Video Of The Week: How To Build An Investment Thesis
My friend Pedro Torres-Picon gave a good talk a couple weeks ago at the Pre Money Conference on “How To Build An Investment Thesis”. This is a topic we’ve discussed a lot around here so it’s familiar territory but Pedro does a good job of explaining it with some quotes from yours truly and others.
oh my, this is so timely…i was just in the midst of working on articulating my investment thesis for my new fund. Devoured it & it filled some holes for me.Thesis driven: Leading the marketSector driven: Following the marketOpportunistic: Don’t care about the market
Hi WilliamWith your block-chain work your thesis could be easyInvest: in something most people really don’t have a clue about Anti-thesis : Don’t invest in teams that cant’t teach you something or make you really think hard to encompass their new perceptual horizons.Advantages – Exclusive, Focussed, Baked in “A new industry that you believe in that many others do not”
Good call, James. Blockchain is part of it, but not defined by it. 3 of my past 6 investments are blockchain related. It’s what the blockchain enables that’s interesting.
Glad it was helpful! Completely agree with this categorization btw. And like with any market leaders, there is more risk in the thesis driven approach. But if it’s right, returns will likely outperform.
In the area of disrupting old-school industries there is, I believe implicit, a much longer “incubation period”. Often distribution must centre around partners (“first get big enough to sue before we try”). This is polarising.But, once turnover starts rolling a) marketing spend is low (you become news, you typically only need to target a few giants) b) internationalisation is relatively simple because of uniformity of major matured oligopolistic industries. c) Generally you are selling productivity or savings benefits which often don’t need budgetChallenge – you need to sell into C-level contacts who can break the mould,
This is often true, long sales cycles are a pain. Something we’ve seen more and more though is that with every individual carrying a powerful computer in their pockets every day at work, companies are getting wise to the fact that they’ll use whatever apps or services help them get their job done faster. So there’s an opportunity to get a service to an individual employee first and then, once enough people are using the service in any given company, go to the C-level for a larger contract. This severely cuts sales cycles as it becomes more about control and catching up with what employees are already doing than trying a new untested service.
Interesting. I wonder if this makes sense to you (or your investments):Context -We offer a “waste energy search engine” – Energy is non-core to most enterprises eg retail, accommodation, but universally relevant. (like accounting).When you cant sell to individuals -If you need to break old school silo approaches to functional infrastructure – It must be authorised at the top. Even Utilities seeking differentiation are moving from traditional engagement through purchasing functions to diversify in a bid to extend LTV – this drives them to a attempt a strategic (C-level) sale. So though all organisation have waste, few have expertise, and on site services do not scale (we scale expertise with pattern recognition from new data streams).How to play it – Given a really scalable solution and dataWe find a key differentiator is time-to-value which is relates to capital risk during on-boarding. I imagine a lot of your investments seek to offer value of of the box. So we do one-off full portfolio surveys which would be wholly impractical on a feet on the ground basis. This makes consolidated results a big picture issueAs mentioned elsewhere if you know anyone with similar theses to yours in Europe (currently bootstrapping but near profitable – also more viable for those with domain experience ! ) – I would love to get in touch.
Exactly. Thesis driven + early stage focus = double early. More risk, but x10 reward when you’re right.(Can I email you separately?).
Definitely! p at quotidian dot co
Yup, helped me focus.
How should people interested in investing approach the investment thesis issue? My base assumption is that I should have some rough thesis and be trying to find a fund that has a similar thesis. How can someone not actively investing define their own thesis?
I’d start with the types of companies you’re personally interested in and then start thinking about what will happen over the next few years with those types of companies. Formulate a couple of assumptions or hypotheses about that market. Then pick some companies you’d invest in right now that would be successful if your assumptions about the market are right and track their progress. Rinse & repeat 🙂
I love your thesis, Pedro! (partly because our startup does exactly that) but mostly because its so hairy and audacious and unsexy all at the same time – the size of markets are lucrative but the number of moving parts in the business make it really daunting to build – unless, as you say, there is founder-market fit – which I believe is now the future where we take SaaS, Social, and Mobile and apply them to real-world fragmented businesses.
Thank you! Could not agree more about where things are going.
Brilliantly Simon Sinek like presentation – Starts with Why then How to end with What – And I actually believe what he believes.Accordingly, if he were doing this based in the UK or Germany, Switzerland , where many of those old-school industries were first set in stone, I would be all over like a rash trying to get into his network.If anyone knows Euro- centric investors who have a comparable theses geared to B2B, domain knowledge intense, major traditional industry disruption thesis it would be great if they could chime in !
My take.An investment thesis like a market strategy are clarifying exercises. Best type of exercise.Got to say as I’ve been on the raising side more, that most seed and early funds I talk to may have their own I’m sure but it’s certainly not public facing for the most part.And–the more vertical it is, the more valid it is at least to channel deals and communicate with people seeking capital.And–the obvious realization that applies to both the investor and entrepreneur–what matters the most is the successes you bring to the table.Exceptions abound but I consider putting my money in funds where the success of the VC is demonstrable, my lead choice as people who have won before, and it works for choosing the entrepreneur as well.
Arnold Pigeon-holing what you do seems impossible – you are if nothing else eclectic.Wines Enthusiast , Entrepreneur, Angel, Fund raising support, Marketing guy and maven – Now I read that you invest in VC funds.Tell me – And what do you do for your day job? 😉
we would have missed a lot of our best investments if we have avoided first time entrepreneurs and focused on people with track records. i think risk and reward are correlated.
you are right.I rethought what I wrote while on a walk yesterday but life interrupted my intent to modify my comment.
that’s a good thing!william sent me a text last night and said “you weren’t on AVC all weekend” i thought to myself “that means i am having a wonderful weekend” 🙂
Evidently, you were !
Yup. I invest in people first that are using technology to transform traditional industries. Often, that transformation takes place using a two sided market model.
Agreed. For us it’s two-sided marketplaces (especially service marketplaces) and industry-specific saas products that reimagine how certain important tasks are done within a specific industry.
yes, we should connect. you are in NYC, I am in Chicago. Two best fin tech centers in the US (and world)
“Founder market fit more inportant than being a great engineer”You don’t hear that too often
An excellent primer on how to think about how different VCs approach investments.A question for Pedro and other VCs. What do you do when you come across an excellent seed stage investment opportunity, but it is simply too “early stage capital intensive?”. Also what advice would you have for the startup on how to go about fund raising?
and a mensch
Accordingly, if he were doing this based in the UK or Germany, Switzerland , where many of those old-school industries were first set in stone, I would be all over like a rash trying to get into his network.Tina Hueinvestment services for corporations