Smart v/s Dumb Money – How do you differentiate
When investors approach you and say that they want to invest money in your company, how do you know whose money to take? We will begin by saying that not all money is worth taking. We are talking about “dumb” money.
The difference between smart and dumb money is that smart money brings along the promise of help that is well worth it. On the other hand, dumb money carries along hidden harm. There are ways to identify the dumb money and learn how to say, “No, but thank you for your generous offer.”
Choosing an Investor
Investors who want to invest money in a company should bring something other than money to the table. They need to know to help you grow and expand, so choose your investors the same way you choose your business partners. If money is your only parameter when choosing who you work with, you’re risking to get yourself in trouble. Some investors may want to be “silent partners”, but you’ll want to make a clear and documented agreement before you sign the papers. This will help you avoid any conflicts later when the business starts to grow.
How to Identify the Dumb Money
Review these questions if any answer to any of them is “Yes,” then there’s a chance you’re taking dumb money.
- Is this investor investing in your industry for the first time?
- Is this investor investing in a startup company for the first time?
- Is this investor’s lawyer in the startup investment scene for the first time?
- Is your company’s target market new to him?
- Is this his first time investing in a company that is trying to raise multiple rounds of funding?
- Does he insist on adding a non-dilution clause in your operating agreement? (a savvy investor never asks for this because everyone dilutes when an investment is made)
- Is he asking for an equity stake that doesn’t correlate with the funds they’re giving you?
- Is he pressuring you to take the money by a specific time, not wanting to explain why?
- Does he insist on keeping CPAs and lawyers out of the investment discussion?
- Are his references and background impeccable?
It is essential to find investors who add immediate value to your business and not just your bank account. This will set the tone for how you will continue to grow it and help establish a healthy investment culture.
How to Identify the Smart Money
What you should seek from your investors to bring the smart money to the table:
- Coaching and mentorship (when needed).
- Contacts and an established network to help you grow your company.
- Contacts to other accredited financiers.
- Credibility based on their references and reputation.
- Challenging your assumptions and idea in a productive manner.
- Skill-sets that your company lacks – new media skills, sales, financial management, operations, computer programming, HR management, etc.
Invest the Right Money to Avoid Potential Harm
Blackhawk Partners realize how competitive and unscrupulous the business world can be. Our experts know all the details and perks related to choosing the right money to be invested in a company. We can guide your executives to breakthrough achievements and secure funding for growing your company in any market or organizational environment.
Let us know…
