Whether on the first fund or the sixteenth, defining a compelling investment thesis can be one of the hardest tasks that VCs will have to face. The thesis is the north star for a venture fund and ensuring that it is well crafted and thoughtfully formed can be vital to a fund’s success.
Here are a few tips to keep in mind for creating or sharpening your venture fund thesis.
FINDING A FOCUS
A strong thesis should be shaped by either expertise or passion.
You know more than anyone else in this field. You understand the nuances inside and out and you know the possibilities that lay ahead. This field is full of opportunity and who better to find breakthrough entrepreneurs than you?
While you may not be the definitive master on this topic, your energy and enthusiasm are unmatched. This interest and fervor ensure that you will find the smartest in the room and motivate them to bring your passion to life.
Whether you’re leading with expertise or passion, preserve your focus as it is the oxygen necessary to feed your venture flame.
Once you have determined what your thesis will focus on, fleshing out the details can be as simple as plug and play if you follow this simple, painfully obvious framework.
THE 5-W FRAMEWORK
Who: Define who you are. Tell the world about your team, your fund, and your network.
What: Clearly designate the sector of investment, the size of the fund and the size of your average deal.
When: Outline the stage of companies you will invest in and the target investment period.
Where: Highlight the specific geography of the companies you will invest in, if any.
Why: Explain the features of this market that will lead to success.
String these aspects together to create your thesis.
Example Venture Partners is a Las Vegas based venture capital fund, formed in 2015 by two experienced hotel entrepreneurs. Our first fund of $20,000,000 is focused on hospitality startups looking for an average deal size of $1,000,000- $3,000,000. We will be investing in companies in the seed stage to series A and will deploy investments over the next four years. Our geographical focus is on companies through the Desert West of the United States with special attention to Las Vegas, Nevada. This is a growing sector in a neglected market and provides an unmet potential to reinvent hospitality and the and the future of customer service.
DEFINE EVEN FURTHER
If your objective is to find highly specialized deals, you can further define your fund and create thesis “pillars.” Narrowing your scope can sharpen your focus and streamline the screening process, saving you time and energy in the long run.
A great example of a fund supported by thesis pillars is Obvious Ventures. Obvious’ thesis is driven by three definitive pillars which highlight the problems that they aim to help solve and the areas of investment that they think will help achieve those goals. Theirs is an excellent example of a thesis guided by passion.
Once you have completed the aforementioned tasks it is time to find the ways that this thesis could fail. Poke as many holes possible, because if you don’t, potential investors will.
Practice presenting this thesis with your team. Say it out loud to your neighbor, your cousin, your friends and see what resonates. Take feedback, listen to advice, and practice handling objections. Now is the time to fine tune your messaging.
SEND IT OUT INTO THE WORLD
You have tried to break your thesis, made the appropriate adjustments and now it is time to step onto the launching pad. The only way from here to know if your thesis has what it takes is to start using it. Reach out to investors and deal source with this newly sharpened lens. This is where you get to set your hard work into motion, watch the world respond, and hopefully have some fun.
It is important to remember that through this process your investment thesis can become incredibly personal, almost as if you have defined a piece of yourself. While your thesis should be near and dear to your heart, you are not your thesis. If you have been fund raising for a long time and have had no luck, or if you haven’t found the right deals, these may be great indicators that something within your thesis needs to be adjusted. First fund or sixteenth, it is never too late to go back to the drawing board.
Written by Emily Thompson