How to Create Your Investment Thesis

Tips on how to construct a investment presentation that you can share with VC firms

Earnest Sweat
Dec 21, 2016 · 7 min read

As 2016 closes, I will share insights associated with the methodology and outcomes of my 3 (edtech, fintech, real estate tech) updated investment theses. The goals of “Notes on a Thesis” are to 1) present my research, 2) connect with relevant founders, 3) cultivate a discussion around the thesis, and 4) provide templates for aspiring VCs.

During the last couple of weeks, I have shared a few key insights that I found in developing my investment theses for the edtech, fintech, and real estate tech sectors. I look forward to sharing my presentations in future posts, but first I wanted to share my methodology.

I decided to develop specific investment theses presentations on my own this summer because I wanted to have something to share with potential employers. I spoke to a number of Venture Capitalists and they suggested that developing my own thesis would display 1) my knowledge of a particular sector, 2) my investment perspective and way of thinking, and 3) my interest in venture investing.

This advice has definitely proven to be true. Thanks to developing 3 different investment thesis presentations, I have been able to have more fruitful conversations with potential VC firms. I don’t think that conducting this exercise will guarantee that you break into VC, but it will give you an advantage because you will be conducting aspects of the role before sign any offer letter. This process has shown me that I really do enjoy the research (both secondary and primary) that is necessary for being successful in venture capital. I’m confident that if you are really interested in breaking into the industry, you will benefit from creating your own investment thesis. Below are a few tips to developing your own investment thesis presentation:

1. Pick an industry

When I first considered pursuing VC, I had no idea where to start or what industry to focus on. I knew that I wanted to primarily focus on early stage (Seed or Series A) but hadn’t decided what sector. I knew all the statistics suggested that getting a VC role was similar to playing in Major League Baseball so my first inclination was not to limit myself to 1 or 2 industries. However, I found that trying to understand the entire early stage ecosystem — that can range from AI to Marketplaces to Healthcare tech — was too overwhelming. Ultimately, the best I could hope for would be knowing a little about everything. This best case scenario would not be helpful for any VC firm looking to hire a Sr. Associate — especially one that was post-MBA.

VC firms typically don’t have structured hiring processes, where they have to hire 1–2 associates every year. Many times when funds are looking to hire someone it is because they have raised a new fund or a jr. VC moved on to another role. Therefore, when a VC is considering you as a potential candidate, their ultimate decision is not you versus another candidate but whether they should hire you or continue with the team they have. This aspect of VC hiring is why it is essential that you are able to display the value that you can add day 1. Which is another reason why getting really smart in a specific sector is critical. A potential employer could determine from your investment thesis that you fill the right “blind spots” in their current team’s domain expertise.

So how do you pick the right industry? I’m not sure I have a right answer but what I will say is there are 2 schools of thought with regards to selecting an industry for your investment thesis: 1) Pick the sector you already have work experience in or 2) Pick the sector that you are really passionate about. I fall under the first approach. Looking at my prior experience, I determined that real estate, financial services, and education sectors would make the most sense for me. I’ve worked extensively in those 3 industries and felt that I could add value because I knew where technology could really work. I also knew that focusing on industries I’ve worked in could easily work within my narrative when explaining the progression of my career to VC firms. The other school of thought I have seen work is when candidates pick an industry that they are really passionate about. This candidate already reads every blog post and article that covers this sector. If you have an industry that fits this description and you are on your way to developing relationships in the sector’s ecosystem, then you have found the focus of your investment thesis.

2. Conduct market research

You have picked the industry that you already have domain expertise in or that you are obsessed with. Now it is time to get to the bulk the work in the process — conducting research. Like all market research, you want to leverage secondary sources (tech publications, white papers, etc.) and primary sources (your conversations with industry experts and entrepreneurs). Every time I came across a great article or research paper, I would paste the URL into a google doc and write a quick note on the statistic or concept stood out to me. In this same document, I would draft the overarching trends that I had derived from my research and conversations. After I felt I had a substantial number of secondary sources (approximately 10–25 articles or white papers) for the specific industry, then I would finalize my overarching trends and drafted 5–8 assertions — which were essential hypotheses that would have to be true to display that the sector was an attractive vertical.

Once you have your research sources, overarching trends, and assertions, then you can start to deep dive the industry to find quantitative and qualitative data that proves (or disproves) your trends and assertions. There are so many free and inexpensive resources out there that can help you complete your deep dive of industry facts, but I would also remind you to leverage your professional and university affiliations. Many times as an alum or employee you have free or discounted access to market research databases. The last point that I will make is that if you are crunched for time due to your other work obligations, then you could outsource the market research portion. I signed up for a virtual assistant with a company called VaVa Virtual Assistants. I provided them with an overview of what I was looking to accomplish in my research and shared with my specific virtual assistant the trends, assertions, and research links for each of my targeted sectors. We had 1 conversation to clarify any questions about my preparation document and after 3 weeks, she was able to provide me with specifics statistics, new resource sources, and tables that either proved or disproved any of my prospective trends or assertions. This hack saved me a ton of time and allowed me to produce my three investment thesis presentations within two months.

3. Structure a presentation

There is no standard investment thesis presentation structure but keep in mind that your document will be a VC’s first glimpse into your thought process. I asked a number of my classmates and colleagues who were in venture capital if they had any examples of investment presentations from prospective candidates that really impressed them. I wasn’t able to get any physical copies from this network but they did provide me with some guidance on what they have seen work. The big break for me in developing the structure of my presentations was asking the GoingVC team for examples. As a current fellow, John Gannon and his team provided me examples of what they and their friends have used in the past in their pursuit of jr. VC roles.

I noticed that the best investment thesis documents ranged from 15–20 slides and clearly articulated the candidate’s point of view. Each presentation also included market research, trends, predictions, and specific startups that fit the investment strategy. My original presentations included the following structure:

  1. Overarching trends that are shaping the industry and/or consumers’ psychology
  2. Macro/Micro beliefs/assumptions that the thesis is founded on
  3. Thesis definition
  4. Supporting evidence and insights from charts/data that supports trends
  5. Startups of interest (4–5 startups that fall into thesis)
  6. Non-industry focused startups (2–3 startups that are super interesting)
  7. Future investment opportunity (1 startup that is really early but has aspects of the thesis)

4. Get feedback from your network

This last step you will be conducting over and over again. You should think of your investment thesis as a living document that can be adjusted as macroeconomic trends change, new startups get on your radar, or after you have informational interviews with VCs. After I completed my first drafts of my investment theses, I reached out to friends and VCs in my network who followed the sector. From my these feedback loops, I was able to get great advice such as including a slide focused on my experience and a slide focused on the investment strategy recommendation. Lastly, my final materials don’t include a great recommendation I received to include an overall market map of the sector. If I had more time I would definitely include that within each presentation.

Final Thoughts

Hopefully, these suggestions provide you with some guidance on developing your own investment thesis. Although, this was the approached I used to develop my investment thesis documents does not mean it is the only way. Good luck and feel free to share any strategies or methods you may have used to develop an investment strategy as a prospective VC.

Thanks to John Gannon, Aaron Holiday, Terrence Yang, Nikolai Chowdhury, Arno Niazian and Yizhen Dong for their advice in this process.

Earnest Sweat is an Entrepreneurial Engineer for Camelback Ventures and an Investor in Residence for Backstage Capital. If you have any questions or requests please connect with Earnest through LinkedIn, Twitter, or AngelList.

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