Venture capitalists and formal investors are also known as institutional investors and they are different from angel investors in that they do not invest their own money. Typically, a formal or institutional investor is a partner of a private equity, venture capital, or other type of an investment firm which manages a fund or a number of different funds. Typically, these funds are either pension funds, endowments, or the collective funds from very wealthy families. This means that formal or institutional investors have much deeper pockets than angels do. However, because institutional investors invest other people’s money, they are very careful in the risks they take with it. They may not invest in wild ways as some angels do and more often, institutional investors require a seat on the board of directors of companies they invest in.

Basically, venture capital is private equity. Before we understand what venture capital is, we need to understand what private equity is. Equity is the net worth of a company, what assets a company has, which can range from real estate, vehicles, equipment, and other physical assets owned by a company as a whole is the company’s equity. In theory, when you invest in a company, you typically have a share in that company and if it goes up for sale, you can get part of the equity of that company.

Private equity is equity that is held in private hands. This means that equity that is managed by a private equity firms is private and owned by a particular person, group of people, or organization.

Venture capital is also private equity, but the reason venture capital is set out separately from private equity is it is private equity that is earmarked for ventures. A venture is a new company which is just starting out. Venture capital is primarily invested as a series A round of funding in a new startup company. An investor who invests venture capital is known as a venture capitalist or a VC. Furthermore, an investment firm that invests venture capital is known as a venture capital firm or a vc firm.

As mentioned before, formal investors do not invest their own money. Unlike angel investors, who might invest periodically as a hobby, formal investors are professionals. They invest as their job and because they are responsible for the money they invest, they have a huge weight on their shoulders. For this reason, they are very careful with their investments. They calculate the risks and the returns. Many entrepreneurs who submit mediocre business plans to formal investors will not be likely to get funding from them for this very reason.

Furthermore, as formal investors have a responsibility to their clients’ money, they want to have a controlling stake in the companies they invest in. This allows them to watch over their investments. Typically, when an investor asks to be on a company’s board of directors, it’s not necessarily a bad thing. Many formal investors have resources and ties with other entities and even corporations, and the entrepreneur in which they invest in can benefit from.

What you want to watch out for is that an investor does not demand too much control of the company. The board of directors is a legal entity and is also the body that steers the company forward. Those who have the most seats on the board of directors are those who have the most control over the company. This means that you want to have 60-40% ratio on your board of directors. Give your investors a seat on the board of directors, but in the same time, have the majority of your board be consisted of members of your executive team to keep control over your company.

Typically, getting funded by a formal investor can give you a large amount of capital for your company, the process of getting that funding may take some time. Typically, formal investors will take their time before investing the initial tranche in your company. This is a different and much slower route than the way an angel would invest. Angels can invest at a heartbeat at times, but that’s rarely the case with formal investors.

Upon receiving your business plan, if an investor is interested, he will look it over for quite some time. This process, in which an investor looks over your business plan is known as the due diligence process. During this process, investors look over every detail of your business plan with their partners and experts they have at their firm to calculate the risks and the returns. If an investor decides that the risks outweigh by far the returns on the investment, they are not likely to invest in your venture.

To ensure that you get funding from a serious formal or institutional investor, you need to survive the due diligence process. This means that you need to make sure that all numbers on your business plan are pleasing to the investors and their experts. You can bet money that any serious investment firm would have all the accountants, market experts and experts in a particular industry help them determine whether a company is worth their investment. The numbers need to match. In the end, formal investors do take risks, but they are more calculated than those of angels when making an investment.