We live in an era where finding money to grow a good company is no longer a major challenge. Lending is largely available and so is the equity supply.
In general terms, Smart Money refers to the capital that institutional investors, central banks, and other professionals or financial institutions control. It is managed by expert investors who can foresee market trends and make most of the profits.
Smart money was originally a gambling term, and it referred to gamblers that had extensive knowledge of the activity they wagered on or had insider information that the common public was not able to access. Is it still a game for professionals? Yes, but now it is played by investing professionals who know how to assess information and choose scopes as to generate the highest returns.
Investment funds are those investing professionals who play the smart money game. They invest significant amounts of capital into carefully selected targets – which are expected to grow their numbers and extend their value under professional management – in order to multiply the invested capital.
Equity providers can be grouped into the following categories, based on the targets’ maturity they are considering:
- Venture Capital funds – have a higher appetite for risk and put up from hundred thousands to a couple of millions in early stage companies;
- Growth Capital funds – put money into relatively mature companies, usually offering $5+ million of capital to be spent on major projects that drive growth;
- Buy-out funds – typically acquire controlling stakes of mature, cash-flow stable companies, putting $ millions on the table.
Investment funds are good partners for agile companies that have well defined development plans and for which capital and knowledge support are needed. Each investment fund has its own investment policy, covering many sectors and countries of interest, various ranges of investments, specific criteria and so on. Still, their ultimate goal is to multiply the amount of money invested in the first place and they can do it best by partnering with existing entrepreneurs and management teams.
Smart money is indeed attracted to smart companies!
What are investment funds looking for in a company? – find out in our next article!
Ruxandra is an M&A expert with 20+ years of experience in investments field.
Her professional expertise has been built in a large number of projects – covering M&A, capital raising, debt raising, financial & operational restructurings and turnaround situations – serving mid-size and large companies.
