by Jeff Pfohl
One of the top reasons new companies fail is lack of sufficient funding.
Therefore, one of the constant themes in a new entrepreneurial venture is raising money.
It is very easy to simply accept any check/investment that comes in the door. After all landlords, electric companies, etc do not care where money comes from, they only care if the checks clear.
BUT as entrepreneurs should we accept any check from any source? That answer is no. Money is money, it all spends the same when we have bills to pay, but is there something else we can gain by picking and choosing? The answer is a resounding YES.
Expertise, contacts, and advice.
Finding smart money, not only money that can help keep the doors open, but that can also help our companies grow and thrive should be the ultimate goal. All entrepreneurial companies should ask:
1. if I have a question, can this investor help me?
2. if I need to make a new contact in my business space, does this investor have a Rolodex that opens up the doors I need?
If the answer is YES you have found “smart money”, someone who not only helps your company pay its bills, but also helps you solve problems and move forward quickly and smartly. They know your business space, have operated in it for years with success, have the necessary experience to help you avoid common mistakes, and have the necessary contacts to help your company move forward and eventually exit.
So if your company is a biotech company, look for investments from angels, and VCs, who have operated in biotech. If your company focuses on computer hardware, look for those investors who have had success (M&A, IPOs) in that space. Do not just take any money. Investors/VCs made their money, as a rule, in a very specific space, sometimes in a very specific company. They know all the ins and outs of that space, but most likely are not a “Jack of All Trades”. You want and need an investor who knows the common pitfalls of your industry and how to avoid them. You want and need an investor who can make the necessary contacts and open the doors you need on a moment’s notice. Expertise and contacts are infinitely more valuable than “simple money” which only pays the bills, but doesn’t provide your company the resources to grow and thrive.
Smart money is more than a check reflecting your balance sheet and valuation, it is everything your company needs to succeed.