What is an investment thesis and as a founder, why should you care about it?
Chaos in the VC industry can perhaps be best defined by investments made without any rational backing. This is why most VCs (and investors) have a dedicated thesis that guides all their investment decisions. In the case of VC, this thesis also helps in reassuring the LPs that their money is in safe hands!
An investment thesis is a set of beliefs for investors to make sure their potential investments are aligned to their investment goals and criteria.
It is backed by an extensive study of patterns, global trends, founders, and reports. It is integral to make a well-reasoned and logically backed thesis, as this largely defines the success of a fund. The thesis differs for every firm, and for the larger firms, every fund has a different thesis. Since the purpose of the existence of every fund is different, investment goals for these funds will be different and hence the thesis.
Formulating the thesis is only the first step, following through and being committed to it actually determines the success of the fund. A thesis drafted with poor research or questionable pursuit can reflect poorly on the fund, which is why most funds revisit their thesis from time to time to make sure it stands true to current times and if there is a need to change it on the basis of the current context.
Since we’re in the business of saying ‘no’ rather than ‘yes’, the thesis acts as a guide to know where to invest and where not to. For a founder, knowing/deciphering a potential investor's thesis may prove to be quite useful. You'd be a step ahead in knowing if at all the investor would even be interested in investing in you. If yes, you can use your understanding of the thesis as a powerful weapon and tailor your pitch to your investor by positioning your business towards favorable aspects that’d make them keener to invest in you.
A well-drafted thesis acts like your game plan, it has all the components mentioned below ready:
Sectors: While some funds may be sector-agnostic, most of the funds swear by certain sectors/spaces, and would prefer only funding them. This selection happens after thorough research and the fund manager’s own experience
Boundaries: Every fund may have certain boundaries that they cannot violate due to their portfolio design, entailing the geography of a company, or the valuation of the company before investment or the fundraising amount or single/multi check or the maturity stage of the companies, among others
Fundamentals: Funds may be looking at certain characteristic traits in founders or companies without even realizing it! For example, we at Windrose are constantly seeking disproportionately mission-driven founders. The ones who see nothing but their mission and their commitment towards achieving it. Many impact-driven funds seek companies that are constantly disrupting the traditional landscapes and are creating an impact on their product/service. These traits aren’t usually mentioned in the thesis explicitly but can be gauged after a thorough study of their portfolio companies or their past work.
Fixed Criteria: These are mostly criteria that are already identified and the fund progresses with them. Many funds would only want to fund women-founders, or some funds would only want to invest in the early-stage companies (like us!) A few funds may also have predefined criteria set out by their investors such as companies that follow a strict ESG or companies that are into green economics etc.
We at Windrose, definitely take our investment thesis quite seriously, often betting on discipline rather than just our gut instincts.
We’re an early-stage VC Fund committed to enabling India’s fast-transforming economy through early and mid-stage investments in promising start-ups.
We’re thesis-driven investors that place disciplined bets on probable successes in tech-driven, business-focused ventures, after ensuring that they are led by some of the smartest people, with driven teams that bring value to the table. We incline towards working with like-minded people, backing disproportionately mission-driven founders, and our commitment to our thesis has helped us and our founders all these years.