The relationship between start-ups and investors has developed to the point where they can now benefit from each other with more than just capital. Now you can tap into the resources and expertise of strategic investors that will improve the investment process and the growth of your businesses with the help of smart money.
What exactly is smart money?
Smart money is the extra value your start-up can get from an investor, other than capital – brand authority, industry insights and expertise, coaching, access to a new client network, help with marketing, sales, recruiting, or technical development.
Smart money in the world of Venture Capital
In start-up investing, smart money creates a win-win situation for anyone involved. By providing value through network, capabilities, and industry experience the investor can offer you less capital which is completed by his assets.
But when you work with such an investor that you are aligned with, it means you will get the money and grow your business faster because of the new resources you now have access to.
Some even compare investors that provide smart money with accelerators. It is true to some extent as both put resources into developing the business, educating the founders, and even nurturing their network with an already-established brand and reputation in the industry.
Why does your start-up need smart money?
To succeed faster and with fewer risks, you need to understand the market you enter and the ecosystem that your start-up is active in. By doing this you will leverage the dynamics of the ecosystem to your advantage.
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At the same time, relationships truly matter. And smart money in the shape of a strategic partnership is what makes the difference between failed companies that chased the biggest ticket and the smart ones that knew when and how to invest their time and resources and when to ask for help. Alibaba leader Jack Ma once said that:
“Initially, I understood nothing but tech, I understood nothing about direction. However, the thing is that you do not need to understand plenty of things. You need to discover the men and women who are more intelligent than you.”
Dumb money can be smart too
When talking about dumb money, we mean just capital, cash. It is money that you get from the investors to pay for things. Sometimes, in the rush of maintaining full control, founders will choose dumb money. This decision makes their business fail because they don’t understand the “weight” that dumb money comes with – deadlines, expected returns, or interest.
Knowing when to choose each is what makes a successful founder. If you have all the resources and experience and you need money to put them to work, dumb money is the smart choice.
But if you lack talent, knowledge, insights then you might find these more valuable than the cash itself. For example, an investor can only give 50.000 euros in capital and 100.000 more in technical development or other areas. This is when smart money is the smart choice.
Examples of smart money
If you ever watched one of the shows with the same format as Shark Tank or Dragon’s Den, you might have noticed how every “Shark” relates any opportunity that is being pitched to their businesses to see if they can leverage their network or create synergy with their products or services. This smart money usually comes in the shape of:
- Coaching and sharing of expertise
- Access to a new network of clients and shareholders
- Access to a new, bigger talent pool
- Customer & industry insights
- Shorter learning curve
- Authority transfer from an established brand
- New sources of funding
- Access to R&D
If you identified what your start-up is missing on it’s path to success and you want to get it from a strategic investor, let’s talk more about how we can grow your business together with capital and smart money too.Contact us
How to raise smart money for your start-up
First thing – when you look for smart money and the right strategic investor, try to look for patience, openness to your ideas, a passion for your solution, and understanding. Look for people, first of all, that will help you succeed. Secondly, look for assets, not just money.
An investor that knows what you are going through and shows it is the one that will help you grow without making the same mistakes they did. At the same time, your should try to not get too many heads involved, as it will create confusion.
Working and negotiating with an investor that has no industry expertise will take longer because you’ll have to educate them on the industry and its opportunities and risks. But a smart investor with expertise might offer less capital but more assets which, in the long term, help you grow your business faster and have access to more sources of funding. It is a cost of opportunity that you must calculate for your specific situation. You are the one that knows exactly what your company needs either that is smart money or dumb money or both.
When working with a strategic investor, do your best to showcase and highlight YOUR knowledge and your experience in the field, and how YOU think you can complement their assets.