may not want to wait for that period to elapse. And even if your strategic partner agrees not to match an offer, your potential buyer may wonder why.

A right of first offer can provide that once you have determined to sell your company, you would be required to provide your strategic partner with a first right to submit an acquisition offer. If your partner elects to submit an offer, you can decide to either accept the offer or, for a limited period, pursue a better offer from a third party. This alternative provides your strategic partner only with notification that you are considering an acquisition offer, typically followed by a limited exclusive negotiation period. You may be required not to enter a binding commitment until the end of the exclusive negotiation period, but that period is usually relatively short.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath


Answered 5 months ago

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