Investing in startups without an investment thesis is like going on a trip without a GPS; you can do it, but you’ll have no direction.
An investment thesis is a framework that outlines your investment strategy and objectives. It helps you think more clearly by giving you the ability to narrow down what makes a company interesting.
In this blog post, we will discuss how to create an investment thesis so you can start investing with direction.
An investment thesis should clearly define your investment goals and the criteria you will use to make investment decisions. Your investment thesis should include the following components:
Your investment goals should be specific, measurable, achievable, relevant, and time-bound (SMART). You should identify the types of startups you want to invest in and the expected return on investment (ROI).
Your investment criteria should outline the characteristics of the startups you plan to invest in. This may include factors such as the startup’s industry, stage of development, management team, and revenue potential. Your investment criteria should be based on your personal investment philosophy and objectives.
Read more: Investment Thesis Fundamentals
Your personal investment philosophy and objectives should guide your investment decisions. Before creating an investment thesis, you should assess your personal investment philosophy and objectives. This involves answering the following questions:
Your investment philosophy should be informed by your views on the future. You should assess trends and developments in your industry of interest and identify potential investment opportunities.
Your investment objectives should be aligned with your personal financial goals. This may include factors such as cash flow requirements, risk tolerance, and investment horizon.
To create a successful investment thesis, you need to conduct market analysis and identify investment themes. This involves the following steps:
You should analyze the market to identify trends and opportunities. This may involve conducting interviews with industry experts, attending industry conferences, and analyzing market reports.
Based on your market analysis, you should identify investment themes. Investment themes are broad areas of focus that guide your investment decisions. For example, you may choose to focus on startups that are developing innovative technology solutions for the healthcare industry.
Once you have identified investment themes, you need to establish criteria for investment selection and portfolio construction. This involves the following steps:
Your investment selection criteria should be based on your investment goals and criteria. This may include factors such as the startup’s market potential, management team, and financial performance.
Your portfolio should be diversified to minimize risk. You should consider factors such as the stage of development, industry, and revenue potential of each startup in your portfolio.
Creating an investment thesis is step one before investing in startups.
Your investment thesis should define your investment goals and criteria, assess your personal investment philosophy and objectives, and identify investment themes. Your thesis should improve your clarity and make it easier to narrow down your investment decisions.
If you’re looking for more examples of investment theses from some of the top funds in the world, check out the Ultimate VC Resource Library to get access to that plus 350+ other venture resources.