Smart Money vs. Just Money: Choosing the Right Investors

In the first half of this year (2025), UK startups raised around £5.9bn in VC funding, according to Dealroom and other sources. It sounds like an enormous amount of money is flowing, investors are active, and opportunities look endless.

But the reality can sometimes be quite different as not every investor is the right investor. Money always comes with costs and caveats, the wrong deal can slow you down or even put your company at material risk - we’ve sadly seen this happen on a number of occasions and have been brought in following it to provide advice and support alongside our legal experts and partners. 

That’s why founders must understand the difference between just money and smart money, this being important at any stage in the funding cycle whether at Pre-Seed or Series B. Knowing this can mean the difference between building a thriving company and losing control too soon.

Why VC Money Isn’t “Free”

When you raise venture capital, you’re not just getting funds. You’re giving away a piece of your company.

For example, say your startup is worth £1m. An investor puts in £100k for 10%. A year later, your business grew 200% and is now valued at £3m. The investor’s share is now worth £300k - a big win for them.

That might sound fine, but here’s the trap: you’ve given away ownership, and that can come with limits on what you can do in the future. That’s why raising money is often compared to taking on very expensive credit. And unlike a loan, equity doesn’t get repaid - it’s permanent.

The ownership you sell today may seem small, but years later, after multiple funding rounds, you may find yourself holding much less of your own company than you expected. Many founders have learned this the hard way.

The key question isn’t just “How much money am I getting?” but also “What am I giving up in exchange?”

The Risks of “Just Money”

Some investors bring only money - and sometimes, tough conditions.

They might:

• Block you from raising funds from other investors later.

• Add terms that let them pull out their money at any time.

• Demand control over decisions, leaving you with less say in your own company.

This kind of “just money” can hold your business back instead of helping it grow. It can even kill momentum if you suddenly find yourself locked into a contract that keeps new opportunities off the table.

Remember: an investor who only sees your start-up as a financial bet will act like a trader, not a partner. And traders are happy to cut their losses if things don’t go their way.

What “Smart Money” Means

The best investors bring more than a cheque. They bring support, knowledge, and connections that help your business.

Smart investors might:

• Introduce you to new customers or partners

• Help you hire the right people when your team needs to grow

• Guide you on strategy, risks, or even patents

• Share their network for you

• Offer perspective when things get tough

They’re invested not just in your company, but in you as a founder. They know that if you succeed, they succeed. That alignment creates trust and allows you to focus on building instead of constantly worrying about investor pressure.

When you have the right investor, it feels like a partnership, not just a transaction.

Red Flags vs. Green Flags

Red flags:

• An agreement that stops you from raising more money, or unfavourable dilution terms.

• Investors are pushing for too much control - sometimes this can even happen by stealth, ensure you take the appropriate legal counsel to ensure there are no mechanisms in your term sheet that could enable this.

• No relevant experience or network to help you grow.

• Too much focus on quick exits instead of building long-term value.

Green flags:

• Interest in your vision, not just your numbers

• Offers of support, guidance, and connections

• A history of helping other founders

• Fair terms that don’t trap you

• A willingness to align with your growth plans

Conclusion

Raising money is exciting, but it’s also a big decision that is extremely complex and nuanced. The investor you choose can shape your company’s future - for better or worse.

The right capital should give you more than cash. It should bring momentum: introductions, advice, and support when you need it most. That’s what smart money looks like.

If an investor only offers money and nothing else, it is worth stepping back and thinking twice. Before you sign a deal, ask yourself: “Does this partner make me stronger as a founder?” If the answer is yes, you’ve likely found smart money. Remember, smart money helps you grow. Just money holds you back.