What is Smart Money anyways?

Written by Paul on October 12th, 2010

If you’re an investor, simply having money isn’t doing it anymore:

I was talking with one of my favorite entrepreneurs the other day, who was trying to choose a lead for his next financing round. This is a guy who had plenty of options. Facetiously, sort of, he said he was planning on picking the VC who had the most unique visitors to his blog. That, of course, sent a chill down my under-publicized spine. Again, i think he was kidding, but also kind of not.  He went on to explain that his biggest single job, and therefore problem, is recruiting, and a VC who can help him tout his company, and add credibility simply through association, is a major asset. [Full article: A venture capitalist's confession: Why I blog]

Founders prefer smart money on good terms — “dumb” money will increasingly be excluded from the earliest rounds to make way for “smart” money: investors who bring connections, domain knowledge and functional expertise will win. That’s good news for founders but bad news for (most) investors.

2 Responses to “What is Smart Money anyways?”

  • Many entrepreneurs don’t have the luxury of smart versus dumb money. Most will accept money regardless of dumb versus smart – particularly those looking for their first investor. I find entrepreneurs far more concerned with the terms of the money, e.g. controls, repayment, protection, ownership percentages, and so on than with the issue of dumb versus smart. For most start-ups, a golden bird in the hand is still worth far more than those in the bush.

    — 10/12/10 at 4:29 am

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