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Ask HN: Value of "Smart Money"

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Ask HN: Value of "Smart Money"

#1
I have a fairly promising startup in the digital media space which has spent quite a while building its core product offering - we did not follow the current MVP trend. It'd actually be most accurate to say we built a couple solid products, pivoted/reengineered, and finally have some good traction in our new target market.

I covered the seed round myself based on previous startup success, we raised a couple million in series A from a variety of angels (mostly well-to-do real estate folks, who mostly are not-so-well-to-do these days). I now have a terms sheet for $5M from a high net worth individual who I respect for his sales skills and past business success, but who honestly hasn't a clue about the technology market and is definitely an aggressive personality type.

I am seriously considering going and shopping this deal to traditional VCs. I'm not in the Bay Area so my choices are probably limited since my understanding is that Bay Area VCs won't invest outside Silicon Valley. What's the community wisdom as regards "smart money" - am I going to get more value out of the connections VCs have as compared to the bird-in-the-hand value of let's take the growth capital and immediately start executing?

(New throwaway account for probably obvious reasons)

Re: Ask HN: Value of "Smart Money"

#2
My impression is that Bay Area VC's will invest outside Silicon Valley if you get the right VC and you are the right company. Most SV Angels prefer to be geographically closer though.

Re: Ask HN: Value of "Smart Money"

#3
post #2

My impression is that Bay Area VC's will invest outside Silicon Valley if you get the right VC and you are the right company. Most SV Angels prefer to be geographically closer though.

The big names do. Depends, of course, if you can attract Kleiner or Benchmark or the like.

Re: Ask HN: Value of "Smart Money"

#4
Maybe if you get a great VC he'll play a big role in your success, but it's more likely he won't do all that much.

Raising $5M from a VC is no easy task. You should probably not waste months on that if you can get a check tomorrow from this guy.

The thing that stands out to me is that you mention he is an "aggressive personality type", which I read as "he can be a ruthless asshole". That's the biggest concern I'd have. For someone like that you cannot risk giving him control. You should control the board by a majority and protect that and everything else very well in the legal agreements.

Re: Ask HN: Value of "Smart Money"

#5
Shop the deal.

If the market value of your company is greater than your current terms, you'll find out.

As a datapoint from Spolsky here he is talking about his decision to shop the deal rather than taking the first offer. And keep in mind that his first offer was so called "smart money".

http://www.youtube.com/watch?v=M09UrRooSVs?t=25m00s