As a HBCUVc Fellow, I have been exposed in the field of venture capital constantly. Here are some tips on how to construct an investment thesis without having to stay up all night and trying to cram all your scattered thoughts in a pitch deck.
Just recently, as my colleagues and I were having a discussion on creating our investment thesis, we had difficulties in navigating through different industries and finding one that appeals to us the most and one that creates the most revenue for further development.
As a Finance and Computer Science major, my focus was creating a thesis that revolves around the E-learning industry because it utilizes technology and as we all know, technology is the future.
In fact, the industry of e-learning is expected to reach $325 billion by 2025! That’s a no brainer, right? Afterall, one of the main goals of an investment thesis is to generate profit so they can stay in the business! But, my colleagues were more focused on basing our model on something that is more scalable and realistic. Eventually, we reached a decision.
Here are the main three lessons that I learned during our call as we form our investment thesis.
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1. Focus on making an impact compared to generating revenue
I can never forget the time when my colleague was describing her investment thesis and all I can think of was money, revenue, and the cost that we need to incur to make it happen. It’s like I am already thinking on when we will reach break-even and start generating profit when we are still unsure on what is our main idea is about.
“How in the world are we going to generate revenue from this project?”
In fact, to be honest, I was not even listening to her idea until she talked about the numbers. Eventually, as we talked more and got deeper on the projected impact of her business model, I realized that an investment thesis should not be so focused on generating revenue on the short run. First, it should be about initiating change and making an impact to the community. Then, the money will eventually come as long it is making constant development in people’s lives. It’s like planting a seed in a forest. It takes years to grow but; it is worth it especially once it bears fruit.
2. Pick an industry you are passionate with, not where the money is at
Writing an investment thesis can be very hard especially if you still don’t know what type of industry to pursue. You might want to focus in early stage/start ups or you want something with lesser risk such as jumping into a developed market. Additionally, it might also be very tempting to enter the realm of technology because of its growth, innovation, and it is widely implemented. However, you must also be aware that there will be a lot of different groups that have this same mindset.
Yes, money is important after all, that makes the business run. However, investment thesis is not just a temporary plan. It is a game plan that will serve as the main components of your VC that will answer the 5w’s (who, what, who, when, where). Therefore, you would want to have something that you believe in and try to find an opportunity for growth within that industry.
Ultimately, the best advice I have for you is to brainstorm, as a group, and ask yourselves some questions about your identity, your background, and your interests. Then, using those informations, try to come up with an industry that everyone is passionate about because it reflects your identity or a moment in life that defines you and your journey in life. Next, once you determine the type of industry that you would want to focus on, it will lead to my last and final advice which is..
3. Creativity is Key to Success!
Last but not the least, I cannot emphasize enough on the importance of creativity. Creativity drives Innovation which leads to Growth. It’s because of creative minds that we have hybrid vehicles, smartphones, tablets, and even artificial intelligence! Who knows? You might be the next person to invest in a company that manufactures the next flying vehicles or maybe something simple as Tinder for Pets that uses sound recognition to swipe :P.
Final Thoughts
Hopefully, these tips can make an impact as you develop your own investment thesis. If you would like to add something on the list, please do not hesitate to comment below! Looking forward on hearing more from you.
