What is smart money?
Money is the lifeblood of any entrepreneurial effort. A business usually needs money to move on to the next step, whether it is just getting started or expanding internationally. If the founders are unable to fund the growth themselves, they may decide to apply for a grant or a loan, or they may turn to angel investors or venture capitalists (VCs) for financial support in exchange for equity. Some entrepreneurs might not be aware that the right investor can provide additional benefits beyond monetary support, a.k.a "smart money."
In their quest for fast funding, entrepreneurs often make the mistake of focusing on getting the money under specific terms and not paying enough attention to who provides the funds.
In addition to funding, smart capital can offer your startup industry knowledge, mentoring, access to new customer networks, additional fundraising opportunities, sales, recruiting, or technical development.
Smart money investors can assist you in connecting with influential people in your industry who will spread the word about your startup among their contacts, boosting your chances of getting important advisors, partnerships, clients, suppliers, and more funding. These investors will also provide you with sound recommendations because they are familiar with the specifics of your sector.
Founders tend to go just for the bigger check and that’s the mistake you should avoid. Smart money may come in smaller amounts, but this trade-off can be worth it. As the saying goes, time is money and the smart money deal will speed up your process by allowing you to get closer to your objectives, and ultimately help you expand your business. It will be there to advise you throughout the lifespan of your startup and could assist you in finding additional funding if needed as well.
How to find smart money investors?
First and foremost, you need to do your research. Find the investors who are interested in your sector and understand your vertical. Check if these investors match your preferred ticket size.
Talk to people in your industry who have already gone through this process and ask them as many questions as you need. Find people who can help you with investor introductions as well.
You must be patient throughout the process but drive it expediently nonetheless.
Smart money investors usually have large networks and portfolios that give them access to large communities. Startups can turn to their investors when it comes to hiring someone with certain skills that would otherwise be hard to find.
The financial prospects of a startup can be significantly improved by finding the right investor. Smart money can help startups find additional investors, provide them with investor leads to follow up on or even continue to invest in later investment rounds.
Partnerships and introductions
If a startup is looking for commercial or strategic partnerships, an investor's network can be used to the startup's advantage.
When smart money comes into a business, they are interested in the company's long-term success. Therefore, a skilled investor can be a company's biggest enthusiast, promoting and sharing it with new investors, consumers, and potential partners.
Startups frequently face difficult decisions, whether they are restructuring, pivoting, or forming strategic partnerships. Companies can leverage the business knowledge of their investors to make difficult decisions and use all their experience in a critical move.
Entrepreneurs often lack leadership skills. Because experienced investors regularly work with many types of leaders and leadership styles, they can help founders learn best practices that enable them to become the best leader for their company.
Since there is no one-size-fits-all formula for funding startups, entrepreneurs need to seek in-depth information and advice before approaching a funding source. Keep in mind that in the VC community, we often say that when you ask for money, you get advice, and when you ask for advice, you get money.