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1. What is Your Venture Capital Investment Thesis

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

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

What is the fund Thesis?

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

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

How do you write a compelling fund Thesis?

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

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

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

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

Fund Size: [$x MM] 

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

Investment Stage: [Stage] 

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

Your Location: [Country / City] 

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

Geographic Focus: [Geography] 

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

Sector Focus: [Sector / Market Companies] 

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

Unique Selling Point: [with Secret Sauce] 

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

What are some sample fund Theses?

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

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

How specific should your fund Thesis be?

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

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

How do you refine your fund Thesis?

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

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

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

What are the next steps?

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

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

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

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

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

What exactly is an Investment Thesis?

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

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

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

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

Getting Started With Your Investment Thesis: Conducting Market Research

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

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

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

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

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

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

Defining The Investment Criteria for your Investment Thesis

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

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

Determining the Stages of Startups

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

Geographical Preferences and Target Industries

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

Investment Size and Portfolio Diversification

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

Alignment with Personal Values and Objectives

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

Market Fit and Growth Potential

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

Synergy with Your Expertise and Network

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

Balancing Risk and Return

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

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

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

Identifying Key Performance Indicators (KPIs) for Your Investment Thesis

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

Tailoring KPIs to Startup Stages and Industries

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

Selecting Actionable and Measurable Metrics

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

Common KPIs in Venture Capital

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

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

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

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

relationships.

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

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

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

The Power of Data-Driven Decision Making

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

Building a Well-defined Due Diligence Process

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

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

1. Defining Your Due Diligence Objectives

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

2. Gathering Essential Information

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

3. Market Analysis

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

4. Team Evaluation

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

5. Financial Due Diligence

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

6. Product and Technology Assessment

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

7. Legal and Regulatory Review

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

8. Customer and Partner Feedback

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

9. Risk Analysis

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

10. Decision-Making and Post-Investment Monitoring

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

Refining Your Thesis and Iterating

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

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

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

Interested in the full research paper?

You might also like, the ultimate guide to navigating the vc investment funnel, going from operator angel to fund manager, the top 12 questions founders should ask vcs in fundraising meetings, how to spot the next big thing: trends vcs should be watching, vc superpowers: what skill sets make the best investors stand out, how to navigate your way through the four stages of the vc interview process, about goingvc.

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VC Investment Thesis

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

• Genuine documents
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• Filter to your need

1839 Venture Funds

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

500 Startups

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

500 Startups Israel

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

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

Allied Venture Partners

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

Alternative Protein Fund

APF are focused on agriculture and food technology companies.

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

Bowery Capital

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

Building Ventures – Construction

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

Building Ventures – Space

Building Ventures are focused on space as a service

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

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

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

Deep Space Ventures

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

Draper Cygnus

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

Early Game Ventures

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

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

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

ExSight invest in startups that focus in eyes.

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

Iceland Venture Studio

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

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

Kima Ventures

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

Mammoth Scientific

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

Maven Ventures

Maven invest in startups with network effects

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

Notation Capital

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

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

Placeholder

Placeholder are East Coast focused on decentralized information networks

Point Nine Capital

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

Frequently Asked Questions

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

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

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

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

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

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

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

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

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The investment thesis explained: everything you need to know.

What's an investment thesis?

Key elements

Investment stage

Follow-on funds

Do your homework

Tailor your pitch

Be realistic

Embrace the long game

Highlight value

Prepare for investment

You've poured your heart and soul into your startup. Now you're ready to take the next big leap – securing venture capital (VC) funding. 

But here's the catch: VCs aren't just looking for great ideas. They're looking for great ideas that fit their specific investment strategy. 

Enter the investment thesis, which guides both how you select suitable VCs and how they decide whether you’re suitable for them.

Read on to uncover the ins and outs of investment theses, how they shape VC decisions, and how you can use this knowledge to your advantage when seeking funding for your company.

What is an investment fund thesis?

An investment thesis is a VC firm's core set of beliefs about the types of investments that will yield the best returns. It's a foundational philosophy that guides their investment decisions.

A typical investment thesis includes:

• Target sectors or technologies
• Preferred company stages (e.g., seed, early-stage, growth)
• Geographical focus
• Ideal company characteristics
• Market trends they believe will be important

The investment thesis informs how a VC firm evaluates opportunities, allocates its fund, and builds its portfolio. It's primarily based around the firm's expertise, market analysis, and predictions about future trends.

For companies trying to raise VC capital, effectively analysing and understanding a VC's investment thesis is an essential skill.

It helps you determine if your startup aligns with what the VC is looking for, increasing your chances of securing funding and building a productive long-term partnership. 

Not to mention, it will save you from wasting time pursuing the wrong VCs!

Key elements of an investment thesis

When researching VCs, here are the main components of their investment thesis to look out for:

1. Fund size

As noted, a fund's size significantly influences the types of investments it can make.

Larger funds need to write bigger checks and often target later-stage companies to move the needle on returns. Smaller funds typically focus on earlier stages, where smaller investments can yield outsized returns.

For example, a $500 million fund might focus on Series B and C rounds, while a $50 million fund might concentrate on seed and Series A investments.

2. Investment stage

VCs usually specialise in certain stages of a company's lifecycle.

Some VCs target smaller companies, offering smaller sums as low as £/$100K or less for early-stage, risky businesses. Others get involved once a business has raised seed and Series A funding.

Broadly speaking, early-stage VCs might be more comfortable with product risk and market uncertainty, while later-stage investors often look for proven traction and clear paths to profitability.

Again, this is often flexible. For example:

• AI startups have been raising immensely large seed and Series A funding, like the French company H, which recently raised $220 million months after its formation.
• US startup Safe Superintelligence Inc. similarly raised an eye-watering $1 billion despite having no product.

3. Industry focus

Many VCs specialise in specific industries or sectors where they have expertise or see particular potential. This could be broad (like "enterprise software") or niche (like "AI-powered fintech for SMEs").

Industry focus is often tied to the partners' backgrounds and the fund's thesis on where future growth opportunities lie.

For instance, a VC firm might focus on health tech because it believes in the sector's growth potential and has partnered with healthcare industry experience.

4. Geographic focus

Some VCs invest globally, while others focus on specific regions or even cities (this is common in US cities like San Francisco and New York).

This often aligns with where they have the strongest networks and can provide the most value beyond capital.

A VC's geographic focus might be influenced by factors like:

• Local ecosystem strength
• Regulatory environment
• Proximity for hands-on support
• Emerging market opportunities

5. Deal size and ownership targets

VCs typically have a range for their initial investments and targets for the percentage ownership they want to acquire.

This helps them manage their portfolio and ensure they have enough stake in their winners to drive fund returns.

For instance, a VC might aim to invest £/$2-5 million for a 15-20% ownership stake in their initial investment. This allows them to have meaningful influence while leaving room for future investors.

6. Follow-on strategy

Most VCs reserve capital to participate in future funding rounds of their portfolio companies. Understanding this provides insights into how they might support you beyond the initial investment.

Some VCs might reserve 50% or more of their fund for follow-on investments, while others might have a more limited follow-on strategy. This can impact how much support you can expect in future rounds.

Using this knowledge to approach VCs

VCs often see a company’s attempt to align with their thesis as a green flag. In fact, many say that failing to consider the thesis when reaching out to VCs is precisely how not to approach VCs. 

Josefa Marzo Pons from Kalonia Venture Partners explained:

If they have researched what kind of investments we make and it is a match it's a welcomed email.

Kate Brodock from Switch Futures similarly says:

You’d be shocked how many cold outreaches I get that are so clearly outside our thesis.

Here’s how to use your understanding of the thesis to increase your odds of VC outreach success:

1. Do your homework

Before reaching out to a VC, thoroughly research their investment thesis. This information is often available on their website or in interviews with the partners. As our friends at Connectd say:

The first step is always research. You need to have a clear understanding of the ecosystem, what kinds of investors are out there, and then decide who is best suited to your business.

2. Tailor your pitch

Highlight aspects of your startup that align with the VC's thesis. Show them why you're a perfect fit for their portfolio. Our free pitch deck template should put you in good stead.

3. Be realistic

If your startup doesn't align with a VC's thesis, it's probably not worth your time to pitch them. Focus on VCs whose theses match your profile.

4. Understand their perspective

When a VC asks questions or raises concerns, try to view it through the lens of their investment thesis. Are they trying to determine if you fit their strategy?

5. Prepare for the long game

VCs think in terms of fund lifecycles (typically 10 years). Be prepared to discuss your long-term vision and how it aligns with their thesis.

6. Highlight the value you bring

VCs are looking for companies that can provide outsized returns. Emphasise how your startup fits into their thesis in a way that could drive significant value.

A mutual fit matters

Ultimately, securing VC funding isn't just about the cash. It's about entering into a long-term partnership.

The VC's investment thesis should align not just with your current state, but with your long-term vision and goals.

Don't be afraid to ask VCs about their thesis and how they see your company fitting into their portfolio.

This demonstrates your savviness as a founder and helps ensure that any partnership you enter is built on mutual understanding and aligned interests.

The long and short of it is that:

It's not about impressing every VC out there but finding the ones whose investment thesis matches your startup's potential, saving you time and energy in the process. 

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Give Vestd a try for free and see how we can streamline your equity admin while you work on impressing those perfectly-matched VCs.

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Understanding a VC Investment Thesis

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

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

What is a VC Investment Thesis?

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

A typical investment thesis includes the following components:

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

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

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

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

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

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

Why Does a VC Investment Thesis Matter to Startups?

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

1. Alignment of Goals:

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

2. Efficient Use of Resources:

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

3. Strategic Partnerships:

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

4. Better Guidance:

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

How Startups Can Align with a VC’s Investment Thesis

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

1. Research VCs Thoroughly:

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

2. Tailor Your Pitch:

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

3. Articulate Market Fit:

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

4. Leverage Warm Introductions:

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

5. Be Open to Feedback:

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

6. Maintain Flexibility:

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

Summary – Understanding a VC Investment Thesis

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

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

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How to Use a VC's Investment Thesis to Your Advantage

Published on

When approaching venture capitalists, it’s crucial to remember that each VC firm operates under an investment thesis—a guiding set of rules that dictates where and how they invest. This thesis is essentially a blueprint that lays out the sectors they focus on, their growth preferences, investment stages, and expectations around exits. By understanding and strategically aligning with this framework, you can not only increase your chances of securing funding but also gain a more supportive, synergistic partnership. Here’s how to use a VC’s investment thesis to your advantage.

What is an Investment Thesis?

An investment thesis is the guiding principle behind a VC firm's investment choices. It’s their core belief system about which types of investments will likely deliver the best returns.

A typical investment thesis outlines:

• Focused sectors or technologies
• Preferred growth stages (seed, early-stage, growth)
• Geographic focus
• Key characteristics in target companies
• Market trends they expect to drive future success

A VC’s investment thesis shapes how they assess potential investments, allocate funds, and build their portfolio. This thesis reflects their expertise, market insights, and future predictions.

Glossary Investment Thesis

Identify the VC’s Industry Focus to Increase Your Funding Chances

Venture capital firms specialize in specific sectors to leverage their industry knowledge, connections, and resources. By understanding a VC’s area of focus, you can approach those who already grasp the nuances of your market. When you connect with a VC whose sector expertise matches your own, they’re likely to be better positioned to support you with strategic insights, relevant introductions, and even operational advice.

For example, a VC specializing in green tech can provide invaluable resources around sustainable growth, regulatory challenges, and supplier networks in this sector. By partnering with someone who knows your field, you gain not only capital but also guidance and resources to navigate industry-specific challenges more effectively.

Find VCs Whose Growth Strategies Align with Your Business Goals

A VC’s thesis will often reveal their ideal growth trajectory, shaped by the kind of returns they aim to achieve. Some VCs prefer fast, high-growth investments that aim for quick market disruption, while others look for gradual, long-term growth. Knowing this can help you avoid friction later by ensuring both parties are on the same page.

If your vision is to expand quickly, identify VCs whose thesis reflects a high-risk, high-reward strategy. Alternatively, if you’re focused on sustainable, gradual growth, seek out firms with a long-term, value-focused approach. This alignment means you’ll have a partner who understands and supports your growth goals, avoiding potential conflicts over the pace and direction of your business.

• Finding Founder-Investor Fit: A Key to Pre-Seed Success

Target VCs Who Invest in Startups at Your Development Stage

VCs usually focus on startups at particular stages, whether that’s seed, Series A, or beyond. Approaching a VC with a thesis that aligns with your development stage improves your chances of securing investment, as they’re more likely to appreciate the specific challenges and opportunities you face at that point.

For instance, early-stage VCs may be excited about an innovative concept and a strong founding team but are less likely to require substantial revenue or traction. In contrast, growth-stage VCs expect proven market fit and are looking for clear revenue paths. By targeting VCs with stage-specific expertise, you can find those who are best equipped to address your current needs and guide you toward future milestones.

Choosing the Right Investors for Your Startup: Proven Tips and Winning Strategies

Emphasize the Right Metrics in Your Pitch to Capture VC Interest

Investment theses outline what each VC prioritizes in potential investments. Some VCs look for large addressable markets, while others emphasize user growth, product scalability, or recurring revenue. By understanding these priorities, you can emphasize the metrics they value most in your pitch, showing them you understand their criteria and are serious about aligning with their expectations.

If scalability is key for a particular VC, prepare to demonstrate your product’s potential for rapid growth and outline a clear path to expanding your market reach. Highlighting the metrics they care about not only captures their attention but also reassures them that you’ve done your homework and are prepared to meet their expectations.

Use a VC’s Network to Accelerate Your Startup’s Growth

A VC’s investment thesis often reveals where they have strong networks. VCs who focus on a particular sector or type of growth typically have established connections in that space, which can open doors for your startup. By tapping into a VC’s network, you can secure valuable partnerships, meet potential clients, and gain insights from industry experts.

For example, if a VC is deeply involved in the fintech space, they likely have connections with major financial institutions, potential collaborators, and even regulatory advisors. When you work with a VC who’s well-connected in your industry, you’re gaining access to a broader ecosystem that can fast-track your growth and create new opportunities.

Align on Exit Expectations for a Smoother Partnership

Understanding a VC’s exit expectations is essential to avoid potential conflicts down the road. The investment thesis will usually indicate a VC’s preferred timeline and exit type—be it acquisition, IPO, or otherwise. Knowing this in advance allows you to seek out VCs whose exit plans align with your own, helping to avoid future friction.

For example, if a VC targets quick acquisitions within five years, but your vision is to remain independent or grow over a longer period, it’s better to address this early. Aligned exit expectations mean both parties can work toward a shared long-term goal, making it easier to collaborate productively.

Crafting the Perfect Startup Exit Strategy

Using a VC’s investment thesis to your advantage isn’t just about improving your chances of securing funding—it’s about building a partnership that drives your startup forward. By aligning with a VC’s sector focus, growth strategy, investment stage, and exit expectations, you create a strategic relationship that goes beyond capital, providing you with insights, networks, and support tailored to your business. With this proactive approach, you’re setting yourself up for a partnership that enhances your growth and aligns with your long-term vision.

Good to read: 

• Term Sheet Tactics: How to Navigate Pre-Seed Startup Funding
• From Funding to Flourishing: A Deep Dive into the Essence of VC Coaching

Is your startup also a disruptive venture? Sign up now with Pitchdrive!

We're always looking for new partners and investment possibilities:

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Does your VC have an investment thesis or a hypothesis?

Venture capitalists love to talk investment theses: on Twitter, Medium, Clubhouse, at conferences. And yet, when you take a closer look, theses are often meaningless and/or misleading.

OpenVC is a new, open-source initiative to collect and analyze all publicly available VC theses to help founders more efficiently find the right investors — and vice-versa. For the first time, we are sharing here our initial conclusions. We hope you’ll upload your own thesis to benchmark yourself. We’ve identified six common patterns of how VCs articulate their theses and some best practices in doing so.

Our analysis is based on two complementary datasets:

• 125 theses so far submitted by investors into the OpenVC database.
• 36 theses pulled directly from U.S. VC websites by David Teten and Sam Sabin , co-founder of Hireblue .

Our four primary conclusions:

• Public theses are often inconsistent with how firms actually deploy capital.
• VC theses are often so vague that they’re meaningless.
• We found seven categories of VC theses, plus an eighth: the non-thesis.
• Investment theses are just hypotheses; the portfolio shows how accurate the hypothesis was.

For the sake of simplicity, we will consider “investment thesis” and “investment criteria” as equivalent terms moving forward, although we argue that the thesis leads to the investment criteria. We summarize how they interrelate in the table below.

1. Public theses are often inconsistent with how firms actually deploy capital

A typical VC thesis: “We invest in tech startups in Europe at an early stage.” However, our experience shows that in many cases “Europe” means a handful of countries, for instance, France, U.K. and Germany; and “tech” means B2B SaaS/fintech or consumer apps.

Thirty-four VC firms in OpenVC call themselves “early stage.” Yet 30% of those don’t actually invest in pre-revenue startups. The phrase is quite ambiguous; we suggest quantifying check size so that your investment preference is clearer.

Almost every VC says that they invest in the “best” founders. However, according to PitchBook Data, since the beginning of 2016, companies with women founders have received only 4.4% of venture capital deals. Those companies have garnered only about 2% of all capital invested. This is despite the fact that the data show you’re better off investing in women .

This lack of transparency results in confused founders who chase the wrong investors. In turn, investors are overwhelmed with poorly qualified opportunities.

2. VC theses are often so vague that they’re meaningless

Christoph Janz from Point Nine Capital wrote on Twitter:

The modal VC thesis is: “We invest in great teams addressing large markets with disruptive solutions.” Who invests in lousy teams addressing tiny markets with outdated solutions? Theses also tend to use the same words across many firms, e.g., “daring” and “bold.”

In particular, in our second dataset, we found a disproportionate number of theses focused on “technical” companies (vaguely defined) and focused on companies attacking “problems of the future rather than the present,” in various permutations of that language.

Why are the investment criteria so imprecise on the VC websites? We have three theories, in descending order of importance:

• Option value. Investors don’t want to be too restrictive and miss out on a deal. However, we’d argue that for most smaller managers who are not brand names, it’s better to be highly identified in your niche than being a generalist. Most limited partners we speak with agree.
• A desire to look “sexy” and politically correct as opposed to being honest. This is probably a major reason. For example, saying publicly, “We invest mostly in white/Asian men who went to Stanford like us” accurately describes numerous VCs, but doesn’t sound very politically correct.
• VCs are afraid to give out their secret sauce. We think this doesn’t make much sense; you can share your criteria without telling the whole logic behind them. Many top-tier VCs share detailed public theses.

3. We found seven categories of VC theses, plus an eighth: the non-thesis

What makes an excellent — or at least clear — investment thesis?

4 essential truths about venture investing

Typically, investors either have a very loose nonrestrictive strategy to investing or maintain a strict focus on a few particular areas. As two extremes:

• Founder Collective describes itself as “deliberately anti-thematic. Visionary founders have shown us that the weird use cases of today can become the hot themes of tomorrow.”
• Check Size: $50,000 to $200,000. Vast majority $100,000 to $150,000.
• Total Round Size: $50,000-$500,000. (Occasional exceptions to $1 million.)
• Valuation: $1 million-$3 million. (Rare exceptions to $6 million with extreme traction.)
• Traction/progress: Almost always $5,000 to $30,000/month in gross profit. No ideas or prototypes.
• Sector: Anything in tech. But you must be doing real engineering of some kind.
• Headcount: Usually at least two full-time founders. Often a few full- or part-time workers.

We take from this that there is little consensus on whether VC investing should be thesis-driven or not. And even the “thesis-driven” VC firms often make investments outside of their stated thesis.

Of the firms that articulate a thesis, most fall into one of, or a combination of, the following seven buckets:

(1) Industry funds . Warren Buffett famously said that “diversification is protection against ignorance. It makes little sense if you know what you are doing.” In venture capital, the industry- or sector-focused funds specifically disavow diversification:

• Andreessen Horowitz, which is a generalist as a whole, has launched dedicated funds across crypto , bio  and fintech .
• AgFunder , focused on the food and agricultural sectors, aims to solve challenges brought by climate change, failing soils and population growth .
• Foundry Group, investing primarily in “ software and internet ,” follows six major themes, e.g., human-computer interaction (HCI) or distribution.
• USV invests in companies that increase “ access to knowledge, capital and well-being by leveraging networks, platforms and protocols .”

Data from OpenVC showed that VCs typically focus on two technology classes. Software is by far the most sought-after class, with 94% of VCs investing in it. Deep tech follows as a distant second with 57%. Hardware and therapeutics lag well behind.

Out of 125 funds in the database, 33 state they invest in one type of technology (e.g., “software”); 43 invest in two types of technology (e.g., “software” and “deep tech”), and so on.

(2) Business-model-defined funds . These firms also sometimes target startups that serve a specific kind of customer (e.g., B2B versus B2C) within the business model preference. For example, Point Nine Capital focuses on B2B SaaS and marketplaces at the seed stage across many industries.

(3) Geography-defined funds . Apart from the usual country-specialist investors and foreign offices of U.S.-based VCs, we see three dynamics at play:

• VCs investing in specific geographies. Avataar Ventures invests exclusively in companies that fit these criteria: $15 million with annual recurring revenues; tech-led B2B and SaaS Companies; core operations in India/Southeast Asia; and open to active partnering. In 2019, according to the CVCA , Real Ventures invested in 42 rounds, with the total value of those rounds equal to that of the next three most active private VC firms combined. Real sees 80% of all seed deals in Canada.
• VCs investing abroad or in binational companies, typically with technology based in a second- or third-tier market, and sales/marketing in a first-tier market. Data from OpenVC suggests that 75% of funds invest in more than one country. These results are consistent for both U.S.- and Europe-based VC firms. Explore why venture capitalists are investing in international startups and why international startups love New York, and vice versa .

(4) Entrepreneur-defined funds . This is most commonly seen in funds that focus on underrepresented founders, but we’ve seen other focused communities as well.

• Female Founders Fund , AmplifyHer Ventures , Halogen Ventures and many others invest exclusively in women-founded businesses.
• a16z’s Cultural Leadership Fund aims to “enable more young African Americans to enter the technology industry.”
• J-Angels “is a community and a VC fund of top American investors (Jewish American and Israeli-born) in Silicon Valley and San Francisco.”
• Diaspora Ventures is a “pre-seed fund … looking to back the next generation of French entrepreneurs building tech companies in the U.S.”

A special subset of this is investors that focus on mission-driven founders and typically have explicit ESG criteria. For example, City Light VC only invests in “companies where there is a direct relationship between financial outcomes and measurable social impact.”

(5) Structure-defined funds . Versatile Venture Capital , Indie.VC  and other revenue-based finance and flexible VC investors state they focus on companies with a short-term focus on profitability. These firms typically invest using a nontraditional “flexible VC” structure, which allows founders to pay back their financial obligation to the fund through a combination of revenue-sharing and/or equity payback.

(6)   Situation-defined funds . Some firms optimize around certain aspects of the investment situation. Alpha Partners and Proof provide capital when their partner VCs don’t have pro rata and share the economics on the investments. Correlation Ventures invests in under two weeks when there is “at least one other venture capital firm also making their first investment into the company.”

(7) Stage-defined funds. These funds tend to focus their investments in startups at a specific stage or seeking a certain check size. First Round Capital invests in rounds up to Series A and is often the “first money in,” backing entrepreneurs at the first stages of the company they’re creating.

4. Investment theses are just hypotheses; the portfolio shows how accurate the hypothesis was

We cannot formally prove a priori whether one thesis is better than another. They exist as heuristics, but at the end of the day, deal flow trumps everything. If a fantastic opportunity shows up, most VCs would invest, regardless of their thesis.

Investment theses are marketing assets toward LPs and startups. As such, there are three stakeholders when building a thesis: the investing partners, the LPs and the founders.

We can see in the example above how the thesis is not “pure” from the GP point of view. It incorporates influences from the LP and, more and more, from the founders.

Faced with the daily deal flow, the investment thesis feels like nothing but “a set of strict rules, loosely applied.” Does it mean the investment thesis is just an irrelevant practice that should be ignored or abused? We think not.

In the battle for deal flow, the thesis is at the core of a fund’s value proposition. It’s part of a VC brand and identity. It’s what makes it unique and distinctive.

We’d argue that for most smaller firms, it’s better to be highly identified in your niche than being a generalist. A fund should aim to be identified as “the” specialist in one or a combination of the seven buckets listed above. “Even at a later stage, it’s better to be talked about [as] something than nothing at all,” startup mentor Alexander Jarvis said. “You can always mention you do other things later, as they reach out knowing you are awesome at something.”

Most important, show your data: the number of checks written at each stage; the number of checks in each size level ($500,000-$1 million, $1 million-$5 million and so on); follow-on ratio; etc. Almost every investor is glad to share the winners in their portfolio, but only a few will share detailed analytics. Some worthwhile examples are First Round Capital’s 10 Year Project and FJ Labs’ 2020 Year in Review .

“VCs bury their dead quietly; they write Medium posts when things went well,” Jarvis observed. We hope more firms over time will feel comfortable sharing the real data as to how their data lines up relative to their investment thesis … and their investment hypotheses.

David Teten has advised Real Ventures and Right Side Capital. Thanks to Paulina Symala and Prabhat Gusain for research and analytical help, and to Alexander Jarvis for detailed and thoughtful comments.

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