Becoming a Smart Money Investor on a Board vs Writing a Check

Smart money is the term used to describe capital that is controlled by institutional investors, market mavens, central banks, funds, and other financial professionals. These investors can access more information, resources, and expertise than the average retail or individual investors. They can also influence market trends and stock pricing through trading volume and investment decisions.

One of the ways that smart money investors can invest in startups or companies is by being on their board of directors. Another way is by writing a check as an angel investor or a venture capitalist. Both approaches have pros and cons and require different skills and strategies. In this blog, we will compare and contrast the benefits and challenges of being on a board vs writing a check as two ways of investing in startups or companies. We will also provide some tips on becoming an intelligent money investor in either case.

Being on a Board

Being on a board of directors means that you are part of a group of people elected or appointed to oversee the management and governance of a company. Board members have various roles and responsibilities, such as setting the company’s vision and mission, hiring and firing executives, approving budgets and financial statements, overseeing compliance and risk management, and representing the interests of shareholders and other stakeholders.

Being on a board has several advantages for smart money investors. First, it gives you more influence over the company’s strategy, performance, and direction. You can help shape the company’s culture, values, and goals and ensure they align with your investment objectives. Second, being on a board gives you more access to the company’s information, operations, and network. You can get regular company progress updates, financials, and metrics. Third, being on a board gives you more oversight over the company’s governance and accountability. You can ensure that the company follows the best practices and standards regarding ethics, transparency, compliance, and social responsibility.

Some examples of successful board members who have added value to their portfolio companies and achieved high returns on their investments are:

• Marc Andreessen, co-founder of Andreessen Horowitz, has been on the board of several prominent tech companies such as Facebook, eBay, Twitter, Airbnb, Pinterest, Coinbase, Lyft, Slack, Skype, etc.
• Mary Meeker, partner at Bond Capital (formerly at Kleiner Perkins Caufield & Byers), has been on the board of several influential internet companies such as Google, Amazon, Netflix, Spotify, Snap, Square, DocuSign, etc.
• Reid Hoffman, co-founder of LinkedIn (acquired by Microsoft) and partner at Greylock Partners, has been on the board of several innovative social media companies such as Facebook, Airbnb, Dropbox, Edmodo, Convoy, etc.

Writing a Check

Writing a check means providing capital to a startup or a company in exchange for equity or debt. You may invest as an individual angel investor or as part of a venture capital firm or a fund. You may support at stages of the company’s lifecycle, such as seed, early, growth, or late stage. You may also invest in different investment vehicles, such as common stock, preferred stock, convertible notes, SAFE agreements, etc.

Writing a check has several advantages for smart money investors. First, it gives you more flexibility and diversification in your portfolio. You can invest in multiple companies across different industries, sectors, geographies, and stages. Second, writing a check gives you more liquidity and returns on your investment. You can benefit from the appreciation of the company’s value over time as it grows and scales. Third, writing a check gives you more exposure and access to new opportunities and innovations. You can discover and support promising entrepreneurs and ideas that have the potential to disrupt the market and create a positive impact.

Some examples of successful check writers who have backed promising entrepreneurs and innovations and generated significant returns on their investments are:

• Peter Thiel, co-founder of PayPal (acquired by eBay) and Founders Fund, was the first outside investor in Facebook with a $500K check in 2004 that turned into billions after its IPO in 2012. He also invested in notable companies such as SpaceX, Palantir, Airbnb, Stripe, etc.
• Ron Conway, founder of SV Angel, is known as the “Godfather of Silicon Valley” for prolific angel investing in hundreds of startups such as Google, Twitter, Facebook, Airbnb, Dropbox, Pinterest, Uber, etc.
• Naval Ravikant, co-founder of AngelList and Epinions (acquired by Shopping.com), has invested in dozens of startups such as Twitter, Uber, Yammer (developed by Microsoft), Stack Overflow, Clearbit, etc.

Comparison and Contrast

Being on a board and writing a check are two different ways of investing in startups or companies with pros and cons. The main similarities and differences between them are:

• Both involve providing capital to startups or companies in exchange for equity or debt.
• Both require smart money investors to have knowledge, experience, and expertise in the industry or sector they are investing in.
• Both aim to generate high returns on investment by supporting the growth and success of the startups or companies they invest in.
• Being on a board gives more influence, access, and oversight over the company’s strategy, performance, and governance than writing a check.
• Being on a board involves more liability, commitment, and conflicts of interest than writing a check.

• Writing a check gives your portfolio more flexibility, diversification, and liquidity than being on a board.

• Writing a check involves more uncertainty, risk, and losses or dilution of your investment than being on a board.

The trade-offs and considerations that investors should take into account when choosing between being on a board and writing a check are:

• The stage and size of the company: Being on a board may be more suitable for later-stage or larger companies with more established business models, revenues, and customers. Writing a check may be ideal for earlier-stage or smaller companies with more growth, innovation, and disruption potential.
• The industry and sector of the company: Being on a board may be more suitable for industries or sectors that are more regulated, complex, or competitive. Writing a check may be more appropriate for industries or sectors that are more dynamic, emerging, or niche.
• The personal preference and style of the investor: Being on a board may be more suitable for investors who prefer to have more involvement, influence, and oversight over the company. Writing a check may be ideal for investors with more freedom, diversification, and liquidity.

Some best practices and resources for investors who want to learn more about becoming smart money investors on a board or writing a check are:

• Read books, blogs, podcasts, newsletters, etc. that cover investment strategy, alternative investments, financial markets, etc. Some examples are [The Intelligent Investor] by Benjamin Graham, [Venture Deals] by Brad Feld and Jason Mendelson, [The Twenty Minute VC] podcast by Harry Stebbings, [The Hustle] newsletter by Sam Parr and team, etc.
• Join networks, communities, platforms, etc., that connect investors with startups or companies, such as AngelList, Crunchbase, PitchBook, etc. These platforms can help investors discover new opportunities, access data and insights, and connect with other investors and founders.
• Seek advice and guidance from mentors, advisors, coaches, etc., who have experience and expertise investing in startups or companies. These people can help investors make informed decisions, avoid common mistakes, and achieve their goals.

Conclusion

In this blog, we have compared and contrasted the pros and cons of being on a board vs writing a check as two ways of investing in startups or companies. We have also provided some tips on becoming a smart money investor in either case. Smart money is the capital that is controlled by institutional investors, market mavens, central banks, funds, and other financial professionals. These investors can access more information, resources, and expertise than the average retail or individual investors. They also can influence market trends and stock pricing through their trading volume and investment decisions. We hope that this blog has been helpful and informative for you. If you have any feedback or comments, please feel free to share them with us. We would love to hear from you. Thank you for reading! 😊

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