SMART MONEY VS. DUMB MONEY
For entrepreneurs struggling to raise money for their start-ups, any money looks good. But is it wise to take any money that’s offered to you? Smart money is money plus the value in terms of mentoring, guidance, opening doors, initial customers connect for validation or early adoption, strategic partners connect for market access, tech licensing, attracting other investors etc.. Basically something besides money that you would otherwise on its own willingly pay or give equity for.
Dumb money is money plus the hidden pain it comes with like low understanding of your business, having to spend more time explaining to investor than to customers when you plan anything new, adding no value as mentioned above for smart money and not understanding how valuation business is different from traditional trading/manufacturing type of businesses and same parameters don’t apply when measuring progress etc etc.
Entrepreneurs need to weed out the dumb money with diligence. Evaluate supposedly smart money with the Smart MoneyTest – would you take the investor on as member of your board of directors or as an advisor if he had ZERO money? If the answer is not a clear resounding YES, then that’s not smart money.
Before someone points this out, also remember there is no Neutral Money. Anyone who puts in money comes with attachments – great, good, bad or outright ugly.
*Disclaimer: This article has been published with prior permission of Mr. Anil Chhikara.