Investment Thesis

Shortening VC Learning Cycle

"Thesis driven investing involves drawing a picture of where your particular area of focus going." ~ Fred Wilson, Union Square Ventures

"Deductive thesis investing starts with a vision of the future. The investor will formulate a narrative of the target industry's development and map out the individual elements that will be needed to spur the narrative." - David Rosskamp 

"I'm not sure if that was the right formula to start investing with or not, but I'll let you know when the feedback loop closes in about six more years (or longer)." - Stephen, Deep Space Ventures

"It's useful to be able to recognize whether you're on track or not. To have the belief, but also paranoia about am I tracking against my investment thesis." - Reid Hoffman

The critical variables of any investment thesis are People, Market, Vertical, Operating/ Business Model, Use Case, Technology, and Geography. 

• People: Entrepreneur and Team profile

• Market: How big is the market? Is the market exciting enough? How early are we in the evolution of the market, how fast it is growing, and how intensely passionate the individuals who comprise this market are about? 

• Vertical: How will an industry develops in terms of economics, impact by various technological and regulatory trends?

• Business/ Operating Model: An opinion about the outlook of an operating/business model, f.e. the 1041 economy driven by the Uber-model or the various sharing economy models

• Use Case: e. g. "What is going to happen to concierge services? What interfaces will Amy, GoButler, Alfred use? Who uses them?"

• Technology: How will R&D breakthroughs user adoption and regulatory changes rive the (non-)financial success of a specific tech?
  "tech waves affect business models as well as market opportunities." 

• Geography: What regions are the most under-rated in terms of timing (pricing, potential, regulations, adoption)

But most importantly, investment thesis narrates the vision that a venture fund wants to achieve; in a real sense, venture capital firms play a vital role in being futurists, evangelists, and visionaries. 

VCs have their investment thesis to attract and retain the best entrepreneurs to work with to build the world that envisioned. Still, as a micro-VC or first-time fund, it becomes severe, so it's essential to follow the advice of Stephen from Deep Space Ventures: 

"how new early-stage investors (micro-VCs), can get into the best deals. Hustle alongside founders, be authentic, and let them know you that empathize with their hustle because you, too, are a startup trying to get traction."

Thesis - luck by chance or trial/error? 

"This was the birth of a thesis. An observation born out of the personal experience, personal interests, and visibility into the inner workings of one of the hottest startups in one of the largest, fastest-growing markets out there."

The major takeaways here for aspiring early-stage investors:

• Learn by doing — try, fail, and change directions. Don't be paralyzed by over analyzing and slow decision-making processes. Avoid analysis paralysis. 

• Hustle your ass off — you want founders to say things to you like "you get us and what we are going through" when they see how you operate. That's what gets you into great deals.

• Do it differently — for so many reasons, do not copy the way someone else does it instead of finding your style and don't let anyone tell you you're doing this wrong because even the most successful investors have more losers than winners.

• Focus on learning and meeting people. 

• The thesis is a thesis because it's a thesis. So, don't be afraid to stick to your thesis if you're doing badly or change it even if you're doing great. It's a powerful thing, especially as you continue to educate yourself. Who knows, you could be too early to a new trend or catching the tail end of an old one.

• Finally, the development of the thesis leads to 2 other essential action items for your VC: brand building and portfolio construction.

E.g. 

• OpenOcean Venture Thesis - "investments in Delicious data-intensive software.". 

  • They are not super explicit about the types of companies they invest in. Still, they like companies that do things "like smart aggregation and use of data, which could, for example, mean that you make sense of huge amounts of data with intelligent processing and machine learning and thereby solve critical business problems."

  • Keywords: Delicious software, Communities, and data-intensive solutions, Efficient scalability, European Series A venture capital, Bold founders with a global outlook

  • To read more: https://www.alexanderjarvis.com/vc-investment-thesis-openocean-venture-capital/

• More Investment Thesis: 

  • 16 Mobile Theses (Ben Evans of A16Z)

  • Earlybird Investment Strategy

  • 500 Startups

  • Underscore VC

  • nextview - Fund III 

  • Kirkcoburn - Energy VC 

References: 

• https://rogerandmike.com/post/14629058018/technology-waves-and-the-hypernet

• https://medium.com/birds-view/earlybirds-investment-strategy-what-we-like-to-invest-in-ac94b250ab12#.gkvapzxm9

• https://blog.ourcrowd.com/build-investment-thesis/

• https://hackernoon.com/thinking-about-thesis-driven-investing-in-early-stage-ventures-17c968495952

• https://also.roybahat.com/instead-of-a-business-plan-write-a-thesis-plan-6de9de59daaf

• https://hackernoon.com/the-birth-of-a-venture-capital-investment-thesis-afd2903ae12

• https://medium.com/datadriveninvestor/all-you-should-know-about-the-investment-thesis-b230d51b6e3

• https://blog.ourcrowd.com/build-investment-thesis/

• https://kirkcoburn.com/2019/10/24/energy-venture-capital-investment-thesis-intro/

With Love,

Sagar

About

"first followers" is founded by Sagar Tandon, a founding member at Moonshot Ventures. You can reach him at sagar@moonshotventures.org.

Occasionally, he blogs about the responsible investing, tech for good, venture capital, investment thesis, conscious capitalism, collaborative consumption, community, and humane lifestyle.