Moving from individual investors to institutional VCs means learning to play by a new set of rules. 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.
1. The source of the money:
OPM? What does "Other People’s Money" have to do with venture capital? Institutional venture capitalists are managing OPM and that means that they have a number of investors to answer to. It means that they will take great care not to lose their 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.
2. The time allowed to pitch:
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.
It’s who you know: The professionals are chasing more deals and are being chased more actively by entrepreneurs. That means they’re more likely to say, "I saw one of those yesterday, no thanks." Another side effect of the high demand is getting and keeping the VC’s attention. You are not given the opportunity to present your deal for an hour and a half you have about five minutes, and if you don’t capture their imagination, it’s over.
The solution to this is getting an introduction. Professional investors will be more courteous and more likely to offer quality time to referred opportunities than to cold ones even if it’s only to stay on the good side of their own contacts.
Who you know is vital to your success. This is why you should spend time trying to expand your network of influence.
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