Three-Criteria Strategic Investment Screen
Back only partners that combine product fit, go-to-market leverage, and returns
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 99%
The screen evaluates a strategic investment through three linked tests. First, the companies need a meaningful technology or product integration that improves what customers can use. Second, they need a go-to-market motion—such as joint selling, marketing, or distribution—that converts the integration into commercial leverage. These two strategic dimensions become especially powerful when they reinforce each other rather than existing independently. Third, the deal must qualify as a sound investment based on expected, risk-adjusted returns. Passing only one strategic test is insufficient, and strategic enthusiasm does not excuse weak economics. The result is a concentrated portfolio of investments where equity tightens an already valuable partnership instead of substituting for one.
Origin
Brian Schultz described the three criteria Microsoft applies when considering growth-stage investments in strategically important partners.
Core principles
- 01Strategic value must extend beyond owning equity
- 02Product integration and distribution leverage reinforce each other
- 03A strategic deal must still be financially sound
- 04Concentrated investments reduce balance-sheet liabilities
How to run it
- 1
Test product integration
Determine whether the companies can create a meaningful technology or product integration. Specify what becomes more useful, differentiated, or defensible because of the partnership.
Pro tip Require a concrete integration use case rather than a general claim of strategic alignment.
Watch out A logo-level partnership without product substance does not pass this test.
- 2
Test go-to-market leverage
Identify the joint sales, marketing, licensing, or distribution motion. Establish how each party will help the other reach customers or generate revenue.
Pro tip Map the responsible teams, target customers, and expected commercial motion.
Watch out Do not treat informal introductions as a repeatable go-to-market engine.
- 3
Evaluate the combination
Assess whether the product and go-to-market components amplify each other. Give priority to partnerships where integration creates demand and distribution increases adoption of the integration.
Pro tip Describe the reinforcing loop in one sentence before proceeding.
Watch out A company with only one strong strategic component may be a good partner but not a strategic investment.
- 4
Underwrite the investment
Evaluate valuation, downside risk, and expected return as a growth investor would. Confirm that the strategic rationale does not require accepting financially unsound terms.
Pro tip Separate the strategic case from the financial model before combining the conclusions.
Watch out Strategic importance can create pressure to rationalize an excessive valuation.
- 5
Size and approve selectively
Invest only where all three criteria are credible and size the check to the opportunity. Keep the portfolio focused rather than spreading balance-sheet capital indiscriminately.
Pro tip Document which future partnership milestones would justify deeper commitment.
Watch out Spraying capital across an ecosystem creates liabilities without guaranteeing strategic returns.
In the wild
A cloud platform already integrates a partner's security product and has a credible joint enterprise-sales motion. The investor verifies that customer adoption rises when the products are bundled, then underwrites the partner's valuation and growth prospects before joining its round.
→ The equity investment tightens a commercially valuable partnership while retaining a reasonable return profile.
A startup has novel technology but no feasible integration or joint distribution plan with the corporate investor. The team continues partnership discussions but declines to invest until operational evidence exists.
→ The company avoids confusing technical interest with an investable strategic relationship.
Common mistakes
Calling every partner strategic
A commercial relationship alone does not justify equity. The product integration, go-to-market leverage, and financial case must each be tested explicitly.
Ignoring investment economics
Strategic excitement can obscure valuation and downside risk, producing a partnership that is costly rather than reinforcing.
Using equity to create a partnership
A check cannot compensate for weak product-team commitment or an absent commercial motion.
Is it for you?
Best for
Corporate development teams evaluating minority investments in established technology partners.
Not ideal for
Purely financial investors or early-stage companies with no meaningful corporate partnership yet.
From the transcript
“when I look at a strategic investment, really three three criteria uh at its core.”
“One is uh on the partnership side, uh, is there a really interesting technology product integration uh between the two companies that makes this really…”
“And then the last part, the third part, is is it a good investment?”
From the episode
Special: A Conversation with Microsoft's Head of Strategic Investments Brian Schultz
Brian Schultz