The Graduates

The Differences Between Angels And Institutional Investors

Before we delve into the differences between angels and institutional investors, understand that venture capital is just a certain kind of money that comes from different sources. Angels are one source. And institutional venture capitalists, or professionals who manage organized funds, are another. Now then, what are the differences between angel VCs and institutional VCs, and how do you overcome them? Just take a look.

The OPM factor: In case you've never heard the term "OPM," it stands for "other people's money." It's exactly what institutional venture capitalists are managing, and it has a profound and dramatic impact on their behavior. For Tannenbaum, the contrast has been stark. "Our friends and family believed in our dream," he says. "Individuals would grasp our story and run with it-even if they didn't initially, we could be persuasive and win them over." That's not the case with institutional venture capitalists: "These investors seem to have in mind a set of criteria that they want to stick very closely to."

Tannenbaum's intuition is on the money. The professionals are managing other people's money. Funds have investment criteria that the professionals have a fiduciary responsibility to meet. In addition, they operate with an investment committee, so if the partner you meet is unable to persuasively communicate your deal or how it matches their investment criteria to the committee, it's an insurmountable barrier.

In this respect, the best defense is a good offense. Resource guides and independent research can help you target institutional venture capitalists interested in your kind of company or industry. Just don't waste your time looking for them until you've done your homework, or you'll be in the reject pile right from the beginning.

Learn The Elevator Pitch
It can lift you to the investors you need.

The 20-minute pitch is standard operating procedure in the world of finance, but the elevator pitch is gaining currency in the fast-paced New Economy. It refers to a sales pitch that can be delivered in the time it takes to take an elevator ride. But you need two elevator pitches: one for institutional VCs and another for angels. The institutional pitch must tell the investor how much he or she can make and how quickly he or she can get out. The angel pitch provides the same information-but it leads with business issues. Going up?

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This article was originally published in the March 2001 print edition of Entrepreneur with the headline: The Graduates.

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