What exactly is ‘smart money’ to you? It would mean other people's money (OPM); but a better way to emphasise it, is that money is not lazy. Investors would hate the fact if their money just remains there with nothing being done and results in low returns. OPM generally means money not belonging to you, it could be from the bank, investors or any other people – but smart money tends to be more specific.
In the venture capital world, smart money is an investment term that includes the money that people invest in a business, plus the time, advice and know-how which they put into the company. It is called 'smart' because the business receives not only the investors' funds, but also their wisdom.
By understanding smart money deep enough, you would be able to attract them easily, because you are at the opposite side of the equation.
S = Spot
In the venture capital terminology, when just money is invested without the investors putting in any of their know-how or time, it is called ‘dumb money’. In the betting world, smart money refers to gamblers who know what they are doing and manage to earn a living on their bets. Investors usually identify the trend from others.
M = Market
Smart money is invested by those with a fuller understanding of the market or with information that a regular investor cannot access. As such, smart money is considered to have a much better chance of success when the trading patterns of institutional investors diverge from retail investors.
A = Advice
Smart money investors bring cash to the deal after obtaining advice from experts. But they bring much more than just money to your business. Smart money investors also bring knowledge and relationships that can accelerate the growth of your business and give you a competitive advantage. They are familiar with your customer’s wants and needs, potential sales objections, and market potential. They have a good sense of the best potential channel partners, industry analysts, and probably have insights affecting customer demand that you do not have.
R = Risk
Prior to investment, smart investors would want some reasonable control over their money that exposes them to risks. Most common methods include due diligence study, annual review report, and the appointment of fund managers.
T = Timeline
Return of smart money is expected, maybe within two to seven years, depending on the terms agreed and needs of the business. In the world of capitalism, the funds of smart investors are anytime more abundant than any businesses that need it. Smart money is categorised according to the timeline of each batch that are matured and need to return as a capital gain to the investor.