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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

About The Author

Adeo Ressi is CEO of Decile Group, powering the next generation of venture capital firms worldwide with an integrated offering of training, tools, support, and funding. Decile Group is the parent of the VC Lab venture capital accelerator, which helped to launch nearly 50% of all new manager firms in 2022. Adeo is also Executive Chairman at the Founder Institute, a pre-seed accelerator with chapters in over 250 cities worldwide and over 5,000 portfolio companies.

Adeo has launched 14 venture capital funds and founded 11 startups, having nearly $2 billion in exits before 30. Adeo previously served on the Board of the X Prize foundation to pursue his interests in space exploration. He studied architecture and spent time living on a commune to explore his interests in designing better ways to live. Adeo is passionate about inspiring people to achieve their potential.

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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, decoding pre-seed and seed funding: a comprehensive guide for entrepreneurs, space, the final frontier of vc: investing in the new space race, venturing into madtech: revolutionizing marketing tech, crisis resilience in vc: how the industry responds to economic challenges, mastering salary negotiations: insider tips for analyst and associate vc positions, vc titans of the past: lessons from legendary investors who shaped the industry, 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.

Sutton Capital

How to Create an Investment Thesis

What it is, why you want one, and how to create it.

One of the essential elements in a venture capital firm is the investment thesis. The thesis can come in many varieties, from broad and loosely defined focuses to a specific vertical and company stage. On the other hand, some investors choose to allocate capital without a core thesis driving their decisions and see success in this strategy. This post will define an investment thesis, why investors decide to develop one, and some tips on creating one.

What is an investment thesis?

Simply put, the investment thesis is an assumption made about a market, vertical, or trend that will drive the strategy for a particular firm or fund. Just as a startup will assume a problem or market need and build a product around solving that problem, an investor will consider various markets and trends and develop an investment strategy focused on that assumption.

Why develop an investment thesis?

The thesis is the driving force behind what a firm chooses to focus on to generate returns. It will be a fundamental part of how VCs decide what to look for in specific markets, source deals, and where they ultimately decide to invest their capital. The thesis helps keep a firm focused, allowing investors to work within particular parameters when they go about their business.

There are a couple of advantages to having a thesis-driven approach as a venture capital firm. It will drive relationships that the firm pursues. This relationship driver applies to how firms source deals from an investment standpoint and choose their limited partners. These relationships with experts in a particular vertical will help portfolio companies with mentorship, independent board seats, and talent sourcing.

A thesis compels VCs to be experts within their particular field. If a firm bases its thesis around FinTech, it will most likely have some expertise in that field. This knowledge will help them understand the marketplace, specific problems a startup is trying to solve and judge founder talent. The firm will also be a thought leader in the space by releasing analysis and reporting trends in the industry. Lastly, the firm's partners will be a better value-add to the companies within their portfolio, paving a quicker path for a startup's growth and success.

Example of a thesis

A16Z , a prominent Silicon Valley firm, has several different areas they invest in, from FinTech to Growth to Consumer focused startups. Below is their investment thesis for their FinTech portfolio:

"Fintech companies are innovating across broad categories — in banking, lending, insurance, real estate, and investing — both on the customer-facing side and in core infrastructure. We believe the combination of mobile, digital money, machine learning, and new data sources offers startups a unique opportunity to leapfrog outdated infrastructure and compete with incumbent financial institutions to reimagine the way we manage our finances." Source

We understand that the firm focuses on startups that use mobile and machine learning to innovate on financial management through this statement. This thesis has helped drive the firm's investments in Stripe (now valued at $36B) and Carta (currently valued at $3.3B).

For an awesome hub of investment thesis examples, check out this link !

How to build an investment thesis

When developing a thesis, there are vital things to keep in mind:

Markets : Start with market sizing to make sure that a particular industry is worth pursuing. We will discuss market sizing strategies in a future post.

Trends: Understand macro trends impacting the markets and industries that you determine are big enough to pursue.

Companies : Break down each company within a market that has upside potential. Look at recent companies that have seen success within your specific industry focus.

Exits : Make sure there is an exciting exit environment for companies in that particular segment. You want your investments to see a return through going public or M&A activity.

Tips on the above:

Things to think about defining in a thesis would be company stage, geography, vertical, or market.

People tend to want a fully-formed thesis right off the bat, but it's an iterative process. The scrum process might be three months, but the full process can take a year before talking about a thesis publicly.

Have a hunch on something that isn't fully formed and then test it out:

Go out and talk to entrepreneurs.

Talk to buyers of the technology.

Form relationships with ecosystem partners.

Incrementally improve your thesis based on feedback and results.

For some more tips and strategies on creating a thesis, check out this informative Medium post .

Final thoughts

The thesis can help you stay focused and is your north star. For startups, it will help them target your firm. For LPs, it will help them judge your conviction and investment strategy. When developing a thesis, think about taking on big problems and big ideas. There are so many significant issues to be solved globally, and we have a golden opportunity to help solve them. Think big, and don't limit yourself only to ideas on making returns for investors, but how to impact the world.

This story is from Sutton Capital contributor Zeb Hastings. For more information on Zeb’s work, please visit his  website .

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Investment Thesis: An Argument in Support of Investing Decisions

October 29, 2023 by Abi Tyas Tunggal

An investment thesis is a well-reasoned argument that supports a specific investment decision, playing a vital role in the strategic planning process for individual investors and businesses alike. It comprises detailed research and analysis to evaluate an investment's potential profitability. A good investment thesis serves multiple purposes, including helping in the decision-making process, providing a comprehensive framework for monitoring and assessment, and offering a structured approach to identifying potential opportunities.

There are different types of investment strategies, such as venture capital , private equity, and long-term value investments. The core of an investment thesis involves identifying key parameters for evaluating an investment, understanding the unique market dynamics and competitive landscape, and realizing how to create value through strategic planning. To ensure a comprehensive and detailed investment thesis, it is crucial to involve thorough research, considering emerging trends and opportunities, and incorporating industry case studies for better understanding. Ultimately, financial statements and valuation metrics play a significant role in determining a well-suited investment decision.

Key Takeaways

• An investment thesis is a well-reasoned, research-based argument supporting a specific investment decision
• There are several types of investment strategies, and a well-structured investment thesis addresses market dynamics and competition to create value
• Research, valuation metrics, and understanding emerging trends are crucial in crafting a compelling investment ideas

Defining an Investment Thesis

An investment thesis is a well-structured, logical argument that justifies a particular investment decision, based on thorough research and analysis. It is essential for investors, as well as financial professionals in the domains of investment banking, private equity, hedge funds, and venture capital funds . A confident and knowledgeable investor will build out clear investment criteria to successfully navigate the investment landscape.

The primary purpose of an investment thesis is to outline the reasons and expected outcomes of a proposed investment, often focusing on the potential for growth and profit. This document offers a roadmap for investors, guiding them through their decision-making process, and helping to ensure that they arrive at rational and informed conclusions. A comprehensive investment thesis should consider various aspects, such as market conditions, competitive landscape, and financial performance of the targeted asset or company.

A strong investment thesis is built on rigorous market research and analysis. This involves evaluating historical and current financial information, as well as scrutinizing industry trends and the overall economic environment. Skilled investors will also incorporate their expertise in the industry to better assess the merits of an investment opportunity. This level of thoroughness creates a confidently expressed thesis, allowing investors to remain steadfast in their investment decisions, even amid market volatility.

In summary, an investment thesis plays a pivotal role in the investing process. It presents a well-reasoned argument, grounded in extensive research and clear analysis, that supports an investment decision. Crafting a robust investment thesis is crucial for both individual and institutional investors as it provides a solid foundation for investment choices and ensures the alignment of investment strategies with long-term objectives.

Importance of Research in Crafting an Investment Thesis

Thorough research is a crucial aspect of creating a solid investment thesis. It allows investors to gather vital information and insights that will help guide their investment decisions. There are several elements to consider while conducting this research, with data analysis, understanding risks, and returns being essential components.

Data Analysis

Data analysis forms the backbone of any research conducted for crafting an investment thesis. It involves collecting, organizing, and interpreting various types of data, such as financial statements, market trends, and industry forecasts, to identify patterns and make informed predictions about a potential investment opportunity. A comprehensive data analysis can help investors make confident choices based on reliable information, which is essential for a successful investment strategy.

Some key data analysis techniques used in crafting an investment thesis include:

• Comparative analysis: Comparing the performance of different companies within the same industry to identify investment opportunities.
• Trend analysis: Monitoring historical data to determine patterns and potential future developments.
• Financial statement analysis: Examining the financial health of a company through its balance sheets, income statements, and cash flow statements.

Understanding Risks and Returns

One of the primary goals of research in developing an investment thesis is to assess the risk/reward profile of a potential investment. This involves evaluating the potential risks associated with the investment and weighing them against the expected returns. A sound investment thesis should demonstrate a clear understanding of these risks and offer a rationale for why the investment’s potential returns make it a worthwhile addition to a portfolio.

Some common risks to consider when crafting an investment thesis include:

• Market risk: The risk of an investment losing value due to fluctuations in the market.
• Credit risk: The risk that a company or issuer of a financial instrument may default on its obligations.
• Operational risk: The risk of losses arising from failed internal processes, systems, or personnel within a business.

Evaluating these risks requires investors to develop a deep understanding of the investment opportunity, its industry, and the factors that may impact its performance. A diligent and systematic approach to research can help investors identify potential risks and gains, leading to informed and confident decision-making in crafting a strong investment thesis.

Types of Investment Strategy

When it comes to crafting an investment thesis, selecting an appropriate investment strategy is crucial. In this section, we will discuss two popular strategies: Value Investing and Growth Investing.

Value Investing

Value investing is a strategy that focuses on identifying undervalued stocks or assets in the market. These investments typically have lower valuations, which are reflected in their price-to-earnings ratios or book values. The central idea behind value investing is that the market may sometimes undervalue a company or asset, presenting an opportunity for investors willing to do thorough research and analysis.

The process of value investing involves:

• Fundamental analysis : Evaluating a company's financial health, management, and competitive advantages
• Value metrics : Identifying various valuation metrics, such as price-to-earnings, price-to-book, and dividend yield
• Margin of safety : Discovering investment opportunities with a built-in cushion to reduce the risk of loss

Famous investors, such as Warren Buffett and Benjamin Graham, have implemented value investing strategies to achieve long-term success.

Growth Investing

On the other hand, growth investing centers on companies that are expected to grow at an above-average rate compared to their industry. Growth investors seek opportunities in businesses they believe will offer substantial capital appreciation through rapid expansion or market-share gains. They prioritize the potential for future profit over the stock's valuation.

Features of growth investing include:

• High expectations : Companies targeted by growth investors typically have a history of robust revenue and profit growth
• Momentum : Investors seek stocks with upward price momentum, as increasing demand for these stocks may drive prices even higher
• Risk tolerance : Growth stocks can be volatile, and investors must be prepared to weather price swings

Renowned growth investors like Peter Lynch and Phil Fisher have demonstrated the effectiveness of growth investing throughout their careers.

Both value and growth investing strategies have their unique advantages and require different levels of risk tolerance. Investors should carefully consider their investment thesis and select a strategy that aligns with their objectives and risk appetite.

Venture Capital and Private Equity Investment Theses

When considering investments in private companies, venture capital (VC) and private equity (PE) firms each have their own unique strategies encapsulated within their respective investment theses. These theses provide guidance on the focus of investments, the sectors or geographies of interest, and the stage of the target companies.

Learn more about the differences between private equity and venture capital .

Venture Capital Investment Thesis

A venture capital investment thesis outlines how a VC fund aims to make money for its investors, typically referred to as Limited Partners (LPs). This strategy identifies crucial factors such as the stage of companies the fund will invest in, commonly early-stage companies, the targeted geography, and specific sectors of focus.

The thesis may vary depending on a venture capitalist's unique specialization, with some firms concentrating on a specific vertical and stage, while others invest more broadly without a core thesis driving their decisions. The underlying objective of a VC investment thesis is to outline how the firm will achieve high returns on investment by supporting and nurturing the growth of portfolio companies.

Private Equity Investment Thesis

In contrast, a private equity investment thesis is an evidence-based case in support of a particular investment opportunity. It usually begins with a concise argument illustrating how the potential deal supports the fund's general investment strategy. The thesis then provides details that substantiate this preliminary conclusion.

Private equity firms often target more established companies compared to venture capital firms, focusing on businesses with a proven track record. The PE investment thesis may identify areas where operational improvements, strategic mergers, or better capital structures could enhance value, ultimately generating a good return for the firm and its investors.

Overall, both venture capital and private equity investment theses serve as critical frameworks guiding investment decisions. They not only help align these decisions with a firm's specialized strategy but also provide a basis for evaluating potential deals to ensure they contribute to the firm's goals and long-term value creation.

Key Parameters for Evaluating an Investment

When assessing the viability of an investment, it is essential to examine various key parameters to make informed decisions. By analyzing these factors, investors can gain a deeper understanding of a company's financial health and its potential for growth.

One vital metric to consider is earnings per share (EPS) , which represents the portion of a company's profit attributed to each outstanding share of its common stock. A higher EPS indicates higher earnings and suggests that the company may be a lucrative investment opportunity.

Another fundamental metric is the return on assets (ROA) , which measures the effectiveness of a company in using its assets to generate profit. The higher the ROA, the better the company is at utilizing its assets to generate earnings. Similarly, return on equity (ROE) is a measure of financial performance that calculates the proportion of net income generated by a company's equity. A higher ROE demonstrates the efficient usage of shareholders' investments.

Conducting a thorough analysis of the company's financial statements is crucial. This includes reviewing income statements, balance sheets, and cash flow statements. By doing so, investors can gain insights into the company's profitability, liquidity, and solvency.

Another important factor to consider is a company's cash position. Adequate cash reserves enable a company to meet its short-term obligations and invest in growth opportunities. On the other hand, a lack of cash can leave a company vulnerable to market fluctuations and financial stress.

It is also essential to evaluate a company's capital structure, which refers to the proportion of debt and equity financing it uses to fund its operations. A balanced capital structure ensures financial stability, while excessive debt may lead to financial distress.

Examining a company's debt level is crucial, as it can directly impact the company's financial flexibility and risk profile. A high level of debt can hinder a company's ability to grow and adapt to changes in the market, making it a less attractive investment option.

Assessing a company's assets and how they're managed plays a significant role in evaluating an investment opportunity. This includes tangible assets, such as property and equipment, and intangible assets, such as patents and trademarks. Effective asset management contributes to a company's ability to generate profit.

Finally, it is important to scrutinize a company's costs associated with its operations, such as production costs and overhead expenses. A company that efficiently manages its costs will likely generate higher profitability and provide better returns for investors.

Creating Value through Strategic Planning

Strategic planning plays a crucial role in creating value for investors and businesses. It serves as the foundation for effective decision-making and guides companies towards achieving their goals. Through strategic planning, management teams can identify and focus on core competencies that contribute to a company's competitive advantage.

One way to create value is to prioritize revenue growth. By identifying key growth drivers, such as product innovation or market expansion, companies can allocate resources accordingly to boost earnings. Such targeted investments in growth engines allow firms to capture a larger market share and drive long-term profitability.

Another aspect of strategic planning involves optimizing a company's holdings. By assessing the existing portfolio, management can decide whether to divest underperforming assets or make strategic acquisitions that align with their investment thesis. The right combinations and adjustments can significantly enhance a company's overall performance and shareholder value.

Risk management is also an essential aspect of strategic planning. Companies must assess potential risks and incorporate suitable mitigation measures in their plans. This ensures that organizations are prepared for unforeseen circumstances, which can safeguard profits and protect the company's assets.

Furthermore, creating value requires continuous improvement and adaptation to market trends. Companies should routinely reevaluate their strategies to identify both internal and external factors that may impact their current position. By setting clearly defined objectives and quantifiable financial targets, management teams can measure their progress effectively and adjust their strategic plans as needed.

In summary , creating value through strategic planning involves a combination of focusing on core competencies, prioritizing revenue growth, optimizing holdings, managing risk, and continuously reassessing the company's strategic direction. This holistic approach can help businesses enhance their profitability, strengthen their market position, and ultimately deliver strong value creation to investors.

Understanding the Market and Competition

Before developing an investment thesis, it is crucial to have a deep understanding of the market and its competition. The stock market is influenced by various factors such as economic supercycles, bear markets, and secular trends. Analyzing these elements will provide a solid foundation to recognize potential investment opportunities.

An economic supercycle is a long-term pattern that occurs over several decades, during which the economy undergoes periods of growth and contraction. Investors need to be aware of the current phase and how it may impact their investment decisions. For instance, during a growth period, certain industries tend to outperform, while others may underperform during a contraction phase.

In addition to analyzing these market conditions, investors must also pay heed to the competitive landscape of the sector in which they plan to invest. Examining the competitors within the industry enables one to identify companies with competitive advantages, which may lead to superior performance. These advantages can stem from factors such as lower costs, innovation, or a dominant market share.

A bear market occurs when the stock market experiences a prolonged decline, typically characterized by a decrease of 20% or more from recent highs. In such environments, it becomes even more crucial for investors to understand the competitive dynamics within an industry to identify resilient companies that can withstand market downturns.

A secular trend is a long-term movement in a particular direction that can last for several years or even decades. Identifying secular trends within industries is essential to spotting opportunities for long-term growth. For example, investors may capitalize on sectors benefiting from a shift towards clean energy usage or the increasing importance of artificial intelligence.

In summary, understanding the market and competition requires a deep analysis of the stock market, economic supercycles, bear markets, and secular trends. By researching industry trends, evaluating market opportunities, and assessing the strengths and weaknesses of competitors, investors can develop a robust investment thesis that increases the likelihood of achieving long-term returns.

Industry Case Studies

In the investment world, the importance of an investment thesis cannot be overstated. By examining various industry case studies, we can gain insight into how businesses make strategic investments to enhance their value. In this section, we'll discuss notable examples from companies such as DuPont, General Motors, Rexam PLC, and Clear Channel Communications.

DuPont is a leading science and innovation company with a focus on agriculture, advanced materials, and industrial biosciences. During its acquisition of Dow Chemical, DuPont developed a robust investment thesis to justify the merger. Their investment case relied on the belief that the combined entity would benefit from increased operational efficiencies, new market opportunities, and enhanced innovation capabilities. This approach provided a strong rationale for the deal, which has created a more competitive company in the global market.

General Motors (GM) , a multinational automobile manufacturer, crafted its investment thesis in response to evolving trends in the automotive industry, such as the increasing importance of emissions reduction, electrification, and autonomous technology. GM's investment case centered on embracing these trends, focusing on innovation, and expanding its product offerings through strategic M&A, investments, and partnerships. For example, GM has made significant investments in electric vehicles and autonomous driving technology, positioning the company for future growth in these areas.

Next, we have Rexam PLC , a former British packaging manufacturer that was a leading producer of beverage cans globally. When Ball Corporation sought to acquire Rexam, they developed an investment thesis based on the value derived from combining the two companies' strengths. This thesis outlined the strategic fit between both companies, synergies from combining production capabilities, and projected growth, particularly in developing markets. The successful acquisition helped Ball Corporation consolidate its position as a global leader in the packaging industry.

Lastly, Clear Channel Communications is a media company specializing in outdoor advertising. As the company sought to expand its presence in this sector, it created an investment thesis centered around leveraging its core competence in outdoor advertising and acquiring strategic assets. One example is Clear Channel's acquisition of crucial billboard locations to solidify its competitive edge in the outdoor advertising market. This targeted growth strategy has allowed Clear Channel to remain a dominant player in the industry.

In conclusion, these industry case studies demonstrate the value of a well-crafted investment thesis. Effective investment theses provide a roadmap for companies to pursue strategic acquisitions and investments that create long-term value, while also helping investors evaluate the viability of proposed deals. By understanding how companies like DuPont, General Motors, Rexam PLC, and Clear Channel Communications have strategically invested in the market, we can better appreciate the importance of a well-structured investment thesis.

Long-Term Investment Strategies

A long-term investment strategy refers to an approach where investors hold onto their investments for an extended period, typically more than one year. This type of strategy aims to achieve the investment goal by allowing assets to grow through market fluctuations and capitalizing on the power of compounding interest. Diversification and patience play pivotal roles in ensuring the success of a long-term investment strategy.

Portfolio managers often use various techniques and methods to craft long-term investment portfolios. Some of these techniques include targeting undervalued sectors or stocks, dividend reinvestment plans, dollar-cost averaging, and asset allocation. By employing these strategies, portfolio managers increase chances of achieving their clients' investment goals over time.

In order to develop long-term investment strategies, investors should first define their investment goal . This could include objectives such as saving for retirement, funding a child's college education, or purchasing a home. Clear investment goals help in designing an appropriate investment strategy, taking into account factors like the investor's risk tolerance, time horizon, and available capital.

One key aspect of a successful long-term strategy is diversification . Diversifying across asset classes and industries allows investors to spread risks and potentially achieve higher risk-adjusted returns. A well-diversified portfolio will typically consist of a mix of stocks, bonds, and other asset types, with variations in investment size, industry sector, and geographical location. This diversified approach minimizes the impact of underperforming investments on the overall portfolio.

Another crucial element in long-term investing is patience . Market fluctuations can be tempting for investors to react to their emotions and make impulsive decisions, which could derail a well-thought-out investment strategy. Maintaining a disciplined approach and sticking to one's investment plan, even during periods of market volatility, is paramount to achieving long-term success.

In conclusion, long-term investment strategies require investors to define clear goals, diversify their portfolio, and exercise patience in the face of market fluctuations. By adhering to these principles, investors and portfolio managers can steer a course towards achieving their investment objectives.

Emerging Trends and Opportunities

In recent years, various emerging trends have presented attractive opportunities for investors. Among these trends, renewable energy, megatrends, and the coffee shop market stand out as sectors with significant potential for growth.

Renewable energy has gained considerable attention and investment as a response to the global push for addressing climate change and reducing emissions. Solar, wind, and hydroelectric power are some of the most prominent technologies in this sector. With an increased interest in clean energy from both governments and consumers, companies in this space are poised to experience substantial growth.

Megatrends such as urbanization, aging populations, and technological advancements are also influencing investment opportunities. These large-scale shifts provide a backdrop for businesses to tap into new markets and adjust their strategies to capitalize on these changes. For instance, companies working in healthcare and biotechnology may benefit from catering to the needs of an aging population, while businesses focused on artificial intelligence (AI) and automation may find increased demand due to technological advancements.

The coffee shop market, too, presents investment opportunities. This industry has experienced robust growth in recent years as consumers increasingly seek out unique, high-quality coffee experiences. Independent and specialty coffee shops are at the forefront of this trend. Niche coffee shops that offer novel and authentic experiences have seen success by catering to the specialized preferences of today's consumers. As the demand for artisanal and premium beverages continues to rise, businesses operating in this space can expect to have ample opportunities for growth.

In conclusion, current emerging trends such as renewable energy, megatrends, and the coffee shop market offer a wealth of investment opportunities. As these sectors continue to develop and evolve, investors with well-informed investment theses stand to benefit from the potential rewards in these growing industries.

Role of Financial Statements and Valuation Metrics

Financial statements play a vital role in the investment thesis by providing crucial information about a company's financial health and performance. They consist of the balance sheet, income statement, and cash flow statement, which offer insights into the company's assets, liabilities, revenues, expenses, and cash flows. Investors use these statements to assess the company's past performance, current financial condition, and potential for future growth.

Valuation metrics, on the other hand, are vital yardsticks that investors use to compare different investment opportunities and make informed decisions. These metrics include price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, price-to-book (P/B) ratio, dividend yield, and return on equity (ROE), among others. By analyzing these ratios, investors can gauge a company's value relative to its peers and make better investment choices.

Analysts and investors scrutinize financial statements to identify growth trends, profitability, and financial stability. For instance, they may calculate the gross margin, operating margin, and net profit margin to determine the company's profitability across different stages of its operations. Additionally, they examine liquidity ratios, such as the current ratio and quick ratio, to assess the company's ability to meet its short-term obligations.

Valuation metrics provide a quantitative basis for comparing investment opportunities within the same industry or across different sectors. For example, a lower P/E ratio may indicate that a stock is undervalued, while a high P/E ratio might suggest overvaluation. Moreover, the P/B ratio can help investors determine if a stock is undervalued by comparing its market price to its book value.

Another key valuation metric is the dividend yield, which measures the annual dividend income per share relative to the stock's price. A higher dividend yield may attract income-oriented investors, while a lower yield might be more appealing to growth-focused investors. Furthermore, the ROE ratio, which measures a company's profitability in relation to its equity base, is an essential metric for evaluating the efficiency of management in creating shareholder value.

In conclusion, financial statements and valuation metrics are indispensable tools for investors to evaluate a company's financial health and investment attractiveness. By analyzing these data points, investors can make well-informed investment decisions that align with their risk tolerance and investment objectives.

Concluding Thoughts on Crafting a Compelling Investment Thesis

Crafting a compelling investment thesis is crucial for informed investing decisions, as it helps investors thoroughly analyze a potential opportunity. A well-researched investment thesis demonstrates the investor's conviction level and reinforces their confidence in the investment choice. This process involves a deep understanding of the business, its value drivers, and its potential growth trajectories.

A strong investment thesis should be definitive, clearly articulating the reasoning behind the opportunity and the expected returns. This allows investors to stay focused on their goals and maintain their conviction, even when the stock's price movement does not align with their expectations.

By adopting a confident, knowledgeable, and neutral tone, investors can effectively communicate their investment thesis to others. Clarity in presenting the investment case is essential for persuading potential partners or stakeholders to support the opportunity. Utilizing formatting tools such as tables and bullet points can aid in conveying essential information efficiently and ensuring the investment thesis is easy to understand.

In summary, crafting a compelling investment thesis enables investors to make well-informed decisions that align with their financial goals. By developing a thorough understanding of the investment opportunity and maintaining a strong conviction level, investors can better navigate the market and achieve long-term success.

Frequently Asked Questions

How do you develop a strong investment thesis.

A strong investment thesis begins with thorough research on the company or asset in question. This may include looking at the financials, competitive position, management team, industry trends, and future prospects. It's essential to critically analyze the available information, identify potential risks and rewards, and establish a clear rationale for the investment based on this analysis. Staying focused on the long-term outlook and maintaining a disciplined approach to the investment process can also contribute to developing a robust investment thesis.

What are the key elements to include in an investment thesis?

An investment thesis should include the following key elements:

• Overview of the company or asset: Provide a brief background of the company or asset, including its market, size, and competitive positioning.
• Investment rationale: Detail the reasons for investing, such as attractive valuation, strong revenue growth, or a unique business model.
• Risk assessment: Identify potential risks and how they could impact the investment returns.
• Expected return: Estimate the potential financial return based on the identified growth drivers or catalysts.
• Time horizon: Indicate the investment period, typically long-term, during which the thesis is expected to play out.
• Fund size: Specify the amount of invested capital that will be allocated to this particular investment, considering its impact on portfolio construction, liquidity, and potential returns within the overall portfolio strategy

How can one evaluate the success of an investment thesis?

Evaluating the success of an investment thesis involves tracking the progress of the company or asset against its initial expectations and underlying assumptions. This may involve measuring financial performance, analyzing key developments in the industry and the company's position within it, and monitoring potential changes in overall market conditions. It is helpful to revisit the investment thesis regularly to assess its validity and make adjustments as necessary.

What's the difference between an investment thesis for startups and publicly traded companies?

An investment thesis for a startup often focuses on the growth potential of a new or emerging market, considering the innovative products or services the startup offers in that market. Here, the focus may be more on the potential for long-term value creation, the management team's ability to execute on their vision, and market fit.

For publicly traded companies, the investment thesis may include analysis of current financial performance, valuation multiples, and overall market trends. Publicly traded companies have more historical data and financial performance information available, allowing investors to make more informed decisions based on these factors.

How does an investment thesis guide decision-making in private equity?

In private equity, the investment thesis helps guide the selection of companies to invest in, as well as the structuring of deals to acquire those companies. It provides a blueprint for how the private equity firm aims to create value, including plans for operational improvements, financial engineering, or growth strategies. This thesis serves as a basis for monitoring the progress of an investment and helps make decisions on the timing of potential exits.

How can real estate investment theses differ from other sectors?

Real estate investment theses may focus on factors such as location, property type, market dynamics, and demographic trends to identify attractive investment opportunities. The analysis may also take into account macroeconomic factors, such as interest rates and economic growth, which can influence real estate markets. Additionally, real estate investments may be structured as either direct property investments or through financial instruments like Real Estate Investment Trusts (REITs), affecting the underlying investment thesis.

What considerations should a first-time fund manager have when developing a fund's investment thesis?

For a first-time fund manager, crafting a compelling and robust fund's investment thesis is paramount for attracting investors. Given their lack of a track record, these managers need to lean heavily on the research, clarity, and vision articulated in their investment thesis. The thesis should detail how the fund aims to identify ideal investments, especially those in industries with high margins. It should also benchmark the strategies against industry standards to highlight the manager's acumen and awareness of market norms.

How is a stock pitch related to an investment thesis and what role does a target price play in it?

A stock pitch is essentially a condensed, persuasive form of an investment thesis, often presented to stakeholders to advocate for investing in a particular publicly-traded company. A key element of any stock pitch is the target price, which is an estimation of what the stock is worth based on projections and valuation models. This target price serves as a quantitative anchor for the investment thesis, giving stakeholders a specific metric against which to measure potential returns and risks.

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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

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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.

See Related : Best Socially Responsible Stocks To Invest In Today

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

See Related : How to Start Investing With Purpose

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 .

See Related: How to Invest in Private Equity: A Step-by-Step

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.

See Related : What is a Triple Bottom Line? Definition & Examples

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.

See Related : How to Become an Impact Investor [Step-By-Step Guide]

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.

See Related : How to Do a Stakeholder Impact Analysis?

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.

Related Resources

• Best Impact Investing Online Courses
• Best Green Apps for a More Sustainable Life
• Sustainable Investing vs Impact Investing: What’s the Difference?

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.

VC Decision Making (Online): Developing an Investment Thesis

Navigate the changing trends in venture capital

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April 18, 2024

6 weeks, online 4–6 hours per week

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Create Your Own Venture Capital Strategy

Venture capital funding has experienced exponential growth in recent years. While the peak for venture capital in terms of dollar value has passed in the face of the global economic slowdown, the field continues to be one of tremendous opportunity — if you know where to find it.

In order to thrive in this fast-paced, volatile environment, venture capital professionals must stay abreast of trends and develop a solid investment thesis to help them navigate uncertainty and pinpoint viable opportunities.

Lead faculty Angela Lee is the founder of 37 Angels, an investing network that has evaluated 20,000 startups, invested in 90+ startups, and currently activates new investors through a startup investment boot camp. Join us to learn how to create a successful investment strategy and decision-making framework to improve venture fund performance and intelligently diversify your portfolio.

Global venture capital funding surged to $621B in 2021, two times more than in 2020, and around 10 times the level of 10 years ago.

Source: CB Insights

$132B invested in financial services in 2021, which is 169 percent year-over-year growth and 21 percent of total venture funding.

62 percent of all venture capital deals are early-stage deals.

Key Takeaways

By the end of the program, you will be able to:

• Determine the best investment strategy for your portfolio
• Establish your criteria for industries and business models to invest in
• Understand the risk/return trade-offs between investing in different stages
• Recognize and navigate trends that are transforming the venture capital market and uncover upcoming opportunities

Who Should Attend?

This advanced-level program is designed specifically for mid-career venture capital professionals interested in exploring the evolution of the venture capital landscape and identifying emerging startup trends and technologies in which to invest.

Program Modules

Get a refresher on the venture capital industry and self-assess your current knowledge. Identify the venture capital players, risks, rewards, and funding stages, and navigate the venture capital deal flow process.

Compare existing startup investment strategies and determine the investment strategy that works best for your portfolio.

Identify components of an investment thesis, evaluate real-world investment thesis examples, and build your own criteria for industries and business models in which you want to invest.

Understand the best stages in which to invest and how they benefits your portfolio. Compare methods used to mark up a portfolio.

Explore technology trends that have transformed the market and how to spot upcoming opportunities. Apply a framework to plan for uncertainties and decide on the trends that can add value.

Learn how to get — and stay — ahead of the curve with your investment strategies. Learn the differences between structural and cyclical changes, which help you make informed investment decisions.

Program Experience

World-Renowned Faculty

Learn from accomplished faculty, and industry experts whose diverse backgrounds encompass a broad range of disciplines

Guest Speakers

Accomplished academics and experts offer unique perspectives and the opportunity to put learning into practice

Live Faculty Sessions

Get actionable insights in live online interactions with faculty who are recognized leaders in their fields

Engaging Assignments and Activities

Hone business acumen and executive skills with try-it activities that help you redefine your potential

Program Faculty

Professor of Professional Practice in Finance, Faculty Director, the Eugene Lang Entrepreneurship Center, Columbia Business School

Angela Lee Professor of Professional Practice in Finance, Faculty Director, the Eugene Lang Entrepreneurship Center, Columbia Business School Angela Lee is an award-winning professor and former Chief Innovation Officer at Columbia Business School, where she teaches venture capital and leadership programs. She started her career in product management and then moved to consulting at McKinsey. She founded 4 startups and is also the founder of 37 Angels, an investing network that has evaluated over 20,000 companies and invested in over 90+ companies. She also serves as a venture partner at Fresco Capital, an early-stage venture fund that focuses on the future of work, digital health, and sustainability. She was awarded the Dean's Award for Teaching Excellence at Columbia Business School in 2020 and won the Singhvi Prize for Scholarship in the Classroom in 2022. Angela has spoken at the White House and NASA and is an expert in teaching online and making learning scalable. She is a sought-after expert on CNBC, Bloomberg TV, MSNBC, and Fox Business. She was recognized by Inc . as one of 17 Inspiring Women to Watch, by Entrepreneur Magazine as one of 6 Innovative Women to Watch, and by Crain’s as a Notable Women in Tech.

Elliott Robinson Partner, Growth Equity, Bessemer Venture Partners Elliott Robinson is a partner and co-founder of the growth investment practice at Bessemer, where he focuses primarily on cloud software investments, and is a board member of a number of organizations. Prior to Bessemer, he was a partner with M12, a vice president at Georgian Partners, and an associate with Syncom Venture Partners (where he led investments in organizations such as Canva, Forter, and Statespace). He earned his MBA from Columbia Business School and his BS from Morehouse College.

Hilary Gosher Managing Director, Insight Partners Since joining Insight Partners two decades ago, Hilary has played a role in some of the most exciting growth journeys in SaaS history. She founded and leads Insight Onsite, a team that accelerates growth at Insight's portfolio organizations. In addition, she is an adjunct associate professor at Columbia Business School. She holds an MBA from INSEAD in France along with a BA and LLB from the University of Kwa-Zulu Natal, South Africa.

Certificate

Upon completion of the VC Decision Making (Online): Developing an Investment Thesis program, you will receive a certificate of participation from Columbia Business School Executive Education — a powerful testament to your management capabilities — and add two days toward a Certificate in Business Excellence .

Your verified digital certificate will be issued in your legal name and emailed to you, at no additional cost, upon completion of the program as per the stipulated requirements. All certificate images are for illustrative purposes only and may be subject to change at the discretion of Columbia Business School Executive Education.

Other Recommended Programs

• Foundations of Venture Capital (Online) 6 weeks, online Learn the sources for deal flow and select the best organizations to invest in and identify key elements to consider when developing and managing a VC portfolio. Learn more

How do I know if this program is right for me?

After reviewing the information on the program landing page, we recommend you submit the short form above to gain access to the program brochure, which includes more in-depth information. If you still have questions on whether this program is a good fit for you, please email [email protected], and a dedicated program advisor will follow-up with you very shortly.

Are there any prerequisites for this program?

Some programs do have prerequisites, particularly the more technical ones. This information will be noted on the program landing page, as well as in the program brochure. If you are uncertain about program prerequisites and your capabilities, please email us at the ID mentioned above.

Note that, unless otherwise stated on the program web page, all programs are taught in English and proficiency in English is required.

What is the typical class profile?

More than 50 percent of our participants are from outside the United States. Class profiles vary from one cohort to the next, but, generally, our online certificates draw a highly diverse audience in terms of professional experience, industry, and geography — leading to a very rich peer learning and networking experience.

What other dates will this program be offered in the future?

Check back to this program web page or email us to inquire if future program dates or the timeline for future offerings have been confirmed yet.

How much time is required each week?

Each program includes an estimated learner effort per week. This is referenced at the top of the program landing page under the Duration section, as well as in the program brochure, which you can obtain by submitting the short form at the top of this web page.

How will my time be spent?

We have designed this program to fit into your current working life as efficiently as possible. Time will be spent among a variety of activities including:

• Engaging with recorded video lectures from faculty
• Attending webinars and office hours, as per the specific program schedule
• Reading or engaging with examples of core topics
• Completing knowledge checks/quizzes and required activities
• Engaging in moderated discussion groups with your peers
• Completing your final project, if required

The program is designed to be highly interactive while also allowing time for self-reflection and to demonstrate an understanding of the core topics through various active learning exercises. Please email us if you need further clarification on program activities.

What is it like to learn online with the learning collaborator, Emeritus?

More than 300,000 learners across 200 countries have chosen to advance their skills with Emeritus and its educational learning partners. In fact, 90 percent of the respondents of a recent survey across all our programs said that their learning outcomes were met or exceeded. All the contents of the course would be made available to students at the commencement of the course. However, to ensure the program delivers the desired learning outcomes the students may appoint Emeritus to manage the delivery of the program in a cohort-based manner the cost of which is already included in the overall course fee of the course. A dedicated program support team is available 24/5 (Monday to Friday) to answer questions about the learning platform, technical issues, or anything else that may affect your learning experience.

How do I interact with other program participants?

Peer learning adds substantially to the overall learning experience and is an important part of the program. You can connect and communicate with other participants through our learning platform.

What are the requirements to earn the certificate?

Each program includes an estimated learner effort per week, so you can gauge what will be required before you enroll. This is referenced at the top of the program landing page under the Duration section, as well as in the program brochure, which you can obtain by submitting the short form at the top of this web page. All programs are designed to fit into your working life. This program is scored as a pass or no-pass; participants must complete the required activities to pass and obtain the certificate of completion. Some programs include a final project submission or other assignments to obtain passing status. This information will be noted in the program brochure. Please email us if you need further clarification on any specific program requirements.

What type of certificate will I receive?

Upon successful completion of the program, you will receive a smart digital certificate. The smart digital certificate can be shared with friends, family, schools, or potential employers. You can use it on your cover letter, resume, and/or display it on your LinkedIn profile. The digital certificate will be sent approximately two weeks after the program, once grading is complete.

Can I get the hard copy of the certificate?

No, only verified digital certificates will be issued upon successful completion. This allows you to share your credentials on social platforms such as LinkedIn, Facebook, and Twitter.

Do I receive alumni status after completing this program?

No, there is no alumni status granted for this program. In some cases, there are credits that count toward a higher level of certification. This information will be clearly noted in the program brochure.

How long will I have access to the learning materials?

You will have access to the online learning platform and all the videos and program materials for 12 months following the program start date . Access to the learning platform is restricted to registered participants per the terms of agreement.

What equipment or technical requirements are there for this program?

Participants will need the latest version of their preferred browser to access the learning platform. In addition, Microsoft Office and a PDF viewer are required to access documents, spreadsheets, presentations, PDF files, and transcripts.

Do I need to be online to access the program content?

Yes, the learning platform is accessed via the internet, and video content is not available for download. However, you can download files of video transcripts, assignment templates, readings, etc. For maximum flexibility, you can access program content from a desktop, laptop, tablet, or mobile device. Video lectures must be streamed via the internet, and any livestream webinars and office hours will require an internet connection. However, these sessions are always recorded, so you may view them later.

Can I still register if the registration deadline has passed?

Yes, you can register up until seven days past the published start date of the program without missing any of the core program material or learnings.

What is the program fee, and what forms of payment do you accept?

The program fee is noted at the top of this program web page and usually referenced in the program brochure as well.

• Flexible payment options are available (see details below as well as at the top of this program web page next to FEE ).
• Tuition assistance is available for participants who qualify. Please email [email protected].

What if I don’t have a credit card? Is there another method of payment accepted?

Yes, you can do the bank remittance in the program currency via wire transfer or debit card. Please contact your program advisor, or email us for details.

I was not able to use the discount code provided. Can you help?

Yes! Please email us with the details of the program you are interested in, and we will assist you.

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Please email us your invoicing requirements and the specific program you’re interested in enrolling in.

Is there an option to make flexible payments for this program?

Yes, the flexible payment option allows a participant to pay the program fee in installments. This option is made available on the payment page and should be selected before submitting the payment.

How can I obtain a W9 form?

Please connect with us via email for assistance.

Who will be collecting the payment for the program?

Emeritus collects all program payments, provides learner enrollment and program support, and manages learning platform services.

What is the program refund and deferral policy?

For the program refund and deferral policy, please click the link here .

Didn't find what you were looking for? Write to us at [email protected] or Schedule a call with one of our Academic Advisors or call us at +1 315 387 4431 (US) / +44 203 838 0836 (UK) / +65 3138 4449 (SG)

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Why and How to Build Your Investment Thesis

When starting out in venture capital, the diversity and breadth of opportunities can get a bit overwhelming. To cut through the chaos, it’s important to arm yourself with an investment thesis. But how do you develop one? Our resident Investor Relations expert, Josh Liggett, has created a checklist of six steps to getting started. An investment thesis applies to any form of investing, from the stock market to horse racing… as long as it involves putting your money behind a principled decision.

These decisions are not just for beginners; experts in the field like Warren Buffet, and Peter Thiel have spent years developing their own personal strategies. Buffet, for example, likes to hold stocks for a long time . Shark Tank's Kevin O’Leary wants his money to bring back prisoners of war. And Thiel thinks those two guys are wrong. One thing is certain – when wading into the venture capital market, without a well-thought-out strategy, an investor could end up with too much or too little money in specific sectors, stages, or asset classes, leading to an unbalanced portfolio. Here are six steps to developing your investment thesis for Venture Capital.

Think it Over and Get Creative!

Spend some time on a brainstorming session, and be sure to jot down some notes. A thesis can be as simple as “I think driverless cars are the future” or as complex as "AI is the future," and its predictive models will change the business-consumer relationship. Come up with a hypothesis that reflects your instincts, knowledge, and needs. Having trouble getting started? Start with your personal experiences. Do you know what it takes to take a company public? Do you have your finger on the pulse of a specific industry? Do you have insight into a sector that others would die for? Are you Mark Cuban? If yes, then you can use that information as investment criteria. You can also follow experts you respect - like only investing in companies that large VCs like Sequoia back, or follow famous investors like Thiel or Chris Sacca. Remember: A thesis is only limited to the creativity of the investor, so get as specific or vague as you want.

Dive Into Specifics

Once your thesis starts to take shape, go further. List the specifics of your strategy. How much do you want to invest? What sectors are you interested in? What regions do you want to invest in? Seed or Venture stage? First time founder or serial entrepreneur? What type of shares do you want? Do you have any deal breakers? You get the gist. The more specifics, the more honed your thesis will be.

Become an Expert: Read, Read, Read

Once you know what you are looking for, it’s time to learn. Education is rule number one when coming up with a strategy. It’s important to fully understand the ecosystem you’re interested in, from the perspectives of both the incumbent and startup side. Read respected publications ( The Wall Street Journal [WSJ], Financial Times, Bloomberg , etc) that cover incumbents. Each major publication has a technology section featuring innovation, as well as columnists covering specific areas. For example, Matt Levine from Bloomberg is a great read for insight into financial markets and fintech. For the startup perspective, the main information hub is TechCrunch, but there are other valuable resources out there. Great places to start include the blog of Silicon Valley legend Eric Reis, Startup Lesson Learned , and Mattermark Daily. There are publications and blogs dedicated to specific industries as well. For example, Coindesk and Ethereum’s blog are good sources on blockchain and cryptocurrencies, while MedGadget has the latest in medical technology.

If you’re more daring, check out social news and community platforms, like Reddit or Quora. On these platforms, you can post, view, and answer questions and read the community’s comments on nearly everything under the sun. See if anyone else supports your model, and why. It’s also important to understand the different terms in startup investing. From the Power Law to conquering the term sheet, it’s important you grasp the terms about which you are investing. During the education stage, don’t be afraid to tweak/change/burn your old thesis. This is the time to learn, and don’t be scared to change your previous beliefs. At the same time, don’t hesitate to channel your “inner Thiel” and go against the tide.

Bounce It Off your Colleagues and Peers

Get a group of friends together and practice selling your thesis to them. Bill Gates and Warren Buffett employ the same strategy., as the friends regularly bounce ideas off each other.

If you can’t convey to a friend why you think you’re right and defend your position, then you should probably go back to the drawing board.

Put it into Action: Invest

If you have gotten this far, congratulations! The hard part is over, now it’s time to put your money where your mouth is. Pick the companies and funds to invest in, keeping your hard-earned thesis front and center. Don’t be blinded by cool looking companies, follow your educated hypothesis.

Continue to Evaluate your Thesis

Finally, 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 dynamic 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.

Reid Hoffman put it best: “It’s useful to be able to recognize whether you’re on track or not. To have the belief, but also paranoia about am [sic] I tracking against my investment thesis.”Check out ourcrowd.com and start following your hypothesis today.

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Investment thesis for a new VC fund

Sep 18, 2020

Ruslan Sarkisyan

Building a new venture fund is super interesting, deeply inspiring, and… far from easy. I know many young teams, who are raising their first fund and debating about the right fundraising strategy. At Begin Capital, we are always happy to share our own fundraising experience, but it is important to be objective and make comprehensive research. 

With this in mind I decided to analyze other VC funds, that were in the same position. Pulling historical data from Dealroom, I ended up with 186 first time VC funds that were launched in 2015-2020 worldwide. The dataset that I’ve got was not perfect: Dealroom’s coverage outside of North America and Europe is poor and also many smaller funds are missing. However, it was good enough to answer some of my questions and hopefully might be useful for other daring first time fund managers.

Top 10 countries by new funds AUM

With no surprise, US is still an undisputed leader in the VC world. US first time VC funds are almost twice larger compared to European ones ($80M median fund size in US vs. $42m in Europe). And only in US it is possible to raise the first fund with $1.3Bn committed capital – link .

But the following question was much more interesting for me: “Shall a new VC fund have a specific investment focus?”. It is clear that the majority of VC funds have at least some focus or limitations in their investment thesis. But usually these limitations are quite broad, like for example:

• Geographical focus on a large economic zone (e.g. Europe or US)
• Widespread business model focus (e.g. Software or SaaS)
• Investment stage focus (e.g. Seed or Growth stage)
• Combination of 3-8 focus industries

These limitations allow venture funds to stay away from deals, where they have no experience at all. But such a broad focus leaves no chance to build deep expertise in the sector or monitor 100% of all good companies. That’s why I was curious to see whether new VC funds choose to have more specific focus or not. With the help of my team I’ve analyzed 186 websites of new VC funds and sorted them in 4 buckets:

• Funds that have geographic focus: one country or small geographic area (e.g. Nordic) or, in case of US, just a few states
• Funds that focus on a particular industry or business model (like Fintech or Hardware)
• Funds that have both geo and industry focus
• Funds that do not have a specific focus

Here is what I’ve got:

Several interesting observations:

• The majority of funds prefer to have either industry or geographical focus. Combining both is rare and more typical for smaller funds
• More than a third of new VC funds start with a broad focus. And it is common for both small and large funds
• The most common industry focuses are: Biotech, Life science, Fintech, Blockchain, Deeptech and Healthtech
• The geographic focus is usually driven by institutional LPs

Surprisingly, the share of new VC funds without any specific focus is relatively small, while the absolute majority of mature, well known VC funds have a very broad mandate. This would either mean, that (a) building strong expertise in one area is becoming more popular among venture funds in the last 5 years OR (b) fund managers tend to expand their focus later when they raise second or third funds OR (c) first time VCs are bounded by the focus of their major LPs.

At Begin Capital we see clear advantages in both approaches. Having a specific focus area allows to:

• Build deep expertise and be able to run much more educated diligence process
• Add more value to portfolio companies and share unique industry knowledge with them
• Drive higher collaboration among portfolio companies

And at the same time a broader focus has its own benefits:

• More diversified portfolio with less industry or country-specific risks
• Cross-geo and cross-industry experience helps to have a better understanding of market trends and opportunities landscape
• No need to say “no” to exceptional founders from other industries/geographies 

With all that in mind, we decided to take the “best of both worlds”. Our first fund is industry agnostic and we invest across all Europe (we still try to avoid topics where we have zero knowledge). And in parallel we are building a second micro fund that will be only investing in teams with exceptional AI products. For our AI fund we gathered a team of best-in-class AI scientists and industry leaders that will help us to define the next generation of AI companies. (More news to follow!)

There is clearly no “magic bullet” and no single strategy that will ensure a successful fund return. The startup/VC ecosystem is also constantly evolving. Tech giants such as Amazon, Salesforce, or Apple leave less space for “easy wins” and push startups in niche areas that

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What if <Godfather> was a VC...

The results of our 1st year of operations, collaboration between vc and business angels.

Mar 1, 2021

At Begin Capital we always feet that "Humour" is our third VC partner. But sometimes it gets out of control...

That is how we came up with a question: "and what if some iconic characters were a VC..." Few hours later...

Episode 1: What if Don Vito Corleone was a VC...

During the pitching session

Startup: We are raising $10m in exchange for 5% equity Godfather: I understand. You found paradise in America, had a good trade, made a good living. The police protected you; and there were courts of law. And you didn't need a friend of me. But uh, now you come to me and you say -- "Don Corleone give me investments." -- But you don't ask with respect. You don't offer friendship. You don't even think to call me Godfather. Instead, you come into my house on the day my daughter is to be married, and you uh ask me to invest in your fucking startup...

Startup: We have a limited number of competitors, but they are strong. The good thing we know their weaknesses! Godfather: Revenge is a dish best served cold. You talk about vengeance. Is vengeance going to bring us sufficient return? Or huge IRR?

Startup: We don’t think GDPR will be a huge risk for us, but we’ll be careful Godfather: Goddamn FBI don't respect nothin'.

Startup: We have a lot of offers from Tier-1 investors, including Sequoia, why should we accept your proposal? Godfather: I'm gonna make you an offer you can't refuse. Either your brains -- or your signature -- would be on the contract.

Startup: We plan to raise $25 on Series B.. Godfather: I bet Russian Czars never paid that much for a horse.

Godfather: Who are your investors? Startup: Our board consists of five: Sequoia, Accel, Intel, Andreessen Horowitz and Begin. Godfather: I want you to arrange a meeting with the heads of the five families.

Being a Board Member:

Godfather: I have a sentimental weakness for my portfolio startups and I spoil them, as you can see. They talk when they should listen.

Startup: Our travel business is broken. Due to COVID-19 we are running out of cash and our sales are damaged.. Godfather: Only don't tell me that you're innocent. Because it insults my intelligence and it makes me very angry.

Startup: We believe ICO is a good opportunity for us! Godfather: A man in my position can't afford to look ridiculous. Now you get the hell out of here.

Startup: We haven’t seen our Head of Marketing for 2 weeks.. Godfather: I am sorry. What happened to your manager was business. I have much respect for your team. But your employee, his thinking is old-fashioned. You must understand why I had to do that. Now let's work through where we go from here.

In September Pitchbook published an insightful research on the role of angel investments in the startup ecosystem. It is quite clear from the research that not only business angels are essential for early stage financing, but they also make a positive contribution to the long-term startup success. The probability to raise follow-on rounds appears to be materially higher for companies whose first investment came from angels.

Probability of raising a follow-on round or reaching M&A/IPO

Such a significant difference is impressive but might be not intuitively obvious. I have two hypotheses somehow explaining this fact:

• At early stages a syndicate of strong business angels could be more helpful. Angels usually have a strong professional background and can help startup with necessary first customer introductions. Even more than that, sometimes angels play such an active role in operational processes that they are hardly different from co-founders
• Startups that decide to skip business angel round and raise more funding from VCs at the start, usually end up with higher post money valuation. This puts more pressure on a startup’s performance and leaves less flexibility to make pivots. 

While the role of business angels is important and well known, surprisingly, I haven’t observed an active collaboration between angels and VCs. Business angels actively collaborate with each other: form angel networks and syndicates, network together through events and web chats, actively share deals. In a similar way, VC funds build relationships with other funds. However, interactions between two worlds are limited and, in some cases, are not even friendly. I can see several fundamental reasons for that:

• VCs and angels target different type of companies. While everybody wants to invest in future unicorns, these “beasts” are extremely rare. Vast majority of M&A deals are happening at below $50m valuation. Such exits could still guarantee a strong ROI for an angel investor. That’s why angels are always happy to consider companies, that might operate on a small or very competitive market, but at the same time have strong IP or can reach profitability with low capital requirements. VC funds usually have significant AUMs and they need to deploy this capital within a short timeframe. This means, that VC fund has to invest a significantly larger check per company (maybe through several follow-on rounds). And so, VC funds will usually pass on very strong companies that have limited short-term growth potential.
• VCs and angels hold different classes of shares. In most of the cases angels are the least protected type of shareholder. They don’t have protective mechanisms granted by preferred shares (like VCs have) and they don’t have operational control over the company (like founders have). This usually does not matter much, if a startup is growing fast and target high value M&A. But in other cases, interests of shareholders might not be 100% aligned and angels are usually the ones to sacrifice their interests.
• Angels have limited capital resources. During the first few years an operational support provided by early investors is extremely important for a startup. However, at later stages a startup could already have a strong team, advisory board and prominent customers. At this stage startups don’t need a lot of operational support, but still need capital to fuel growth or close cash gaps. Larger funds in a captable can guarantee an easier access to capital, which could be crucial in many cases. That’s why VC funds always prefer to see other VC fund as a co-investor rather than a syndicate of angels.
• Angels are sometimes perceived as amateurs. Sadly, you can still meet some VCs that do not consider angels to be investment professionals and don’t see significant value-add from co-investing with angels.

With that in mind, I can see things changing in a positive way. The distinction between a large angel syndicate and a small VC fund is becoming less sharp and this opens more room for collaboration. Even larger VC funds recognize the value of business angels and try to use angels to scout new deals. In Europe such scout partnership programs were recently launched by Atomico, Backed.vc, Blossom Capital and Ada Ventures.

At Begin Capital we aim to build open trustworthy relationships with angel investors. Before founding Begin Capital my partner Alex was an active business angel, so we understand both sides. Internally we formulated few basic principles of such relationships:

• To share co-investment opportunities with strong angel investors and share allocation in the follow-on rounds (without any fees or SPV structures)
• To be transparent and fair-minded with all shareholders throughout the lifetime of a company
• To offer at least some extra liquidity for minority shareholders

The reality of “startup world” is often more complicated than it seems, and misalignment between shareholders is quite normal. However, both VCs and angels are in company-building business with long time horizon. And building a trustworthy relationship is absolutely essential to succeed in a long term.

I’m always happy to further discuss this topic and share experience with business angels. Feel free to drop me a line to [email protected] 

Jan 10, 2021

Just over a year ago, the first season of the new show called ‘Begin Capital’ began. Over the last 12 months, we have achieved the following results:

We closed 6 deals:

• Zadaa ( https://zadaa.co/en/ ) – a marketplace for second-hand clothes. The company operates in Germany, Finland and Denmark. Zadaa’s main competitive advantage - logistics solution that reduces the cost of logistics by 50-70%. Begin Capital became the lead investor with a €1.5M cheque.
• WOOM ( https://woomfertility.com ) – WOOM is a data driven app and b2b SaaS solution designed to empower women by maximizing their chances of getting pregnant, either naturally or through medical treatment. Every month, 80,000 women interact with WOOM and thousands of pregnancies are achieved together with WOOM. Begin Capital became a co-investor with a €1M cheque.
• Mercaux ( https://www.mercaux.com ) – Mercuax is a B2B SaaS startup that helps retailers deliver superior omnichannel customer experiences by bringing the best of digital and physical retail together. On average Mercaux customers experience a sales uplift of 8% and 5x ROI. Begin Capital became a co-investor in the project with a $500k ticket.
• Bulbshare ( https://bulbshare.com/en/ ) – A collaborative tech platform that brings brands and organisations closer to their customers than ever before - building online communities that enable conversations, collaboration and co-creation. Begin Capital became a co-investor in the project with a $300k cheque.
• Samokat ( https://samokat.ru ) – a food delivery service, with orders delivered in 15 minutes. Begin Capital became a co-investor in the project with a $200,000 ticket.
• Live Jam – a live-streaming shopping platform that connects vendors/retailers with end customers, through streams on which items are sold live. Begin Capital became a co-investor in the project with a $150k ticket.

And made one exit:

Samokat ( press release ). Within 12 months, the company has achieved outstanding results. Over 150 dark stores have been opened, the company’s revenues rose to $12m a month (30x YoY), and the company makes more than 1.5 million deliveries a week. ‍

Parameters of the deals:

• Biggest deal: €1.5M
• Smallest deal: €150,000 
• Quickest deal: 2 weeks
• Longest deal: 6 months

Markets (in Europe):

• Total number of business trips – 23 (21 within Europe)
• Most underrated market – Madrid. A large number of high-quality projects with strong prospects for international growth, convenient access to LATAM. And at the same time, the entry cost (valuation) is 2-3 times lower than in the US or the UK. The following markets are also underrated by investors: Bilbao, Tallinn, Moscow and Helsinki
• The country offering the best state support in terms of financing is Finland. Finland has some remarkable and very user-friendly programs designed to support startups (loans, grants) and funds. The best state support from the point of view of ease of interaction (help with connections, knowledge, legal/tax issues) is in the UK and the Netherlands
• The most useful conferences are: Slush, SaaStock in Dublin (the most ‘sincere’ one is Emerge)
• The best tech-teams in terms of the price-quality ratio are: Minsk, Moscow, Kiev
• The countries in which senior executives at major companies are most eager to make contact (commercial contracts with innovation companies, advisory role, recruitment) are: Finland, Israel, Spain
• The countries that have a lot of good projects but relatively few funds are: the Netherlands, Spain

The pipeline:

• Number of applications for investment per year – 3892 projects 
• 80% of targeted projects in the following stages: Seed, Late Seed, Series A 
• 65% b2c / 33% b2b / 2% b2g 
• More than 500 projects described themselves as “Uber for...”
• Around 130 projects were subjected to in-depth analysis, as target ones for the fund 
• We discussed 15 projects in the investment committee, 6 ended with deals, 3 failed to pass DD, 1 project selected other investors
• If the founders’ forecasts come true☺, then in 2025-2027 approximately 2000 projects will make an IPO. Roughly the same number will be bought by one of Facebook, Amazon and Apple
• 20 founders asked us to sign an NDA before showing us the project, 1 asked for a sector-specific non-compete agreement, and 1 found the time to propose 14 projects over the course of the year
• The most efficient channel for pipeline generation is people that we trust: managers of other funds, early investors, industry experts 
• The least efficient channel is conferences, events, demo-days. Each event gives us 100-300 projects for the Pipeline, but the quality of the projects is very low

The impact of COVID-19 (which we have felt):

• The founders of projects are awfully tired and suffer from burnout very quickly. The world is going through some very tough conditions of uncertainty. This uncertainty is putting terrible pressure even on those founders who have survived the pandemic largely unscathed. A lot of people are getting poorer, losing their sources of income, and suffer from nervous exhaustion. All this is very noticeable. As regards the companies in our portfolio, we have found ourselves having more conversations with founders about life, family, and mental wellbeing. It seems that what matters in 2020, as never before, is to select people with a similar mentality. And be willing to come to people’s aid even outside of the context of professional activity.
• Many of the founders have been straining every sinew and tried hard to reduce burn and raise internal round from their existing investors, in order to postpone the external rounds as far as possible - Seed, Series A, Series B. This is particularly true for companies from the hardest-hit sectors.
• Valuations have fallen, but not dramatically. Many projects have put off the target round, but proposing bridges based on attractive valuations. Regrettably, a lot of technological projects (particularly in the hardest-hit sectors) will not survive the crisis and will exit the market. It will be difficult to secure investment before the end of 2020.
• A new term has been coined: EBITDAC = earnings before interest, taxation, depreciation, amortization and coronavirus

Sources of pride and joy:

• We have never broken a promise. Our reputation is very important to us, so if we’ve made a promise, we’ll keep it. Specifically, we’ve closed out all the deals that we agreed on with company founders, irrespective of all force-majeure circumstances, including COVID
• Advisory board. We have managed to put together a strong team of advisors, whose main task is to say ‘no’ to the management board. This is really helping us to make decisions that have been carefully thought through
• More than 200 investors (primarily business angels) from a range of different countries have said they would like to co-invest with us and regularly ask us to send them projects. Given that we always go in with co-investors, we have been happy to show them new opportunities. If you are interested to co-invest with us please send us an email and we will share our pipeline with you on a monthly basis.

Sources of shame and regret:

• We understand how much it can hurt when you write to an investor and don’t hear back from them. Unfortunately, we aren’t able to respond to every project with a specific and useful rejection letter and offer help. But we try our absolute hardest to do so.
• On a few occasions, we were unduly forthright when expressing our opinions, and it may be that we ruined people’s motivation to continue working on their project

Plan for the New Year:

5-6 new deals and 1-2 follow-ons.

Although the world has changed, we are willing to enter new deals, but only cautiously and when the valuations are reasonable. But we still not interested in: speculative deals, crypto-projects, projects with revenues that are a long way over the horizon and projects with little prospect of becoming profitable. 

© * Begin capital

Your investor has an investment thesis. Here’s why you should care

I work with a bunch of founders who have incredible stories, great pitch decks  and solid businesses — and they get confused when investors turn them down anyway. A lot of the time, it doesn’t matter how good your company is. What matters is whether it matches up with your investor’s investment thesis.

An investment thesis is sometimes a detailed document, sometimes a deck and sometimes something as vague as “we know it when we see it.” What it has in common, though, is that this is a set of “rules” that the VC has. It presents this thesis to its own investors — the LPs — so they have a feel for what the venture firm will be investing in. Investing outside of this thesis is sometimes possible for deals that are too good to pass up, but it will often take some managing on the VC/LP side of things.

What makes a “wrong” investor?

For some funds, this thesis might be really broad — “all early-stage companies in California” — while others get pretty narrow: “$1 million checks into crypto startups founded by college graduates from New Jersey that have blue hair.”

If you fall outside of their “thesis,” some investors might still invest — if an extremely promising opportunity comes along, they will at least consider it — but remember that the “thesis” is what the investment partners used to raise money from their limited partners (LPs). If a fund starts deploying a bunch of cash into startups that are outside the scope of the thesis, the LPs will start getting twitchy and could lose faith.

What goes into a thesis?

Investment theses will usually include some combination of the below. Some funds care a lot about some of these things, and others are less sensitive. To some, these things may be a deal-breaker — and others take a more flexible approach.

• Investment amount — Most funds have a minimum and maximum check size, and a min/max round size. This is often expressed as such: “We invest $2 million to $4 million into $4 million to $8 million rounds.”
• Lead versus follow — Some funds only “follow” — i.e., invest into rounds where a lead investor has already negotiated and vetted the deal. Other funds prefer to lead; they will negotiate a term sheet with the startup for the deal. Others are more agnostic and prefer a portion of each across the portfolio. The driving factor here is often that lead investors tend to take a board seat, and there are only so many boards you can support at any given time. Not leading a round because the lead investor is a great board member is a valid choice.
• Target audience — Some funds focus on business-to-business (B2B) companies, where the core sales dynamic tends to be a small number of large sales. Others focus on business-to-consumer (B2C) companies, typically making a large number of smaller sales. Others again invest in B2B2C — companies that supply businesses that supply consumers.
• Verticals — Some funds only invest in specific verticals, while others may explicitly say they avoid certain verticals. Example verticals might be medical tech, education tech, deep tech, space, crypto companies, surveillance companies, advertising technology, etc.
• Ownership targets — Some funds will only invest if they can own a certain percentage of the company they invest in at the end of the investment round.
• Institutional ties — Some funds are set up specifically to support graduates from a particular school or alumni network. These tend to raise money from the alumni network, too. Others might invest only in founders coming out of a certain company — for example, the Slack diaspora (i.e., companies founded by ex-Slack employees).
• Demographic — Some firms focus on investing along demographic boundaries — young founders, older founders, Latinx founders, founders of color, female founders, founders who have been in prison, etc.
• Geographic location — Almost all investment firms have geographic boundaries for where they source deals. They may invest only within — or outside of — certain areas, states, countries or regions.
• Opportunity size — Most investors invest in companies that have at least the possibility of an outsize return. In venture capital, most funds try to make investments where there is at least a possibility that every investment “returns the fund.” In other words: If they have a $100 million fund, and they make $5 million investments, they can make 20 investments in total. Each of these investments should have at least the outsize possibility of a 20x return — turning the $5 million investment into a $100 million return on investment. If your investment looks interesting, but the investors believe that you would be a 3x return at best, you probably wouldn’t raise money.

So, is that all? Well, not quite.

All of the points above are specifically tied to the thesis of the investor. If you tick all of those boxes, that isn’t the end of your journey — that’s the beginning . You still have to have a good team, solve a meaningful problem with a good solution in a huge market, with some traction and believability for the market you’re about to enter — and be able to wrap a great narrative around all of that as part of your pitch.

So, how do you know if your company is a good fit for the thesis? Ask them. Most investors are happy to tell you what their thesis is, at least in broad lines. Presenting your company or pitch deck will often get you a very quick thumbs up or thumbs down regarding the thesis. Ask the question: “What do you typically like to invest in?” and “Do you think my company is a good fit with your thesis?”

If you get a no, it’s OK to ask what aspect of your company isn’t a good fit. It’s possible that they have misunderstood something, and that it’s possible to correct the confusion at this point. You wouldn’t be the first startup to have been turned down over a misunderstanding — but counteracting that all starts with having a deeper understanding of the dynamics of how and why VC firms invest.

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What Is an Investment Thesis?

• Understanding the Thesis

Special Considerations

• What's Included?

The Bottom Line

• Portfolio Management

Investment Thesis: An Argument in Support of Investing Decisions

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

The term investment thesis refers to a reasoned argument for a particular investment strategy, backed up by research and analysis. Investment theses are commonly prepared by (and for) individual investors and businesses. These formal written documents may be prepared by analysts or other financial professionals for presentation to their clients.

Key Takeaways

• An investment thesis is a written document that recommends a new investment, based on research and analysis of its potential for profit.
• Individual investors can use this technique to investigate and select investments that meet their goals.
• Financial professionals use the investment thesis to pitch their ideas.

Understanding the Investment Thesis

As noted above, an investment thesis is a written document that provides information about a potential investment. It is a research- and analysis-based proposal that is usually drafted by an investment or financial professional to provide insight into investments and to pitch investment ideas. In some cases, the investor will draft their own investment thesis, as is the case with venture capitalists and private equity firms.

This thesis can be used as a strategic decision-making tool. Investors and companies can use a thesis to decide whether or not to pursue a particular investment, such as a stock or acquiring another company. Or it can be used as a way to look back and analyze why a particular decision was made in the first place—and whether it was the right one. Putting things in writing can have a huge impact on the direction of a potential investment.

Let's say an investor purchases a stock based on the investment thesis that the stock is undervalued . The thesis states that the investor plans to hold the stock for three years, during which its price will rise to reflect its true worth. At that point, the stock will be sold at a profit. A year later, the stock market crashes, and the investor's pick crashes with it. The investor recalls the investment thesis, relies on the integrity of its conclusions, and continues to hold the stock.

That is a sound strategy unless some event that is totally unexpected and entirely absent from the investment thesis occurs. Examples of these might include the 2007-2008 financial crisis or the Brexit vote that forced the United Kingdom out of the European Union (EU) in 2016. These were highly unexpected events, and they might affect someone's investment thesis.

If you think your investment thesis holds up, stick with it through thick and thin.

An investment thesis is generally formally documented, but there are no universal standards for the contents. Some require fast action and are not elaborate compositions. When a thesis concerns a big trend, such as a global macro perspective, the investment thesis may be well documented and might even include a fair amount of promotional materials for presentation to potential investing partners.

Portfolio management is now a science-based discipline, not unlike engineering or medicine. As in those fields, breakthroughs in basic theory, technology, and market structures continuously translate into improvements in products and in professional practices. The investment thesis has been strengthened with qualitative and quantitative methods that are now widely accepted.

As with any thesis, an idea may surface but it is methodical research that takes it from an abstract concept to a recommendation for action. In the world of investments, the thesis serves as a game plan.

What's Included in an Investment Thesis?

Although there's no industry standard, there are usually some common components to this document. Remember, an investment thesis is generally a proposal that is based on research and analysis. As such, it is meant to be a guide about the viability of a particular investment.

Most investment theses include (but aren't limited to) the following information:

• The investment in question
• The investment goal(s)
• Viability of the investment, including any trends that support the investment
• Potential downsides and risks that may be associated with the investment
• Costs and potential returns as well as any losses that may result

Some theses also try to answer some key questions, including:

• Does the investment align with the intended goal(s)?
• What could go wrong?
• What do the financial statements say?
• What is the growth potential of this investment?

Putting everything in writing can help investors make more informed decisions. For instance, a company's management team can use a thesis to decide whether or not to pursue the acquisition of a rival. The thesis may highlight whether the target's vision aligns with the acquirer or it may identify opportunities for growth in the market.

Keep in mind that the complexity of an investment thesis depends on the type of investor involved and the nature of the investment. So the investment thesis for a corporation looking to acquire a rival may be more in-depth and complicated compared to that of an individual investor who wants to develop an investment portfolio.

Examples of an Investment Thesis

Portfolio managers and investment companies often post information about their investment theses on their websites. The following are just two examples.

Morgan Stanley

Morgan Stanley ( MS ) is one of the world's leading financial services firms. It offers investment management services, investment banking, securities, and wealth management services. According to the company, it has five steps that make up its investment process, including idea generation, quality assessment, valuation, risk management , and portfolio construction.

When it comes to developing its investment thesis, the company tries to answer three questions as part of its quality assessment step:

• "Is the company a disruptor or is it insulated from disruptive change? 
• Does the company demonstrate financial strength with high returns on invested capital, high margins, strong cash conversion, low capital intensity and low leverage? 
• Are there environmental or social externalities not borne by the company, or governance and accounting risks that may alter the investment thesis?"

Connetic Ventures

Connetic Adventures is a venture capital firm that invests in early-stage companies. The company uses data to develop its investment thesis, which is made up of three pillars. According to its blog, there were three pillars or principles that contributed to Connetic's venture capital investment strategy. These included diversification, value, and follow-on—each of which comes with a pro and con.

Why Is an Investment Thesis Important?

An investment thesis is a written proposal or research-based analysis of why investors or companies should pursue an investment. In some cases, it may also serve as a historical guide as to whether the investment was a good move or not. Whatever the reason, an investment thesis allows investors to make better, more informed decisions about whether to put their money into a specific investment. This written document provides insight into what the investment is, the goals of the investment, any associated costs, the potential for returns, as well as any possible risks and losses that may result.

Who Should Have an Investment Thesis?

An investment thesis is important for anyone who wants to invest their money. Individual investors can use a thesis to decide whether to purchase stock in a particular company and what strategy they should use, whether it's a buy-and-hold strategy or one where they only have the stock for a short period of time. A company can craft its own investment thesis to help weigh out whether an acquisition or growth strategy is worthwhile.

How Do You Create an Investment Thesis?

It's important to put your investment thesis in writing. Seeing your proposal in print can help you make a better decision. When you're writing your investment thesis, be sure to be clear and concise. Make sure you do your research and include any facts and figures that can help you make your decision. Be sure to include your goals, the potential for upside, and any risks that you may come across. Try to ask and answer some key questions, including whether the investment meets your investment goals and what could go wrong if you go ahead with the deal.

It's always important to have a plan, especially when it comes to investing. After all, you are putting your money at risk. Having an investment thesis can help you make more informed decisions about whether a potential investment is worth your while. Make sure you put your thesis in writing and answer some key questions about your goals, costs, and potential outcomes. Having a concrete proposal in place can spell the difference between earning returns and losing all your money. And that's if your thesis supports the investment in the first place.

Harvard Business School. " Writing a Credible Investment Thesis ."

Lanturn. " What is an Investment Thesis and 3 Tips to Make One ."

Morgan Stanley. " Global Opportunity ."

Medium. " The Data That Built Our Fund's Investment Thesis ."

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Investment Thesis Collection from Venture Capital Firms

Tldr; Collection of VC investment thesis that has been made public

The VC world is murky. The innards rarely see light. I just had an advisory call with some chaps setting up a fund and they asked about fund structuring (not the first time). When I mentioned ‘ This is not something you can Google .’ They laughed and said ‘ yeah, we know !’ Every time I have a beer with a VC friend and chat about their fund structure the pattern is pretty much ‘ It depends on where your LPs are, it’s complicated, talk to a lawyer. ‘

The startup funding process used to be as opaque, but in the early 2000s bloggers such as Venture Hacks, Fred Wilson and the like started explaining everything including term sheets.

The VC/LP world has not taken to sharing with the other kids in the sandbox. Indeed, there are very few blogs from LPs. Chris Douvos’s is the only one I have found as of yet. He is very eloquent and I highly recommend reading it.

In an attempt to better understand VCs, I set out to read their investment thesis’ in 2015. One would think this would be the most basic thing.

VCs expect every founder reaching out to them to understand what they invest in, so surely they would do the service of spelling it out? Providing a veneer of academic rigour can easily be illustrated by displaying their investment thesis. Only, you would be wrong.

Having scoured the internet I have only been able to accumulate a handful. If I had this problem, I felt others no doubt would too. So like the VC pitch deck collection and startup pitch deck collection , I created one for VC investment thesis’.

If you have one to share, kindly email me and I’ll add it. Cheers.

Related reading

• Investment Memos for VC Interviews
• Thesis-driven early-stage Investing
• 16 mobile theses by Benedict Evans at a16z
• Stay In Your Overlaps
• Venture Capital Disintermediation is Coming
• HaaS – An Investment Thesis for Hardware Startups
• Investment Thesis Fundamentals by Dave McClure
• A VC explains VC’s “Investment Thesis” video from Scale Venture Partners
• Technology Waves and the Hypernet
• Notes On Early Stage Technology Investing; Art, Science, or Both?
• Building A Venture Capital Firm Is A Marathon, Not A Sprint by Sapphire Ventures
• Venture Funds as Products. What We Changed for Homebrew III . There are a bunch of interesting insights in this
• In Search of Narrative Violations by Bedrock Capital. The best time to invest in a company is when it’s most in violation of a popular narrative.
• A list of 17 one page thesis’ Turner’s Fantasy VC Portfolio II “ I picked 17 companies accompanied with a one-page thesis for each “. On startups, but related
• The Merits of Bottoms Up Investing – Very thoughtful blog on the different ways investors look at opportunities by Brett Bivens

VC Investment Thesis Collection

Want to learn more .

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Comments (6)

Hi I cant find the collection of thesis

Shubham- sorry. Got a new developer who messed about with js settings and he broke the system. I figured out what he did. It works now.

Hi, I am currently unable to locate where is the thesis collection. It does not state a ” click here for it” or any hyperlink for it

Sangreal- The 33 links load as images through a JS plugin I bought which lazy loads. You just click on the images. There should be no issues unless you have some cache/plugin issue. I hired a dev to help me improve the UI of my site for resource collections so hope to change all resource pages asap so the experience is better across the board. ADJ

Anything on fintech (esp insurance)?

Hey Adit- TBH, there are only 33 I can find which is pathetic. I mean there are some about pages with 20 words, but that’s a joke right?

The reasons there aren’t more are multi-fold, but I will reduce to two: 1/ VCs have no reason to share publicly 2/ They are hard to write (So why share when you are embarrassed?) I don’t have filters because there aren’t enough shared. Duh…

I can give you advice though to approach your own. STORY SECTION 1/ Start with the insurance industry -What’s going on? 2/ What are the big issues you see? Structurally, why are there problems? 3/ Why are the problems not being solved by incumbents? 4/ Directionally, why are people reviewing “insurance” differently. How are attitudes changing? 5/ Summarise the key areas of opportunity 6/ Team EXECUTION SECTION 7 / Track record… team, value add, deal sourcing, fund terms…. bla

Explain your specific thesis. Larger LPS are looking for specific exposure. Be logical. I have private VC decks, but yours will still be different and there isn’t that much to learn from others. I have a good one which really focuses on the history the two parters have, but that’s super specific to them. Right? ADJ

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Investment Thesis Template

Create your own investment thesis slide with this free template

Prior to becoming a Founder for Curiocity, Hassan worked for Houlihan Lokey as an Investment Banking Analyst focusing on sellside and buyside  M&A , restructurings, financings and strategic advisory engagements across industry groups.

Hassan holds a  BS  from the University of Pennsylvania in Economics.

Currently, Adin is an associate at Berkshire Partners, an $16B middle-market private equity fund. Prior to joining Berkshire Partners, Adin worked for just over three years at The  Boston Consulting Group as  an associate and consultant and previously interned for the Federal Reserve Board and the U.S. Senate.

Adin graduated from Yale University, Magna Cum Claude, with a Bachelor of Arts Degree in Economics.

This template allows you to create your own investment thesis slide detailing your overall strategy.

The template is plug-and-play , and you can enter your own text or numbers. The template also includes other slide pages for other elements of a financial model presentation.

According to the WSO Dictionary ,

"An investment thesis aims to take an abstract idea and turn it into a functional investment strategy. An investment thesis helps investors evaluate investment ideas, ideally guiding them in selecting the best ideas that can help meet their investment objectives."

A screenshot below gives you a sneak peek of the template.

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Venture Capital Case Study Interview Guide

If you’re a prospective venture capitalist or seeking to enter the exciting world of venture capital, you’re probably familiar with the importance of case study interviews.  Venture capital firms  are keen to identify the best candidates who understand their approach and have the necessary skills to work alongside entrepreneurs.

In this comprehensive guide, we will cover everything you need to know to ace your  venture capital case study  interview. We’ll provide insights into the venture capital  interview process  and discuss the most common interview questions. We’ll also share our tips on how to prepare and master case studies, analyze industry trends, and navigate  technical questions  and  financial modeling  exercises.

Key Takeaways

• Successful  venture capitalists  need an in-depth understanding of the industry and current  market trends .
• Case study interviews are designed to test your analytical and problem-solving skills and your ability to work with teams and entrepreneurs.
• Some of the most  common venture capital interview questions  are aimed at evaluating your fit for the role and the firm.
• Valuation  and  investment thesis  play a crucial role in venture capital decision-making.
• Thorough preparation, including studying sample questions and frameworks, is essential for success in  VC case study  interviews.

Understanding the Venture Capital Interview Process

Before diving into case study interviews, it is essential to have a comprehensive understanding of the venture capital  interview process . The process typically begins with an initial screening, where the candidate’s qualifications and skills are assessed. If the candidate passes the initial screening, the firm may conduct a follow-up interview, which may be conducted by a more senior member of the team.

In some cases, firms may also require candidates to complete an assignment or provide a writing sample. Following this round of interviews, successful candidates are invited to participate in final rounds, which may involve meetings with additional members of the team or a more in-depth panel presentation.

One of the key components of the venture capital  interview process  is the ability to effectively articulate your thoughts and ideas. Strong communication skills, including the ability to present complicated information clearly and succinctly, are essential for success in this industry. Additionally, candidates should be prepared to demonstrate their analytical skills, their understanding of industry trends, and their ability to work collaboratively as part of a team.

When  preparing for a venture  capital interview, it is essential to research the firm thoroughly and familiarize yourself with their investment philosophy, portfolio companies, and recent activity. A strong understanding of the firm’s focus areas and investment strategy can help you tailor your responses to their specific needs and increase your chances of success.

VC Interview Questions

VC interview questions  are designed to assess a candidate’s fit with the firm and their qualifications for the role. Common  VC interview questions  may include:

• Why do you want to work in venture capital?
• What do you think differentiates our firm from other  venture capital firms ?
• Can you discuss a deal you found particularly interesting and why?
• How would you value a company?
• What are some current industry trends?

By understanding the  venture capital interview  process and preparing thoroughly, you can increase your chances of success in this highly competitive industry.

Preparing for a Venture Capital Case Study Interview

Preparation is key to delivering a standout performance in a  venture capital case study  interview. Developing an effective strategy requires thorough research and practice. Here are some tips to help you prepare:

Research the VC Firm

Start by researching the  VC  firm you will be interviewing with. This will provide insights into their investment focus, ethos, and portfolio companies. Analyse their website, social media accounts, news articles, and other sources of information. This will help you understand the firm’s investment criteria and identify areas where you can align your background and experience with their interests.

Practice With Case Studies

Case study interviews are a crucial part of the  venture capital interview  process. Practise with mock case studies and analyse how successful  VC funds  have invested in real-world scenarios. This will enhance your analytical abilities and problem-solving skills, bringing you closer to the mindset of a  VC  analyst or associate.

Be Prepared to Frame Your Approach

In a  venture capital case study  interview, there is often no one “right” answer to a problem. Interviewers are more interested in your analytical approach and thought process. They want to see that you have the skills to break down complex problems and communicate your thinking in a clear and concise manner.

Be prepared to frame your approach by breaking down the problem, identifying key assumptions, and narrowing in on the key issues. Developing a structure can help ensure your analysis is comprehensive and well-organized.

Be Ready for Technical Questions

VC  interviews often include questions about technical topics related to venture capital and finance. Brush up on key concepts such as  valuation , term sheets, and financial modelling. This will allow you to discuss these topics articulately during the interview and showcase your expertise in the field.

“By failing to prepare, you are preparing to fail.” – Benjamin Franklin

By following these strategies, you will be better prepared to tackle a  venture capital case study interview . Remember to keep calm, stay focused, and communicate your thoughts clearly and logically. Always be ready to justify your assumptions and pivot your approach based on new information provided during the interview.

Common Venture Capital Interview Questions

In order to prepare for your  venture capital interview , it’s crucial to have an understanding of the common questions that may be asked. These questions are tailored to evaluate your fit for the role and the firm.

Specific Questions

One common question focuses on your experience as it relates to the venture capital industry. Interviewers often want to know how you’ve gained knowledge and what relevant experiences you’ve had. Another question centers around what value you could bring to the firm and whether you have any specific expertise that would be beneficial to their investment strategy.

Interviewer Expectations

Interviewers are looking  for candidates who have a strong understanding of the industry and the firm’s investment focus. They want to see evidence of strong analytical skills, critical thinking, and an ability to identify and capitalize on excellent investment opportunities. Additionally, they look for candidates who are adaptable and can work collaboratively within the firm.

“One common question centers around what value you could bring to the firm and whether you have any specific expertise that would be beneficial to their investment strategy.”

Mastering the Case Study Interview

During a  venture capital case study interview , the interviewer typically presents a business case related to the industry or market to assess your analytical, problem-solving, and communication skills. A  case study interview  is your opportunity to showcase your ability to analyze a problem or situation, evaluate potential solutions, and develop a coherent and persuasive argument.

Preparing for a  case study interview  involves understanding the case study methodology and identifying the key elements of the problem to solve. Generally, case study interviews follow a structured format:

• The interviewer presents the case study, along with any relevant background information and data.
• You have time to review and analyze the case study before presenting your analysis and proposed solution(s).
• You present your analysis and proposed solution(s) to the interviewer.
• The interviewer may ask follow-up questions to test your assumptions, methodology, and problem-solving skills.

To succeed in a  case study interview , it’s crucial to follow a structured approach and demonstrate a thorough understanding of the problem and its context. In addition, your analysis should be supported by credible data and logical reasoning.

One effective framework for structuring your case study analysis is the “Issue-Tree” method.

Issue-Tree Method

The issue-tree method involves breaking down a complex problem into smaller, manageable components, and identifying the cause-and-effect relationships between them. The framework allows you to analyze the problem systematically and develop a clear, structured argument.

As shown in the table, the issue-tree method involves identifying the problem, breaking it down into smaller “causes” and developing “hypotheses” for each cause. You then gather relevant “data” to test each hypothesis, and derive “conclusions” based on the data.

Remember to emphasize your communication and presentation skills during the interview. You should be able to present your analysis and solution(s) in a clear, concise, and persuasive manner.

Understanding the Venture Capital Industry and Market Trends

Having a deep understanding of the venture capital industry and staying on top of the latest  market trends  can give you a significant advantage in a case study interview. The venture capital industry is driven by  venture capital firms  and  venture capitalists  who invest in startups with high growth potential in exchange for equity.

According to Pitchbook, venture capital firms invested over £10 billion in the UK in 2020, despite the challenges posed by the pandemic. While the first quarter of 2021 saw a decline in venture capital investment, due to uncertainty related to Brexit and the pandemic, the industry rebounded in the following months.

It’s important to stay up-to-date with  market trends  to understand which industries and sectors are currently receiving the most investment, such as healthcare, fintech, and sustainability. By keeping tabs on market trends, you can develop a perspective on where the industry is headed and which startups are most likely to succeed.

“The key players in the industry include Accel, Sequoia Capital, Index Ventures, and more. It’s crucial to research these firms and the types of startups they specialize in, in order to tailor your preparation for your interview.” – Jonathan Davies,  VC Associate

Valuation and Investment Thesis in Venture Capital

Valuation  and  investment thesis  play a crucial role in making sound venture capital investments. Before investing in a startup,  venture capitalists  need to determine its valuation and align it with the firm’s  investment thesis . Valuation is the process of determining a company’s worth based on its assets, market potential, and future growth prospects. A startup’s valuation can also be influenced by market trends and competition.

Venture capitalists develop investment theses to guide their investment decisions. An investment thesis is a set of criteria that a startup must meet to be considered for investment. Factors such as industry, market potential, management team, and technology can influence a venture capital firm’s investment thesis. The investment thesis also shapes the firm’s portfolio and helps attract investors to its  VC funds .

When considering investment opportunities, venture capitalists need to ensure that a startup’s vision aligns with the firm’s investment thesis. Investing in a startup that does not align with the firm’s investment thesis could lead to strategic misalignment and poor returns.

Valuation Methodologies

Venture capitalists use various methodologies to value startups. The most common valuation method is the discounted cash flow (DCF) analysis. The DCF method involves estimating a startup’s future cash flows and discounting them back to their present value.

Another commonly used valuation method is the market-based approach, which compares a startup’s valuation to that of similar companies in the market. The market-based approach involves using multiples such as price-to-earnings ratio (P/E ratio) or price-to-sales ratio (P/S ratio) to determine a startup’s valuation.

Factors to Consider in Developing an Investment Thesis

Developing a sound investment thesis requires careful consideration of various factors. These include the target industry, stage of the startup, management team, competition, and market potential. A thorough understanding of these factors can help venture capitalists make informed investment decisions.

Navigating Technical Questions and Financial Modeling

Technical questions  and  financial modeling  are crucial components of a  venture capital case study interview  that test your analytical and strategic thinking skills. As a  VC associate , you’ll be expected to evaluate startups, assess market opportunities and risks, and develop investment strategies that align with your firm’s vision.

Here are some tips for approaching  technical questions  and  financial modeling  exercises:

• Understand the problem:  Read the case study carefully, and make sure you understand the goals, constraints, and relevant data points.
• Organize your thoughts:  Create a logical outline or framework for your analysis, and break down complex problems into smaller, manageable parts.
• Use data wisely:  Use financial models, graphs, and other visual aids to communicate your findings and support your arguments.
• Be flexible:  Be open to new ideas, alternate solutions, and different perspectives. Venture capital is an ever-changing industry, and being adaptable is key.

Here are some common types of technical questions and financial modeling exercises:

To prepare for technical questions and financial modeling exercises, try practicing with sample case studies and reviewing industry reports and market research. Build your analytical toolkit with courses, books, and online resources, and stay up-to-date on the latest trends and technologies in the venture capital industry.

With this comprehensive guide, you are now equipped with all the necessary tools and insights to succeed in your venture capital case study interview. Remember to understand the interview process, thoroughly prepare for the case study interview, and master the common interview questions. It’s also important to stay up-to-date with industry trends and understand the valuation and investment thesis process. Finally, be confident in navigating technical questions and financial modeling exercises. Good luck with your venture capital interview!

What is a venture capital case study interview?

A venture capital case study interview is an interview format commonly used by venture capital firms to assess a candidate’s ability to evaluate investment opportunities. It typically involves analyzing a hypothetical or real-life investment scenario and presenting recommendations based on your analysis.

How should I prepare for a venture capital case study interview?

To prepare for a venture capital case study interview, familiarize yourself with the industry and its trends, practice analyzing case studies, and develop a structured approach to problem-solving and decision-making. You should also be comfortable with financial modeling, valuation techniques, and presenting your findings in a clear and concise manner.

What are some common venture capital interview questions?

Common venture capital interview questions  include inquiries about your investment thesis, previous investment experience, knowledge of the industry, and how you would evaluate a potential investment opportunity. Interviewers may also ask behavioral questions to assess your ability to work in a team and overcome challenges.

How do I demonstrate my industry knowledge in a venture capital interview?

To demonstrate your industry knowledge in a venture capital interview, stay updated on market trends, follow industry blogs and news outlets, and research the investment portfolios and strategies of the venture capital firms you are interviewing with. Being able to articulate your understanding of industry dynamics and align it with the firm’s investment thesis will make a strong impression.

What should I expect during a venture capital case study interview process?

During a venture capital case study interview, you can expect to receive a case study prompt or scenario, analyze the given information, and present your recommendations. The interviewers may ask you clarifying questions, challenge your assumptions, and assess your ability to think critically and make sound investment decisions.

How can I best showcase my analytical skills in a venture capital case study interview?

To showcase your analytical skills in a venture capital case study interview, demonstrate a structured approach to problem-solving, use relevant financial models or frameworks to support your analysis, clearly articulate your assumptions, and explain the rationale behind your recommendations. It’s also important to communicate your findings in a concise and persuasive manner.

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Venture Capital For Scientists: A Guide For Quantum Tech Entrepreneurs

• Quantum Computing Business

Matt Swayne

• March 22, 2024

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Deep tech science entrepreneurs – and particularly quantum science entrepreneurs – have more than a few hurdles facing them from the start.

One of the leading challenges: Scientists have spent most of their lives dedicated almost exclusively to learning about a single field and often very specific subjects within those fields. In the case of quantum tech, these scientists are consumed by one of the most complex, often baffling subjects. Scientists, therefore, have little time or energy to focus their attention on another complex, often baffling subject called venture capital.

Besides a lack of familiarity with venture capital, there’s another reason for this science-investment bridge. Most science entrepreneurs who are considering starting a business based on their research or scientific advances realize quickly that quantum technology is a capital intensive endeavor. Few could bootstrap it with their own funds and, therefore, would need to enlist the help of deep tech-savvy venture capitalists.

The following information isn’t meant to be presumptuous and isn’t meant to insult the intelligence of a scientist considering such a business venture. Many scientists are equally adept at business and finance. However, this guide is meant to help some scientists who may feel more comfortable around wave functions than business functions.

In an era where quantum technology is drawing more interest from investors, startups in this space are bridging the gap between theoretical physics and practical applications. However, transforming groundbreaking scientific discoveries into commercially viable products often requires more than just an innovative idea; it demands substantial financial backing. This is where venture capital (VC) steps in, providing a lifeline to those ventures that hold the promise of revolutionizing technology but lack the necessary funds to accelerate their growth.

Understanding Venture Capital

At its core, venture capital is considered a subset or earlier stage of private equity, specifically designed to support startups with the potential for exponential growth. Unlike loans from traditional financial institutions, venture capital is invested in exchange for equity in the company. This form of financing is particularly suited to high-risk, high-reward enterprises like quantum technology startups, where the path to profitability is uncertain, and the investment required is substantial.

How Venture Capital Firms Operate

Think of VC firms as capital aggregators, pooling funds from individuals, corporations and institutional investors to inject into promising startups. Typically, these firms are not just funders; they are partners, offering mentorship, strategic advice, and access to a vast network of industry connections. The goal is not merely to fuel early-stage companies but to guide them towards a stage where they can either go public or be acquired, providing a significant return on investment.

Benefits of Venture Capital

Deep tech companies are capital-intensive operations. Initial funds are needed for equipment and salaries can be on the high-end of the range. The infusion of venture capital, therefore, can be more than transformative for quantum tech startups, it can be absolutely essential. Startups would likely never make it out of the lab without the funds. Benefits, however, the total benefits go beyond funds. You might want to classify the  main benefits as capital, coaching and connections:

• Capital for Scaling: Essential for startups that require significant investment in research and development before achieving profitability.
• Mentorship and Strategic Guidance: Many VC firms boast a roster of experienced entrepreneurs and industry specialists who can provide invaluable insights and advice.
• Access to Networks: From potential customers and partners to future investors, the networks provided by VC firms can open many doors.

Drawbacks of Venture Capital

However, venture capital is not without its challenges. Accepting VC funding means relinquishing a portion of equity and, potentially, some control over the company. Moreover, the pressure to deliver rapid growth can be intense, leading some startups to prioritize scale over sustainability. It’s also crucial for startups to ensure their vision aligns with their investors, as misalignments can lead to strategic conflicts.

For a quantum technology startup to attract venture capital, it must demonstrate:

• A Groundbreaking Product: Innovation is key, with a clear competitive edge over existing technologies.
• Market Potential: A viable path to significant market penetration and profitability.
• A Strong Team: Capable of executing the business plan and adapting to challenges.
• Commitment to Growth: A readiness to scale operations and explore new market opportunities.

Case Studies of VC in Quantum Technology

Venture capital plays a pivotal role in advancing quantum computing by providing the necessary funding and strategic guidance to startups. Perhaps this is too strong, but it’s unlikely the quantum computing industry would exist in any form right now.

Here are a few examples of quantum tech leaders who received backing by venture capitalists.

IonQ is a leader in trapped-ion quantum computing, focusing on building quantum computers that are scalable and can outperform classical computers for certain tasks.

Venture Capital Influence: IonQ has raised substantial funding from venture capital firms like Cambium, a multi-stage venture capital firm focused on investments in the future of computational paradigms , Tao Capital Partners and Correlation Ventures , among others.

This investment has been crucial for IonQ to scale its technology, enhance its quantum hardware, and expand its reach into various industries. It is now a publicly traded company.

PsiQuantum is working on building a commercially viable quantum computer using photonic technology, aiming to create a system with millions of qubits.

Venture Capital Influence: The company has secured significant venture capital investment from firms like BlackRock, Microsoft’s M12, and Playground Globa l. This funding supports PsiQuantum’s ambitious goal of scaling up its quantum computing technology to a level that could revolutionize various sectors, including healthcare, finance, and energy.

Quantum Machines

Background: Quantum Machines specializes in the development of quantum control hardware and software, aiming to enhance the performance and speed of quantum computers.

With funding from investors like Battery Ventures, TLV Partners, and Atreides Management, Quantum Machines has been able to advance its Quantum Orchestration Platform, which is designed to operate and optimize quantum computing systems.

Outcome: The company’s technology is being used by researchers and industry leaders to accelerate quantum computing experiments and developments, signifying a key contribution to the quantum computing ecosystem by improving the reliability and functionality of quantum systems.

Q-CTRL focuses on quantum control engineering to improve the performance of quantum computing devices. It offers software that helps mitigate errors in quantum computing systems, which is one of the major challenges in the field.

Venture Capital Influence: Backed by venture capital firms like Square Peg Capital, Sierra Ventures, and Sequoia Capita l, Q-CTRL’s funding has enabled it to develop advanced quantum control solutions that can be applied across various quantum computing hardware platforms.

Resources and Toolkit

For quantum tech entrepreneurs ready to explore venture capital, the following resources are invaluable:

• Quantum Technology Trade Associations: Offering networking opportunities and insights into industry trends.
• The Quantum Insider and The Quantum Insider Intelligence Platform : Shameless plug but we try to be a resource for startups looking to connect with investors. Our media and data platform can help identify potential investors with interest in quantum technologies.
• Pitch Deck Templates: Essential for articulating your startup’s value proposition to potential investors.
• Financial Modeling Guides: Helping to project financial performance and growth potential.
• Legal and Regulatory Resources: Critical for navigating the complexities of VC funding and protecting intellectual property.

What Questions Should You Ask and Why?

It’s good to have at least some idea of what you will need to know in those initial meetings with interested investors. Here are a few suggestions for top-of-mind questions to help shape the conversation:

• What is your investment thesis and how does our project align with it? Understanding the VC’s investment focus — whether it’s on a particular technology, stage of company growth, or market — can help gauge how well your project fits their portfolio strategy.
• Can you share examples of similar deep tech investments and their outcomes? This question helps assess the VC’s experience and success rate with deep tech startups, providing insight into their understanding of the challenges and timelines specific to deep tech ventures.
• What value beyond capital do you bring to your investments? Venture capital should offer more than just money. Inquire about the firm’s network, mentorship, strategic guidance, and any other support services they provide.
• What is your typical investment horizon and exit strategy for deep tech startups? Deep tech projects often have longer development timelines. It’s important to know if the VC’s expectations for returns align with the realistic timeline of your project.
• How do you typically structure your investments in deep tech companies? Understanding the financial terms, including valuation, equity stake, dilution, and any special conditions like milestone-based funding, is crucial before moving forward.
• Can you describe your involvement with portfolio companies? Gauge how hands-on the VC likes to be. Some provide significant operational support, while others prefer a more hands-off approach. Consider what level of involvement you’re comfortable with.
• What are the most common challenges your deep tech investments face, and how do you help them navigate these challenges? This question can reveal the VC’s depth of understanding of the deep tech landscape and their proactive measures to support startups through inherent industry challenges.
• How do you view failure, particularly in high-risk deep tech ventures? This might be a risky – no pun intended – one, but it should be considered. The VCs’ response can provide insight into the VC’s risk tolerance and their approach to setbacks, which is particularly relevant in the high-stakes world of deep tech.
• What is your process for follow-on investments? Knowing whether the VC has a track record of providing additional funding rounds can be crucial for long-term planning, especially since deep tech projects may require multiple rounds of funding.
• Can you provide references from other deep tech companies in your portfolio? Speaking with current or past investees can offer valuable insights into the VC’s working style, commitment, and impact on their investments.

VC Terms And Their Definitions:

Understanding the following terms can help entrepreneurs navigate the complexities of venture capital financing more effectively, ensuring they’re better prepared to negotiate terms and understand the implications of the agreements they enter into.

Term Sheet: A non-binding document outlining the basic terms and conditions under which an investment will be made. It serves as a template to develop more detailed legal documents.

Equity: Ownership interest in a company. Venture capitalists receive equity in exchange for the capital they invest, giving them a share of the company’s profits and losses.

Dilution: The reduction in existing shareholders’ ownership percentages that occurs when a company issues more shares, often due to new investors coming in.

Valuation: The process of determining the current worth of a company. Pre-money valuation refers to the company’s value before receiving the investment, while post-money valuation includes the investment amount.

Cap Table (Capitalization Table): A table providing an analysis of the company’s percentages of ownership, equity dilution, and value of equity in each round of investment by founders, investors, and other owners.

Convertible Note: A short-term debt that converts into equity, typically in conjunction with a future financing round; the investor loans money to a startup with the intention that the loan will convert into shares of preferred stock during the equity financing.

SAFE (Simple Agreement for Future Equity): An agreement between an investor and a company that provides rights to the investor for future equity in the company without determining a specific price per share at the time of the initial investment.

Liquidity Event: An event that allows initial investors to sell their shares and potentially realize gains on their investments. Common examples include an IPO (Initial Public Offering) or an acquisition.

Vesting: The process by which an employee earns their stock options over time. This is designed to incentivize the employee to stay with the company for a longer period.

Burn Rate: The rate at which a company is spending its capital to finance overhead before generating positive cash flow from operations. It’s a measure of negative cash flow.

Lead Investor: The venture capital firm or individual that organizes a round of financing, invests a significant portion of the capital, and usually negotiates the terms of the investment on behalf of other investors.

Due Diligence: The comprehensive appraisal of a business undertaken by a prospective buyer, especially regarding its assets, liabilities, and commercial potential, before making an investment.

Exit Strategy: The method by which a venture capitalist or business owner intends to get out of an investment that they have made in the past. This could be through selling the company, public offering, or other means.

Preferred Stock: A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have dividends that must be paid out before dividends to common shareholders and the shares usually do not carry voting rights.

Drag-Along Right: A legal concept that allows majority shareholders to force minority shareholders to join in the sale of a company. The minority shareholders must sell their shares at the same terms as the majority shareholder.

No matter where you land on your decision to secure venture capital funding, we wish you best of luck in this journey – and any journey of a quantum technology startup from concept to market is exciting and challenging. And one of those exciting-slash-challenging moments is securing the necessary funding to fuel growth. Venture capital offers a pathway, not just through financial investment but through the strategic support and networks that come with it. Understanding how to engage with the VC ecosystem, from crafting a compelling pitch to aligning with the right investors, can make the difference between stagnation and success.

Quantum technology entrepreneurs stand at the threshold of a new technological revolution. With the right approach to venture capital, they have the potential to not just participate in but lead this revolution, transforming their groundbreaking ideas into realities that could redefine the future.

This guide serves as a starting point for quantum tech entrepreneurs embarking on their venture capital journey. By leveraging the outlined resources and insights, startups can navigate the VC landscape with greater confidence and clarity, turning visionary scientific achievements into successful, scalable businesses. The road ahead is challenging, but for those who navigate it wisely, the rewards can be revolutionary.

Best of luck in the next steps of this journey!

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More From Forbes

Science angels: public/private fund aims to boost deep tech investment.

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Dr Jonathan Matlock, co-founder of Empirical Ventures sees opportunities for angels to invest in ... [+] hard science

Here’s the problem. Collectively speaking, deep-science startups working in fields such as AI, quantum computing and biotech are seen as a vital cornerstone of future economic prosperity but they don’t always find it easy to secure early-stage investment. That’s partly because it can take a while for science-led companies to work out use cases for the technologies they are developing and, thus, present a credible route to market for prospective investors. It’s also the case that deep science ican be daunting for generalist VCs and angels. It’s difficult to assess the merits of something you don’t fully understand, even - or perhaps especially - if the concept is being outlined by PhD researchers steeped in the subject.

Arguably, angel investors face the biggest challenge. Traditionally, angels jump in at the Seed or Pre-Seed stages, providing relatively small amounts of capital before VCs with larger pockets arrive on the scene. That’s fine if the investment is in - for example - a franchising consumer business or a chain of restaurants - but putting money into, say, a science-led university spin-out represents a tougher call. angels may not have the expertise to weigh the opportunities and risks.

That’s a problem that Doctors Jonathan Matlock and Ben Miles - respectively, PhDs in chemistry and physics - have set out to solve.

Last week, they announced the launch of an £8 million fund to support early-stage deep-science businesses, with the capital provided by a combination of angel investors and the U.K. government-owned British Business Investments as part of its Regional Angels program. The aim the fund is to focus funding on solutions to pressing scientific problems.

So how will it all work? The first thing that has to be said is that the involvement of the Regional Angels program is part of a wider government effort to drive investment. The initiative was launched in 2018 by British Business Investments (a subsidiary of the British Business Bank ) to level the U.K.’s investment playing field. According to the organization’s own research, most of Britain’s business angels were based in London and the south-east of England. The plan was - and is - to work with partners to channel equity finance to other parts of the country.

The arrangement with Empirical Ventures should see more money going into science startups, with the risks spread between angels and British Business Investments.

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As Dr Matlock explains, Empirical Ventures supplies the necessary scientific expertise. He and co-founder. Dr Ben Miles met when they were part of the scientific team working for University of Bristol spin-out, Ziylo, a company that was later acquired by healthcare group Novo Nordisk. In 2021 they set up the Science Angel Syndicate with the aim of encouraging non-expert investors to back cutting-edge science.

“We did all the due diligence,” says Dr Matlock. “And then we shared with both the angels and the founders.”

The concept evolved into Empirical Ventures, not least, Dr Matlock says, because of demand from the investors. “Members of the syndicate were saying, why don’t you just set up a fund.”

Fast forward to the present day and the partnership with the Regional Angels Fund means more money is available. The Regional Angels Fund is putting up £5 million, which can be drawn down when required. In parallel, the Empirical Ventures S/EIS fund (which takes advantage of U.K. tax breaks) brings £3 million in private investment to the table.

While British Business Investments is 100% owned by the government, it is independently managed and its objective is to secure a return on its capital. In that respect, this variation on the public/private partnership theme operates under commercial disciplines. However, it is also helping to deliver on another key government goal - namely, to support the journey of British science from lab to marketplace. “The UK is keen to be a science superpower. This is putting patient capital into the ecosystem,” says Dr Matlock.

Cross-Discipline IP

There is a broad theme to the investment strategy. “The thesis is that we will invest in businesses where there has been a lot of research across disciplines,” says Dr Matlock. “This creates IP that can be protected.”

And while it’s not a requirement for companies to be revenue generating, Matlock says founders seeking investment should have moved beyond the blue-sky research phase. “There needs to be a proof of concept. We want companies with a clear forward-looking plan.”

Asel Sartbaeva, CEO of Ensilitech found says the company's mission was attractive to investors

He cites EnsiliTech as an example of what that looks like in practice. Spun out from the University of Bath in 2022, the company was established to solve the problem of transporting and storing biological materials such as vaccines that would normally require very low temperatures. The company’s approach is to coat the materials in silica “nanoshells.” This precludes the need for refrigeration.

“Our company is based on 12 years of research,” says CEO and co-founder, Asel Sartbaeva. “During the pandemic, it became clear that our technology needed to be taken to the marketplace.”

The technology was developed by a cross-disciplinary team and initially, the use case wasn’t apparent. However, as vaccines were developed to protect against COVID-19, it became clear that refrigeration requirements would prove restrictive in some circumstances. “We decided we should focus on antibodies,” says Sartbaeva. The concept is currently being proved through work on animal vaccines.

EnsilicaTech is a Science Angel Syndicate portfolio company that has also received support from innovation agency Innovate UK, the University of Bath and others. I was keen to get Sartbaeva’s overview of the funding landscape for early-stage science businesses.

“When I started I was a newbie as a CEO. People said I should prepare for a lot of rejections,” she says. “But what we found very rapidly was there were a lot of investors who cared about what we were doing and wanted to help us with our mission. There were also investors who - like Jonathan - are scientists. We had rejections but we had an oversubscribed investment round.”

You could argue, then, that funding needn’t be difficult to secure, but Sartbae’s experience does seem to point to two elements that will ease the flow of capital. The first is the presence of expert investors who can assess the science. The second is a company mission that aligns with the concerns of investors.

Dr Matlock also sees that as important. “I was interested in impact companies. Those whose commercial success would correlate with impact," he says.

Empirical Ventures is by no means the only fund or angel syndicate committed to investing in deep science. There are many others. Some are generalist but, nonetheless, have science startups in their portfolio. Others specialize in certain sectors, such as Cambridge Angels (cleantech, biotech) and Angels in Medcity (medtech).

Given the U.K. government’s focus on science, any initiative to increase investment should be welcomed. For its part, Empirical plans to make 10-15 investments in the next year or so.

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