What is an investment thesis?
An investment thesis serves as a personal guide to narrow down one’s lens for potential investments. While length or breadth of a thesis is less important and entirely personal, knowing your goals, passions, interests, and focus (around founder and industry) can help define what your thesis looks like.
Here are a few questions to ask when beginning that process:
- What is driving your interest in investing?
- What are some industries you follow and are passionate about?
- Where would you say your expertise lies?
- What qualities do you look for in a good founder?
- Is there a certain minority group/founder you want to support?
- What geography do you want to invest in?
Examples of thesis statements
A few examples of investment thesis statements include:
- Broad: I invest in early- and growth-stage companies that may scale effectively, are apt to dominate a given market, and display an exit potential.
- Middle Ground: I target early-stage startups led by ambitious entrepreneurs that solve problems felt by my generation. I target companies that exist in industries where I can leverage my advisor and industry expertise. I am geographically agnostic with a focus on leveraging Midwestern connections.
- Narrow: I invest in startups that are working to reverse the negative environmental impact that governments, corporations, and individuals have on our planet. I look for scalable companies that reimagine how we live, work, and play to be more harmonious with the earth and that are based in the Midwest. I prefer to invest in minority founders who are pioneering the space.
A broader thesis allows you to cast a wider net, but will make finding a focus difficult and, as a result, likely waste time. However, a thesis that is too narrow will limit deal flow and inhibit your ability to create a well-balanced portfolio. While there is no perfect middle ground, reflecting on your own values and interests can guide a baseline parameter that will become more refined and clearer over time.
How often should I revisit my thesis?
Establishing your initial thesis is the first step; however, in order to ensure it still aligns with your goals, passions, and expertise, it is crucial to revisit it once a year. Often, your thesis will adapt with your investment experience. The more deals you are exposed to, the better you will understand your personal values, interests, and strengths.
Pro tip: Set a date on your calendar each year as a reminder to hold yourself accountable.
A few questions that might be helpful to answer when revisiting your thesis:
- Where do you think your knowledge and interests have grown or narrowed over the last year?
- Which geographies do most of your deals come from?
- What are your favorite investments in your portfolio and why?
- Which deals have felt the most exciting? Impactful?
- What lessons have you learned along the way?
This article originally appeared in Groove Capital's blog.
