venture fund investment thesis

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VC Investment Thesis

The investment logic for investing in startups by venture capital fund General Partners. Learn what GPs shared with Limited Partners to close their fund.

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1839 Venture Funds

1839 say they have a thematic focus but they invest in pretty much anything.

500 Startups

MoneyBall for Startups: Invest BEFORE Product/Market Fit, Double-Down AFTER.

500 Startups Israel

Sub-brand fund for Israel, they have a typically generalized region/stage focus approach to investing.

a16z have sort of an investment thesis, but you have to read it all to try guess what it is.

Allied Venture Partners

Allied Venture have 6 factors they look for but are unsurprisining “tech” focused

Alternative Protein Fund

APF are focused on agriculture and food technology companies.

Alven invest in a relatively broad category of startups, but have 3 categories they are focused on.

Bowery Capital

Bowery is focused on “internet native”. They don’t really have a thesis.

Building Ventures – Construction

Building Ventures are focused on building stuff, what they call “Constructuring”.

Building Ventures – Space

Building Ventures are focused on space as a service

Calm Fund are focused on “funding for bootstrappers”. They invest through a Shared Earnings Agreement.

Cento invest in Southeast Asia startups looking for a Series A investor writing a $1-2m check in industries needing digital tranformation.

Daphni explain what they do and how they execute in Europe rather than being more thematic in focus.

Deep Space Ventures

Deep Space Ventures invests in seed and series-A stage startups primarily in the Esports and B2B spaces.

Draper Cygnus

Draper Cygnus are focused on LATAM, US, and Israel through Pre Seed to Series A that do deep tech and decentralization.

Early Game Ventures

Early Game are focused on Eastern Europe startups with the need for infrastructure innovation.

Earlybird have a European focus and have targeted 9 categories of startups

Escala are focused on the under-capitalisation of LATAM. It’s based on middle-class is getting larger so let’s do stuff.

ExSight invest in startups that focus in eyes.

Thematic investment thesis from Homebrew. It is centered on the concept of the “Bottom Up Economy.”

Iceland Venture Studio

Iceland Vantures are focused on personal data, privacy, sustainability and security startups in Iceland.

InnoCells invest in companies that operate in areas related to Sabadell Group’s core business

Kima Ventures

Kima invest in a lot of startups and very early. Follow on isn’t a focus. This is their approach to investing.

Mammoth Scientific

Mammoth Scientific is focused on life science and bio tech companies.

Maven Ventures

Maven invest in startups with network effects

NextView have a thematic focus on Home, Food, Work & Money, Entertainment and Apparel.

Notation Capital

Notation capital invest small dollar amounts in extremely early technical founders or founding teams in New York

OpenOcean are focused on “investments in Delicious data-intensive software.”

Placeholder

Placeholder are East Coast focused on decentralized information networks

Point Nine Capital

Point Nine have a focus on SaaS, but also cover marketplaces and will be opportunistic. They’re trying to get to no faster.

Frequently Asked Questions

A VC investment thesis is a strategic framework that venture capital firms use to guide their investment decisions. It includes the firm’s investment philosophy, targeted sectors, key criteria for evaluating startups, and expected outcomes. This helps in aligning investments with the firm’s long-term goals and ensuring a systematic approach to venture capital funding.

Creating a VC investment thesis involves defining your investment objectives, conducting thorough market and industry analysis, identifying target sectors, establishing specific investment criteria, and outlining a clear exit strategy. Data-driven insights and market trends play a critical role in shaping a robust thesis.

A VC investment thesis is crucial because it provides a structured approach to identifying and evaluating investment opportunities, reduces investment risks, and aligns the firm’s investments with its strategic vision. It also enhances transparency with limited partners and aids in attracting potential investors by clearly articulating the firm’s investment strategy.

Key components of an investment thesis include market analysis, identification of target sectors, investment criteria, competitive landscape assessment, growth potential analysis, and exit strategy planning. These components help in systematically evaluating investment opportunities and making informed decisions.

A VC investment thesis should be reviewed and updated at least annually or whenever significant changes occur in the market or industry landscape. Regular updates ensure the thesis remains relevant and effective in guiding investment decisions.

Common mistakes include a lack of focus, inadequate market research, unrealistic growth assumptions, failure to adapt to changing market conditions, and overlooking potential risks. To avoid these, ensure thorough research, realistic assumptions, and regular updates to the thesis.

A VC investment thesis focuses on a venture capital firm’s strategy for selecting and investing in startups, while a business plan details a startup’s strategy for growth and operations. Both documents are essential but serve different purposes in the investment ecosystem.

Yes, a well-structured VC investment thesis can significantly influence startup success by guiding VCs to invest in high-potential startups and providing them with the necessary resources, strategic guidance, and support. This alignment enhances the likelihood of successful outcomes for both the investors and the startups.

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1. What is Your Venture Capital Investment Thesis

Pre-Curriculum 1: Use the leading Investment Thesis template to craft your investment focus

In order to build a strong venture capital fund, you start with a strong fund Thesis.

What is the fund Thesis?

A fund Thesis is the strategy by which a venture capital fund makes money for the fund investors, called Limited Partners or LPs. It identifies the stage, geography and focus of investments, as well as the unique differentiation of the firm.

A fund Thesis is not for public consumption. It is private for Limited Partners only.

How do you write a compelling fund Thesis?

There are multiple components to a compelling fund Thesis that we have compiled into a simple to follow format. The ideal Thesis should not be longer than 40 words , preferably 35 to 37 words.

“[Fund Name] is launching a [$x MM] [Stage] venture fund in [Country / City] to back [Geography] [Sector / Market Companies] [with Secret Sauce]”

What are the key components of a fund thesis, naming your fund: [fund name] .

When getting started, we recommend using a last name or color, like ‘Ressi Ventures’ or ‘Orange Fund,’ since the Thesis will evolve many times over the first months. After you feel that you have a final Thesis, then choose a name that represents your Thesis.

Fund Size: [$x MM] 

This is the minimum size of committed capital by LPs to the fund. For new managers, the fund size should be no greater than $10 MM. Your goal is to oversubscribe whatever your target fund size is, so aim for a small number.

Investment Stage: [Stage] 

This is the stage of portfolio companies where the fund will enter most investments. Stage is usually based on the fund size and the manager deal access. Most new managers choose angel, pre-seed, or seed as the stage. Limited partners prefer a focused stage over multi-stage funds, especially larger limited partners.

Your Location: [Country / City] 

This is the city or country where the managers are living or plan to live while running the fund. Funds have a life of at least 10 years, so pick a city or country where the managers plan to be for some time. If you are living in a large country, then it is better to specify a city or region, such as “East Coast” versus the “United States.”

Geographic Focus: [Geography] 

This is the geography where the fund will invest in most portfolio companies. The majority of limited partners want a focused geography, such a single country, a set of countries, or a small geographic region. When investing in multiple countries, managers and limited partners face complex legal and tax issues on entering and exiting deals.

Sector Focus: [Sector / Market Companies] 

This is the sector or subsector that the fund will have the most portfolio companies. Target sectors or subsectors need to be in areas that most people understand, such as FinTech, digital health, SaaS, or marketplaces. Do not make up new sectors or phrases, such as “Lazy Tech” or “Innovation Origination.” The sector or subsectors of the Thesis are one of the most important ways to connect with limited partners.

Unique Selling Point: [with Secret Sauce] 

The secret sauce is the applied track record of the managers to the Thesis using metrics to quantify experience and success. The top secret sauce metrics are the following in order: 1. investment exits, 2. investment performance, 3. capital raised, 4. sales closed, 5. companies helped, 6. size of network, 7. years of experience. The secret sauce needs to show why the managers are uniquely qualified to run this fund.

What are some sample fund Theses?

Using the above template, here are some clear and concise thesis examples:

• Azure Capital is launching a $5 MM pre-seed fund in Toronto to back Canadian AI startups with the GP achieving 15+ successful exits for $3.5 B from a network of 500+ AI scientists.
• Green Ventures is starting a $7 MM seed fund in Berlin to back European sustainability companies based on a track record of 200% ROI over 5 years of investing in the space.
• Coral VC is creating a $10 MM angel fund in Sydney to back APAC e-commerce startups leveraging the managers experience helping 5 companies achieve 30% month over month revenue growth in ecommerce.
• Blue Investments is launching a $2 MM pre-seed fund in São Paulo to back Brazilian Agritech startups from manager’s network of 1,200 leaders built from 20 years as CEO of the leader Agritech supplier in LATAM.
• Pink Management is launching a $10 MM venture studio fund in Silicon Valley to back studio-created biotech hardware capitalizing on a history of raising over $500 MM for biotech startups and assisting in 20+ FDA approvals.

How specific should your fund Thesis be?

A compelling fund Thesis is very specific about stage, geography and focus to align with the allocation requirements of Limited Partners. A common problem is that New Managers are often afraid to be specific, since they feel it will limit their ability to do hot deals.

A Thesis states the intention of a firm to pursue certain kinds of investments, but is not legally binding in the firm or in the fund agreements. So, a fund Thesis has the effect of gravity. Venture capitalists often can do deals that are far away from the Thesis, but they have less attraction.

How do you refine your fund Thesis?

You will be refining your Thesis heavily for the first few months when forming your fund. A well-defined thesis is specific about stages, geographies, and focus, thus attracting the right LPs while allowing some flexibility. But the first person that you need to satisfy with your thesis is yourself.

Here is an initial exercise to get started that should take about 30 minutes to an hour.

• First, use the template above and try to write three versions of a potential venture fund thesis. As mentioned above, be as concise and specific as possible.
• Next, read each of them aloud while recording a video of yourself. Speak conversationally (in the same way you might casually pitch the idea to someone in an elevator), and in one video “take”. 
• Then, watch the videos and ask yourself if you would realistically invest in that thesis. How clear was the message? How confident was the delivery? What questions come to mind?
• Finally, revise the thesis and video until you are satisfied with your work. Resist the urge to make the one-sentence thesis a one-page thesis. Remember: brevity is the key. 

What are the next steps?

This is just one part of the first steps to starting a venture capital firm, which include: 

• What is your Venture Capital Fund Thesis
• How to Determine Your Venture Capital Fund Size
• How to Select a Venture Capital Firm Focus
• How to Determine your Venture Capital Secret Sauce

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Decile Group

The Decile Group develops industry-leading offerings to transform venture capital into an ethical force for good in the world, including VC Lab, Decile Hub, Decile Partners and Decile Capital.

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How to Develop Your Own Investment Thesis: A Critical Step for Aspiring Venture Capitalists

s an aspiring venture capitalist, you hold the key to unlock the untapped potential of startups, propelling them to soaring heights and reshaping industries. But in this electrifying landscape of opportunities, how do you navigate through the ever-changing tides? The answer lies in the essence of venture capital success: developing your own investment thesis.

What exactly is an Investment Thesis?

An investment thesis is your North Star, an illuminating beacon that guides you through the vast ocean of startups, helping you navigate toward the brightest prospects. It's a strategic framework, meticulously crafted to align your investment approach, criteria, and aspirations.

With an investment thesis, you define the types of companies you want to invest in, the industries you're interested in, and the stages of startups you believe have the most potential. It's like setting your preferences and priorities before you begin the journey.

Why is an investment thesis so critical for aspiring venture capitalists? The answer is simple—this well-defined roadmap sets you apart from the crowd and gives you the edge to thrive in this fiercely competitive world. It empowers you to make informed decisions, uncover hidden gems in the startup ecosystem, and unlock the true potential of visionary entrepreneurs.

In this blog post, we will explore the essential steps to create a compelling and potent investment thesis

Getting Started With Your Investment Thesis: Conducting Market Research

At the core of any successful investment thesis lies comprehensive market research. Understanding industry trends, evaluating market opportunities, and assessing the competitive landscape are vital steps to identify lucrative investment prospects. 

Keep a finger on the pulse of the business landscape and stay attuned to shifts and disruptions. Analyze the forces shaping various sectors, from cutting-edge technologies and regulatory changes to changes in consumer behavior. Identifying and understanding these trends will enable you to anticipate the future landscape, positioning you as an astute investor who can spot opportunities before they materialize.

With a keen understanding of industry trends, venture capitalists must evaluate market opportunities with a discerning eye. Look beyond the surface and assess the long-term growth potential of markets and industries. Identify white spaces and areas where innovation is likely to flourish. Be mindful of macroeconomic factors, such as GDP growth, inflation rates, and demographic shifts, as they can profoundly influence market dynamics. A comprehensive evaluation of market opportunities will empower you to focus your investments on ventures that have the potential to become tomorrow's industry leaders.

In the vibrant world of startups, competition is the norm. As such, to excel as a venture capitalist, you must also gain a panoramic view of the competitive landscape. Analyze existing players and their strengths, weaknesses, opportunities, and threats (SWOT analysis). Identify startups that have the potential to disrupt established markets and challenge the status quo. Furthermore, seek out market gaps, where unmet needs and underserved customer segments await innovative solutions. Investing in startups that address these gaps can lead to remarkable returns on investment and foster a positive impact on society.

Market research is not a mere exercise of intuition and speculation; it thrives on data-driven insights. Leverage data analytics, market reports, and industry research to augment your understanding of market trends. Embrace technology and data tools that can provide you with a wealth of information at your fingertips. By making data-driven decisions, you'll foster a more robust investment thesis and bolster your credibility as a venture capitalist.

While conducting market research, it's crucial to remember that the startup ecosystem is dynamic and ever-changing. Be prepared to pivot and adapt your investment thesis in response to new information and shifts in the market. Stay agile and flexible, allowing your investment strategy to evolve as you gain deeper insights. Successful venture capitalists are those who can navigate uncertainty, staying attuned to emerging trends and swiftly adjusting their course to capitalize on unforeseen opportunities.

Defining The Investment Criteria for your Investment Thesis

Once you've gathered market insights, now it’s the fun part - it's time to define your investment criteria. Determine the stages of startups you want to invest in, such as seed, early-stage, or late-stage companies. Consider the industries you're passionate about or have domain expertise in. 

Additionally, establish your preferred investment size and the level of diversification you aim to achieve within your portfolio. Having clear investment criteria will streamline your decision-making process and keep your investments focused on your goals.

Determining the Stages of Startups

Venture capitalists invest in startups at various stages of their lifecycle, each offering distinct opportunities and risks. Deciding which stage aligns best with your expertise and risk appetite is pivotal. Consider if you want to invest in seed-stage companies, which are in their infancy and require significant support, or if you prefer early-stage startups with a product and initial traction. Alternatively, you may focus on later-stage companies that are scaling and need capital to expand rapidly. Your chosen stage will dictate your involvement level and the potential return horizon of your investments.

Geographical Preferences and Target Industries

Venture capital is a global endeavor, and you can choose to invest locally, regionally, or even globally. Geographical preferences may be influenced by factors like your network, knowledge of specific markets, and comfort with regulatory environments. Moreover, identifying the industries you're passionate about or have domain expertise in is crucial. Investing in industries you understand well will allow you to provide strategic value to the startups you support, beyond just financial backing.

Investment Size and Portfolio Diversification

The size of your investments and portfolio diversification strategy are interlinked. Determine the average investment size you are comfortable with, as this will influence the types of startups you can back. Some venture capitalists prefer larger, concentrated bets on a select few startups, while others spread their investments across a broader range of smaller companies to diversify risk. Striking the right balance is key—too few investments can expose you to concentrated risk, while too many might dilute your ability to provide adequate support to each startup.

Alignment with Personal Values and Objectives

As an aspiring venture capitalist, your investment criteria should be in harmony with your personal values and long-term objectives. Consider what impact you want to make through your investments. Are you driven by social impact, environmental sustainability, or a particular mission? Aligning your investment criteria with your values will not only enhance your satisfaction as an investor but may also attract entrepreneurs who share your passion, fostering a mutually rewarding relationship.

Market Fit and Growth Potential

While defining your investment criteria, focus on identifying startups that exhibit strong market fit and immense growth potential. Market fit refers to the startup's ability to address a specific problem or need in the market effectively. Investigate whether the startup's product or service resonates with its target audience and has the potential for widespread adoption. Moreover, evaluate the scalability of the business model, as this will determine the startup's growth trajectory and its potential to become a market leader.

Synergy with Your Expertise and Network

Leverage your expertise and network to your advantage when defining your investment criteria. Aligning with startups that can benefit from your insights and connections will create a symbiotic relationship. As an investor, you can offer more than just financial support; your guidance and connections can be invaluable in helping startups navigate challenges and scale their businesses. Synergy with your expertise and network can significantly enhance your value proposition as a venture capitalist.

Balancing Risk and Return

Investing in startups inherently involves risk, and your investment criteria should reflect your risk appetite and tolerance. Strive for a balance between risk and potential return that aligns with your investment objectives. High-growth startups often carry higher risk, but they can also offer substantial rewards.

On the other hand, more established companies may provide a steadier return, albeit with potentially lower growth potential. Understanding this balance is essential in defining your investment criteria and building a well-rounded portfolio.

Balancing risk and potential returns is a fine art, and your investment thesis should outline how you plan to approach this delicate balance. Furthermore, learn to measure and quantify risk in the startup ecosystem using various risk assessment techniques to make informed investment choices.

Identifying Key Performance Indicators (KPIs) for Your Investment Thesis

Key Performance Indicators are quantifiable metrics that provide critical insights into the performance and achievements of a business. By tracking relevant KPIs, venture capitalists can assess the overall health and direction of a startup, enabling them to support portfolio companies effectively. Moreover, KPIs offer a basis for comparison, allowing you to benchmark a startup's progress against its peers and industry standards.

Tailoring KPIs to Startup Stages and Industries

While KPIs share a common goal of tracking performance, their significance can vary significantly based on the stage and industry of a startup. For example, early-stage companies might prioritize metrics related to customer acquisition, retention, and product-market fit. In contrast, late-stage startups might focus on revenue growth, customer lifetime value, and profitability. Tailoring KPIs to suit the unique needs and challenges of each startup stage and industry is vital for meaningful performance assessment.

Selecting Actionable and Measurable Metrics

When identifying KPIs, seek metrics that are both actionable and measurable. Actionable KPIs provide clear guidance on how to improve performance, helping startups identify areas that need attention and enhancement. Measurable KPIs, on the other hand, are quantifiable, allowing you to track progress and changes over time. The ability to take action based on KPIs and measure their impact ensures a proactive approach to enhancing a startup's performance.

Common KPIs in Venture Capital

While KPIs can be highly specific to individual startups and industries, certain metrics have proven valuable across the venture capital landscape. Some common KPIs include:

Customer Acquisition Cost (CAC): The cost to acquire a new customer, helping evaluate marketing efficiency.

Monthly Recurring Revenue (MRR): Provides insight into the company's predictable revenue stream.

Customer Churn Rate: Measures customer retention and the ability to maintain long-term 

relationships.

Burn Rate: Tracks how quickly a startup is spending its capital, indicating runway and sustainability.

Gross and Net Profit Margins: Assessing revenue generation and cost efficiency.

Customer Lifetime Value (CLV): Estimates the value of a customer over their entire engagement with the startup.

The Power of Data-Driven Decision Making

KPIs are not merely numbers on a dashboard; they fuel data-driven decision-making. By continuously monitoring KPIs, you can identify strengths, weaknesses, and potential roadblocks. Data-driven insights enable you to provide tailored guidance and support to your portfolio companies, helping them navigate challenges and seize growth opportunities.

Building a Well-defined Due Diligence Process

A well-structured due diligence process empowers you to make informed decisions, mitigates risks, and will help you identify the startups that align best with your investment thesis!

Let's delve deeper into the key steps involved in building an effective due diligence process so you can include it on your Investment Thesis:

1. Defining Your Due Diligence Objectives

Start by clarifying your objectives for the due diligence process. What key aspects do you want to evaluate in potential startups? Identify the critical areas of focus, such as market opportunity, team capabilities, competitive landscape, financials, and scalability. Setting clear objectives ensures that you leave no stone unturned while assessing potential investments.

2. Gathering Essential Information

Begin the process by collecting comprehensive data and information about the startup under consideration. Request financial statements, market research, business plans, and any other relevant documentation. Engage in one-on-one discussions with the startup's founders and management team to gain insights into their vision, strategy, and execution plans. Gathering essential information lays the groundwork for a detailed evaluation.

3. Market Analysis

Conduct a thorough market analysis to assess the startup's positioning within its industry. Analyze market trends, potential for growth, competitive landscape, and potential threats. Understanding the market dynamics helps you gauge the startup's competitive advantage and potential for success.

4. Team Evaluation

Evaluate the startup's team to understand their expertise, experience, and alignment with the company's vision. Assess the cohesiveness and complementarity of the team, as a strong and capable team is a significant factor in a startup's success.

5. Financial Due Diligence

Perform rigorous financial due diligence to examine the startup's financial health and viability. Analyze revenue streams, cost structures, cash flow, and projections. Scrutinize financial ratios and indicators to assess the startup's financial sustainability and growth potential.

6. Product and Technology Assessment

Evaluate the startup's product or technology to gauge its uniqueness and potential market fit. Understand the value proposition it offers to customers and how it addresses market needs. Assess the scalability and defensibility of the product or technology to ensure long-term competitiveness.

7. Legal and Regulatory Review

Conduct a legal and regulatory review to identify any potential legal risks or compliance issues. Scrutinize contracts, licenses, intellectual property rights, and any pending legal disputes. Ensuring the startup operates within legal bounds safeguards your investment from unnecessary risks.

8. Customer and Partner Feedback

Gather feedback from customers, partners, and industry experts to gain external perspectives on the startup's product or service. Their insights can validate the startup's market fit, customer satisfaction, and potential for growth.

9. Risk Analysis

Identify and assess potential risks associated with the investment. Consider market risks, operational risks, technological risks, and competitive risks. A thorough risk analysis helps you make informed decisions about risk-reward trade-offs.

10. Decision-Making and Post-Investment Monitoring

Based on the findings from the due diligence process, make data-driven decisions on whether to invest in the startup. If you decide to proceed, establish a monitoring plan to track the startup's progress and performance after the investment. Continuously monitor the startup's performance against the initially defined objectives and pivot if needed.

Refining Your Thesis and Iterating

It’s also important to keep in mind that an investment thesis should not be static; it should evolve with your experiences and the changing market dynamics. Embrace flexibility and adaptability, and be open to learning from both successful and unsuccessful investments. As you gain insights from your portfolio companies and the market, update and refine your investment thesis to enhance its effectiveness continually!

Developing your own investment thesis is a critical step for aspiring venture capitalists. It provides you with a structured approach to identify and seize opportunities in the dynamic startup ecosystem. 

Through comprehensive market research, clear investment criteria, risk assessment, and an adaptable approach, your investment thesis will act as a guiding force throughout your venture capital journey. Embrace the continuous learning process, and don't hesitate to iterate and refine your thesis as you gain experience in the thrilling world of venture capital.

Interested in the full research paper?

You might also like, how to spot the next big thing: trends vcs should be watching, vc superpowers: what skill sets make the best investors stand out, how to navigate your way through the four vc stages of the vc interview process, non-dilutive funding: a simple guide for startups, five steps vcs take to prepare to raise from lps, the 10 commandments of venture capital: rules every successful investor lives by, about goingvc.

GoingVC is built around the idea of making venture capital education, investing, networks, and talent more accessible to those with the desire to succeed.

Understanding a VC Investment Thesis

Understanding a vc investment thesis: a blueprint for startup funding.

Venture Capital (VC) firms are the lifeblood of many startups, providing them with the essential capital needed to grow and scale. However, securing VC funding isn’t a one-size-fits-all endeavor. VCs often have specific investment criteria and focus areas outlined in what is known as their “investment thesis.” In this article, we’ll explore what a VC investment thesis is, why it matters to startups, and how founders can align their pitch with a VC’s thesis for a higher chance of success.

What is a VC Investment Thesis?

A VC investment thesis is a carefully crafted strategy that outlines the types of startups and industries a venture capital firm is interested in funding. It serves as a guiding framework for the firm’s investment decisions and helps define the direction of its portfolio.

A typical investment thesis includes the following components:

1. Industry Focus: It specifies the industries or sectors the VC is interested in, such as technology, healthcare, fintech, or consumer goods.

2. Stage of Investment: It outlines the stage of a startup’s development that the VC prefers to invest in, whether it’s early-stage (seed or Series A), growth-stage, or late-stage.

3. Geographic Focus: Some VCs focus on specific geographic regions or markets, while others have a global perspective.

4. Market Trends: It may highlight emerging market trends or disruptive technologies that the VC is particularly interested in.

5. Investment Size: VCs often specify the range of investment amounts they typically provide to startups.

6. Exit Strategy: It may indicate the desired exit strategy, such as acquisition or initial public offering (IPO).

Why Does a VC Investment Thesis Matter to Startups?

Understanding a VC’s investment thesis is crucial for startups for several reasons:

1. Alignment of Goals:

When a startup aligns its pitch with a VC’s investment thesis, it demonstrates a shared vision and goals. This alignment increases the likelihood of securing funding as the startup meets the VC’s specific criteria.

2. Efficient Use of Resources:

Pitching to VCs that are a good fit with your startup’s industry and stage saves valuable time and resources. It allows founders to focus their efforts on investors who are more likely to invest.

3. Strategic Partnerships:

VCs often bring more than just funding to the table. They can offer valuable industry connections, expertise, and mentorship. Aligning with a VC’s investment thesis can lead to strategic partnerships beyond capital.

4. Better Guidance:

VCs who are knowledgeable about your industry are more likely to provide guidance and support tailored to your startup’s needs.

How Startups Can Align with a VC’s Investment Thesis

Here are steps startups can take to align with a VC’s investment thesis effectively:

1. Research VCs Thoroughly:

Investigate the VCs you plan to approach. Study their portfolio companies, past investments, and any public statements or blog posts that provide insights into their investment thesis.

2. Tailor Your Pitch:

Craft a pitch that specifically addresses the VC’s focus areas. Highlight how your startup aligns with their industry, stage, and geographic preferences.

3. Articulate Market Fit:

Clearly explain how your product or service addresses a market need or trend that the VC has expressed interest in. Provide data and evidence to support your claims.

4. Leverage Warm Introductions:

Personal connections and warm introductions can significantly improve your chances of aligning with a VC’s investment thesis. Seek introductions from mentors, advisors, or industry contacts who may have a relationship with the VC.

5. Be Open to Feedback:

During discussions with VCs, be open to feedback and questions related to their investment thesis. Use these interactions as an opportunity to demonstrate your knowledge and commitment to alignment.

6. Maintain Flexibility:

While aligning with a VC’s investment thesis is crucial, it’s also essential to maintain flexibility and adapt your pitch as needed. Market dynamics and investor interests may evolve over time.

Summary – Understanding a VC Investment Thesis

In conclusion, understanding a VC’s investment thesis is paramount for startups seeking venture capital funding. It serves as the blueprint that guides a VC’s investment decisions, defining the industries, stages, and market trends they are interested in. For startups, aligning with a VC’s investment thesis is not only a strategic move but also a way to demonstrate a shared vision and goals, increasing the chances of securing funding from the right investor.

Thorough research into VCs, tailoring pitches to their preferences, and articulating market fit are essential steps in this process. Startups should also leverage warm introductions, maintain flexibility, and be open to feedback during interactions with VCs. By aligning effectively with a VC’s investment thesis, startups can not only access capital but also tap into valuable industry connections, expertise, and strategic partnerships that can propel their growth and success. Ultimately, the alignment between startups and VCs’ investment theses is a crucial element in the intricate dance of securing venture capital funding and realizing entrepreneurial dreams.

Feel like you’re on the edge of something big? Let us connect you to venture capitalists who can push you over the top. Contact us.

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The Impact Investor | ESG Investing Blog

Investing for financial return is only part of the equation.

How to Create an Investment Thesis [Step-By-Step Guide]

Updated on June 13, 2023

Our posts may contain links from our affiliate partners. This supports helps support the site as we donate 10% of all profits to sustainability organizations that align with our values. However, this does not influence our opinions or ratings. Please read our Terms and Conditions for more information.

One of the worst mistakes an investor can make is to sink their money into an investment without knowing why. While this may seem like the world’s most obvious mistake to avoid, it happens every day. Look no further than the stock market for plenty of examples of misguided optimism gone terribly wrong.

That’s where the idea of an investment thesis comes in. An investment thesis is a common tool used by venture capital investors and hedge funds as part of their investment strategy.

Most funds also use it on a regular basis to size up potential candidates during buy-side job interviews. But you don’t have to work at a venture capital fund or private equity firm to reap the benefits of creating an investment thesis of your own.

Table of Contents

What Is an Investment Thesis?

Materials needed to create a thesis for your investment strategy, a step-by-step guide to creating a solid investment thesis, step 1: start with the essentials, step 2: analyze the current market, step 3: analyze the company’s sector, step 4: analyze the company’s position within its sector, step 5: identify the catalyst, step 6: solidify your thesis with analysis, free tools to help strengthen your investment strategy.

An investment thesis is simply an argument for why you should make a specific investment. Whether it be a stock market investment or private equity, investment theses are all about creating a solid argument for why a certain acquisition is a good idea based on strategic planning and research.

While it takes a little more work upfront, a clear investment thesis can be a valuable tool for any investor. Not only does it ensure that you fully understand why you’re choosing to put your hard-earned money into certain stocks or other assets, but it can also help you develop a long-term plan.

Should an investment idea not go as planned, you can always go back to your investment thesis to see if it still holds the potential to work out. By considering all the information your thesis contains, you’ll have a much better idea of whether it’s best to cut your losses and sell, continue holding, or even add to your position.

An investment thesis includes everything you need to create a solid game plan, making it a foundational part of any stock pitch.

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One of the benefits of an investment thesis is that it can be as complex or as simple as you like. If you actually work at a venture capital firm , then you may want to develop a full-on venture capital investment thesis. But if you’re a retail investor just looking to solidify your investment strategy, then your thesis may be much more straightforward.

If you’re an individual investor, then all you really need to create an investment thesis is somewhere to write it out. Whether it be in a Google or Word doc or on a piece of paper, just make sure you have a place to record your thesis so that you can consult it down the line.

If you’re developing a venture capital investment thesis that you plan to present to an investment committee or potential employers, then there are plenty of great tools online that can help. Slideteam has thousands of templates that can help you create a killer investment thesis , as well as full-on stock pitch templates.

As mentioned earlier, an investment thesis holds the potential to help you plot out a strategy for pretty much any acquisition. But for the sake of simplicity, we’ll assume throughout the examples in the following steps that you’re an investor interested in going long on a stock that you plan to hold for at least a few months or years.

Venture capitalists looking to invest in companies or startups can also apply the same principles to other investment goals. Investors who are looking to short a certain stock should also be able to use these techniques to locate potential investments. The main difference, of course, is that you’ll be looking for bad news instead of good.

First things first. Before you get into doing the research that goes into an investment thesis or stock pitch, make sure you take the time to write out the basics. At the top of the page, include things like:

• The name of the company and its ticker symbol
• Today’s date
• How many shares of the company you already own, if any
• The current cost average for any shares you may already hold
• Whether the stock pays dividends and, if so, how often. You may also want to include the current ex-dividend and dividend payment dates.
• A brief summary of the company and what it does

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Now it’s time to take a look at the entire market and the direction it’s headed. Why? As Investors Business Daily points out,

“History shows 3 out of 4 stocks move in the same direction as the overall market, either up or down. So if you buy stocks when the market is trending higher, you have a 75% chance of being right. But if you buy when the market is trending lower, you have a 75% chance of being wrong.”

While the overall market direction is definitely an important factor to keep in mind, what you choose to do with this information will largely come down to your individual investing style. Investors Business Daily founder William O’Neil advised investors only to jump into the market when it was trending up.

Another approach, however, is known as contrarian investing, which revolves around going against market trends. Warren Buffett summed up the idea behind this strategy with his famous quote, “Be fearful when others are greedy, and greedy when others are fearful.” Or as Baron Rothschild more graphically put it, “Buy when there is blood in the streets, even if the blood is your own.”

Most investors who are looking for a faster return will likely be better off waiting to strike until the iron is hot. If you align more with the long-term contrarian philosophy, however, bleak macroeconomic outlooks may actually strike you as an ideal investment opportunity .

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Now that you’ve got a look at the overall market, it’s time to take a look at the sector your company fits into. The Global Industry Classification Standard (GICS) breaks down the entire market into 11 sectors. If you want to get even more specific, you can further break down companies into the GICS’s 24 industry groups, 69 industries, and 158 sub-industries.

Once you identify which group your company belongs to, you’ll then want to take a look at that sector’s performance. Fidelity provides a handy breakdown of the performance of various sectors over different time periods.

But why does it matter? Two reasons.

• Identifying which sectors various companies belong to can help you ensure that your portfolio is properly diversified
• The reason that sector ETFs tend to be so popular is that when a sector is trending, many of the stocks within that sector tend to move in unison. The reverse is also true. When a certain industry is lagging, the individual stock prices of the companies in that industry may be affected negatively. While this is not always the case, it’s a general rule of thumb to keep in mind.

The idea behind working sectors into your investment criteria is to give you an overview of what type of investment you’re about to make. If you’re a momentum trader, then you may want to shoot for companies within the strongest-performing sectors this year or even over the past few months.

If you’re a value investor, however, you may be more open to sectors that have historically experienced high growth, even if they are currently suffering due to the overall state of the economy. Some speculative investors may even be interested in an innovative industry with strong potential growth possibilities, even if its time has not yet come.

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If you want to up your odds of success even more, then you’ll want to compare the company you’re interested in against the performance of similar companies in the same industry.

These are the companies that tend to get the most attention from large, institutional investors who are in a position to significantly increase their market value. Institutional investors tend to have a huge amount of money in play and are far less likely to invest in a company without a proven track record.

When choosing an investment, they’ll almost always go with a global leader over a new business, regardless of its promise. However, they also consider intrinsic value, which considers how much a company’s stock is selling for now, as opposed to how much revenue the company stands to earn in the future. In other words, institutional investors are looking for companies that are stable enough to avoid surprises but that also stand to generate considerable capital in the future.

Why work this into your game plan? Because even if you don’t have millions of dollars to invest in a company, there may be hedge funds or venture capital firms out there that do. When these guys make an investment, it tends to be a big one that can actually move a company’s share price upward. Why not ride their coattails and enjoy a solid growth rate as they invest more money over time into proven winners?

That’s why it’s important to make sure that you see how a company stacks up against its closest competitors. If it’s an industry-leading business with a large market share, it’s likely to be a strong contender with solid fundamentals. If not, you may end up discovering competing companies that make sense to consider instead.

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At this point, hopefully, you’ve identified the best stock in the best sector based on your ideal investing style. Now it’s time to find out exactly why it deserves to become a part of your portfolio and for how long.

If a company has been experiencing impressive growth, then there’s bound to be a reason why.

• Is the company experiencing a major influx of business because it’s currently a leader in the hottest sector of the moment? Or is it a “good house in a bad neighborhood” that’s moving independently of the other stocks in its industry?
• How long has it been demonstrating growth?
• What appears to be the catalyst behind its movement? Does the stock owe its growth to strong management, recent world events, the approval of a new drug, the introduction of a hot new product, etc?

One mistake that far too many beginning investors make is assuming that short-term growth alone always indicates the potential for long-term profit. Unfortunately, this is not always the case. By figuring out exactly why a stock is moving, you’ll be far better positioned to decide how long to hold it before you sell.

A strong catalyst can cause the price of a stock to skyrocket overnight, even if it’s laid dormant for years. Even things like social media hype and rumors can cause a stock’s price to shoot up over the course of a given day. But woe to the investor that assumes these profits will last. Many are often left holding the bag when the price increase turns out to be part of a “ pump and dump .”

While many day traders can make a nice profit by capitalizing on these situations, such trades are best avoided altogether if you plan to hold a stock long-term. That’s why it’s so important to understand whether a stock is “in play” for the day or whether its growth can be attributed to more permanent factors that support the potential for a high return over time.

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If you’re planning on investing a significant amount of capital in any stock, then a little research may be able to save you from a lot of heartache. Keep in mind that the focus of an investment thesis is to formulate a reasoned argument about why adding an asset to your portfolio is a good idea.

While all investments come with some level of risk, research can be an excellent risk mitigation strategy. There’s nothing worse than watching an investment fail due to an obvious factor you could have spotted with closer analysis. Don’t let it happen to you!

Fundamental analysis can help you ensure that your potential investments have the underlying traits that winning stocks are made of. While there’s a bit of a learning curve involved when you’re first starting out, here are some of the things you’ll want to focus on:

EPS stands for “earnings per share.” It’s a common financial indicator that basically tells you how much a company makes each time it sells a share of its stock. In this regard, a higher EPS is a good thing, but it’s important to look for solid EPS growth over time. Ideally, you’ll want to see consistent growth in a company’s EPS over the past three or more quarters.

Sales and Margins

Investing is all about putting your cash into successful companies, which is why sales and margins are key components to finding worthy investments. Sales indicate how much a business has made from (you guessed it) sales. Sales margin, also known as gross profit margin, is the amount of revenue a company actually gets to keep after you factor in overhead and other production costs. Ideally, a good investment will exhibit strong, consistent sales growth in recent years.

Return On Equity (ROE)

ROE is one of the more commonly used valuation metrics and is calculated by dividing the company’s net income/shareholders’ equity. ROE is basically a measure of how efficiently a company is using the capital it generates from equity fundraising to increase its own value. The higher the ROE, the more likely it is that a company operates with a focus on using its cash flow to increase its profits.

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While these are just a few examples of various analysis methods to work into your investment thesis, they can go a long way toward locating solid companies worth investing in. Interested in learning more about technical and fundamental analysis? There are now plenty of great sites that can help you master the secrets of the training world.

In our opinion, Tradimo is one of the most underrated, as it provides tons of free classes for investors of all levels. Udemy also has some great classes that can help you learn how to beef up your investment thesis with as much quality information as possible.

But keep in mind that these are only suggestions. The most important part of any personal investment thesis is that it makes sense to you and can serve as a valuable tool to help you along your investing journey.

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Kyle Kroeger, esteemed Purdue University alum and accomplished finance professional, brings a decade of invaluable experience from diverse finance roles in both small and large firms. An astute investor himself, Kyle adeptly navigates the spheres of corporate and client-side finance, always guiding with a principal investor’s sharp acumen.

Hailing from a lineage of industrious Midwestern entrepreneurs and creatives, his business instincts are deeply ingrained. This background fuels his entrepreneurial spirit and underpins his commitment to responsible investment. As the Founder and Owner of The Impact Investor, Kyle fervently advocates for increased awareness of ethically invested funds, empowering individuals to make judicious investment decisions.

Striving to marry financial prudence with positive societal impact, Kyle imparts practical strategies for saving and investing, underlined by a robust ethos of conscientious capitalism. His ambition transcends personal gain, aiming instead to spark transformative global change through the power of responsible investment.

When not immersed in the world of finance, he’s continually captivated by the cultural richness of new cities, relishing the opportunity to learn from diverse societies. This passion for travel is eloquently documented on his site, ViaTravelers.com, where you can delve into his unique experiences via his author profile.