Dumb money is also money
When raising startup capital, you have one main requirement: capital.
Naturally, VCs like to think of themselves as more than just sugar daddies/mammas, so there is a nice narrative in the VC community about how they give so much more than mere dollars and cents.
Here is the definition of Smart Money on Investopedia:
Cash invested or wagered by those considered to be experienced, well-informed, “in-the-know” or all three. Although there is little empirical evidence to support the notion that smart-money investments perform any better than non-smart-money investments do, many speculation methods take such influxes of cash very seriously.
They have no definition for Dumb Money, but here is my best attempt:
Many VCs (and VC/startup blogs) are quick to villainize dumb money investors as if dumb is synonymous with “bad” or “uncouth” or “detrimental” or “will come back to haunt you”. As if somehow taking dumb money will hinder your ability to grow your company. Even the term “dumb” is derogatory right off the bat.
To me, dumb money just means taking money from non-experienced investors (or at least not experienced in your industry), but it doesn’t imply anything else! Obviously don’t take money from someone you think is going to fuck up your business. Duh. But that has nothing to do with smart/dumb.
If you are lucky enough to be a hot startup where you can pick and choose, then maybe the smart money rhetoric will sway you toward one firm over another, and you will pass up offers from less experienced investors. I understand the tactic from the VC side for those sorts of hot deals.
But for the rest of us, at least at the seed stage, we need MONEY. If you’ve got money to give, then you are smart enough for me.
If seeking other things specifically (strategic partnerships, hiring help, operational advice, etc.) then of course look for that sort of experience.
But if you believe the only barrier to getting to the next step is money itself, and someone will cut you a check, take it.