How to Develop Your Own Investment Thesis
As an early-stage investor, you play a crucial role in unlocking the untapped potential of startups. But with so many innovative opportunities, how do you choose where to deploy your capital?
One of the most crucial steps to start financially supporting ventures is developing your investment thesis: a guiding framework to help you identify, evaluate, and invest in opportunities that align with your financial goals and values.
Borrowing a page from our Financial Feminism Investing Lab playbook, here’s a template to help you craft your investment thesis.
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What is an Investment Thesis?
An investment thesis is a set of “rules” that clarify how you plan to invest your capital and generate returns. Backed by research and analysis, it clearly defines how your investment approach, criteria, and goals align when deciding whether an investment is worth its risks.
As principles that guide your decisions, a thesis answers the questions:
What types of companies are you looking to invest in?
Why do you believe these investments will be successful?
How do you plan to evaluate and monitor these investments?
Why You Need a Solid Investment Thesis
Is an investment thesis necessary for aspiring investors? The short answer: YES.
The slightly longer answer: A well-defined investment thesis sets you apart and gives you a competitive edge to thrive in the investing world. It provides a structured framework for decision-making, ensuring consistency and discipline in evaluating opportunities. Additionally, it strengthens due diligence, improves risk management, and facilitates clear communication with stakeholders.
Think of it as your strategic anchor in the often turbulent sea of early-stage investing. Beyond guiding your decisions, a thesis helps you stay true to your investment philosophy, remain adaptable to market changes, and boosts your chances of achieving sustainable success.
Steps to Develop Your Own Investment Thesis
1. Get Clear on Your Goals
Start by defining your investment goals. Are you looking for high-growth startups or more stable, revenue-generating companies? What’s your risk tolerance?
Having a clear understanding of your financial goals will help narrow your focus.
2. Align Your Core Values
Reflect on your core beliefs about the market and the future. For example:
Are you passionate about supporting sustainable or feminist businesses?
Do you see potential in emerging markets or specific industries?
What unique aspects of your own background and experiences can inform your investment perspective?
From these reflections, you'll notice macro themes and micro segments emerging. For example, clean energy is a macro theme, with micro segments such as solar energy, wind energy, energy storage solutions, smart grids, and bioenergy. These beliefs will form the foundation of your thesis.
3. Research, Analyze, and Research Some More
Comprehensive market research lies at the heart of any successful investment thesis. Understanding industry trends, evaluating market opportunities, and assessing the competitive landscapes are crucial steps to uncover hidden gems and unlock lucrative investment opportunities.
Conduct thorough research on the sectors and markets you’re interested in. Think: understanding industry trends, competitive landscapes, and potential challenges. Leverage resources like market reports, industry news, and academic research to inform your insights.
💡 Tip: Check out these platforms for evaluating market potential: PitchBook, Statista, Tegus
Get more tips and insights from our webinar series session, How To Evaluate the Market Potential Potential of a Startup.
4. Define Your Criteria
After gathering all your market research comes the fun part: setting your preferences and priorities. Establishing clear investment criteria will help you stay focused as you evaluate prospective companies and make decisions, ensuring your investments align with your goals.
Factor in:
Market size and growth potential
Competitive advantage and differentiation
Team experience and capabilities
Financial performance and projections
Alignment with your core beliefs and values
Industries you’re passionate about or have domain expertise in
5. Develop Your Investment Thesis
Combine your research, core beliefs, and criteria to craft a concise statement about the types of ventures you will be investing in.
Plus, being able to articulate your thesis can help as you communicate with networks of co-investors, founders, and stakeholders.
Develop your investment thesis (Mad Libs version). Here’s a template right from our FFIL playbook to help you craft yours.
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6. Test and Refine
Your investment thesis is not static; it should evolve as you gain more experience and insights. Start making small investments that align with your thesis based on where you’re at now, monitor their performance closely, gather data, and be willing to adjust your thesis based on real-world results.
7. Stay Informed and Adapt
Don’t blindly stick to your original assumptions, and be prepared to adjust your thesis or exit the investment if it no longer aligns with your goals.
The market is constantly evolving, and so should your thesis. Keep up with industry trends, technological advancements, and economic shifts. Regularly revisit and refine your thesis to ensure it remains relevant and effective.
As you start (or carry onward) on your investment journey, remember that a well-crafted investment thesis is your guiding star, providing a structured approach to identify and evaluate opportunities while aligning your investments with your goals and values. Remember that it’s a dynamic tool and should evolve with your experiences and the changing market landscape.
Keep learning, stay adaptable, and always invest with intention.
Recommended: Check out the recording of Building an Investment Thesis with Carollynn Schafer, CEO of Accelerate Okanagan
*Please note that the information provided in this blog is for informational purposes only and should not be construed as investment or financial advice.
