Angel Investors vs. Institutional Investors: 3 Main Differences You Need To Know About

Angel Investors vs. Institutional Investors: 3 Main Differences You Need To Know About

Angel Investors vs. Institutional Investors: 3 Main Differences You Need To Know About

Searching for investors is a challenge since new businesses depend on securing funds. The right investor at the right time can not only salvage a struggling company but catapult it to success. But how do you know what kind of investor to pursue?

There are several different types, but two of the most prominent and sought-after investors are angel and institutional investors.

Angel Investors, named for their propensity to provide pivotal investments to a new business, are often involved in small entrepreneurial enterprises or start-ups. Usually, but not always, an angel investor is an affluent individual who wants to invest money in a business she believes in.

Institutional Investors want to make money for their clients from carefully selected and managed investments, not by taking significant risks on passionate start-ups. Institutional investors include venture capital firms, big family trusts, even investment arms of large corporations.

New businesses view angel investors, or “dream” investors, as offering much-needed seed money without strings, which can be true, though they aren’t always the right choice. And though new businesses think of institutional investors as straight-laced behemoths with lots of rules, they offer the means to achieve sustainable, large-scale growth.

Before you decide which kind of investor to target, consider these main differences: 

1. Amount of Money Invested

The most significant difference between angel investors and institutional investors is the amount of money they contribute to a new company. Where angel investors usually invest around $10,000 to $12,000, institutional investors can invest anywhere from $100,000 to millions. Timing is also a consideration. Angel investors typically invest seed money, whereas institutional investors invest in companies that have established growth and future potential. For example, an angel investor might finance your first run of clothing manufacturing; an institutional investor might invest to take your brand nationwide.

2. Experience

Institutional investors are sophisticated with clear expectations, from their understanding of current market conditions to breadth of investments to experience with valuation. Meanwhile, angel investors will probably not have the same level of sophisticated investment experience or the rigorous expectations for their investment.

Additionally, institutional investors often insist upon strict due diligence before investing. Angels will probably not have a comprehensive due diligence process in place nor require many assurances before they invest, though they typically require a solid business plan and evidence of the owner’s commitment to the business.

3. Degree of Control Sought 

The more money an investor contributes, the more control she seeks. As such, angel investors don't generally expect to control a company or become involved in managing a company’s operations. They mostly want to help the business out and secure equity.

Institutional investors, on the other hand, contribute more funds and thus seek safeguards to protect their investment. They might want to involved in the decision-making process or secure a spot on the board of directors—they want a seat at the table and an eye on their money.

With your business’s goals and needs in mind, it’s paramount to consider all angles when deciding between angel and institutional investors. You must strike a tricky balance between controlling your business, accepting necessary outside money, and tracking the attached strings. Thus, it’s best to retain counsel to inform you of all your options and help you navigate investor recruitment and management.

Does your business need investment to reach the next level? Make sure you what investors expect before you accept their cash. To learn more about how angel or institutional investors can help your business, schedule a consultation.

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