An investment thesis is a well-thought-out strategy or framework that guides an investor’s decision-making process. It outlines the principles, goals, and criteria used to evaluate potential investment opportunities.
In the ever-evolving landscape of investment, and especially now that crypto is having a downturn, AI is on everyone’s radar, robotic humanoids are taking off, and the political situation between the US and China is reshaping, it has become imperative to redefine the traditional investment thesis, take a step back, and look into the future without biases and disconnecting from past experiences. What didn’t work years ago works now, and what worked and was ‘normal’ is no longer applicable. Kids are being raised in a totally different way, adults work using different technologies, people are learning at a different pace, and extremely different skills are demanded from the market than a decade ago.
The very recent and modern investment approach shall embrace innovation, more sustainable thinking, and climate and social impact. Industrial and futuristic aspects are seen as essential factors in driving meaningful returns, long-term success, and profitability.
Rather than solely focusing on short-term financial gains, a redefined investment thesis prioritizes companies and ventures that demonstrate a commitment to innovation and long-term performance. These forward-thinking entities harness technology and disruptive ideas to create products and services that meet the changing needs of society.
Innovation-driven investing involves seeking out companies and industries that are at the forefront of technological advancements. Investors look for disruptive technologies, breakthrough products, and novel business models that have the potential to drive substantial growth and create value. Moreover, climate investing takes center stage, emphasizing investments in businesses that actively contribute to positive social and environmental outcomes. The redefined investment thesis recognizes the power of aligning financial goals with a commitment to sustainable practices and responsible corporate citizenship. By supporting companies with a genuine dedication to social responsibility, investors can not only generate financial returns but also make a tangible difference in the world and support general climate-related topics.
According to Dealroom, the top three US industries for VC investment in terms of growth over the 2021–22 period are Cloud Computing, Sports, and Semiconductors. Bay Area, Greater Boston, and New York City are still the top states when it comes to VC investing, but the money is flowing also to China, UK and India so cross-geographies investment may be an interesting opportunity to consider and redefine the investment efforts by diversifying locations to rapidly growing markets.
Now it’s also a good time to reflect on past returns and learn from success stories as well as from lost opportunities or unsuccessful bets. Not only looking into the future but also evaluating the performance of past investments are critical steps in redefining the investment thesis.
Analyze Historical Investments:
“In venture capital, historic returns are not just the echoes of yesterday; they are the seeds of tomorrow’s innovation and opportunity.”
- Review the historical investments made by your VC firm or by individual investors if you are an angel investor. Examine the outcomes of these investments, including successful exits (e.g., acquisitions or IPOs) and failures (e.g., startups that folded).
- Identify patterns or common characteristics among successful investments. This might include industry sectors, business models, founding teams, and stages of development.
Examine Returns and Exit Multiples:
“In venture capital, Returns and Exit Multiples aren’t just numbers; they’re the stories of innovation, risk, and foresight, woven into the fabric of future success.”
- Calculate the returns on investment (ROI) and exit multiples for previous investments. This will help you understand the financial performance of these investments.
- Compare the returns from successful investments to those from unsuccessful ones. Look for differences in exit multiples, time to exit, and capital efficiency.
Assess Portfolio Diversification:
“In the world of venture capital, portfolio diversification is the compass that guides investors through uncharted territories, ensuring that the journey is as rewarding as the destination.”
- Analyze the diversity of your past portfolio. Did you invest in a variety of industries, stages, and geographies, or were your investments concentrated in a specific sector or region?
- Determine if a concentrated or diversified approach has yielded better results and what lessons can be learned.
Evaluate Risk Factors:
“In venture capital, risk factors are the stepping stones of knowledge, each one a lesson that guides us toward greater wisdom and success.”
- Examine the risk factors associated with both successful and unsuccessful investments. What were the key risk indicators, and were they adequately mitigated?
- Identify the common pitfalls or challenges that led to the failures and how they can be avoided in future investments.
Study Market Trends:
“In the dynamic landscape of venture capital, market trends are the constellations that guide us through the night, revealing the path to the stars of innovation.”
- Analyze how market trends and macroeconomic factors influenced past investments. Consider how changes in technology, consumer behavior, and regulations impacted portfolio companies.
- Use this information to project future market trends and potential investment opportunities.
Understand Exit Strategies:
“In venture capital, exit strategies are the compass rose on the map of investment, guiding us to the treasure troves of success hidden within each startup’s journey.”
- Evaluate the exit strategies employed in past investments. Did successful exits result from acquisitions, initial public offerings (IPOs), or other methods?
- Determine if there are trends in the exit strategies that align with your investment thesis.
Assess Operational Involvement:
“Many times, in the realm of venture capital, operational involvement is the alchemy that turns investments into success, where mentorship and guidance breathe life into the raw potential of startups.”
- Consider the level of operational involvement and value-add services provided to portfolio companies. Did hands-on mentorship, networking, or strategic guidance contribute to success?
- Decide how involved you want to be with portfolio companies in the future.
Review Founding Teams:
“In venture capital, founding teams are the North Stars that guide our investments, for in their unity, vision, and dedication, we find the constellations of success.”
- Assess the role of founding teams in the success or failure of past investments. Examine the experience, skills, and qualities of these teams and their ability to execute their business plans.
- Determine if you want to prioritize investing in strong founding teams in your future investments.
Define Investment Criteria:
“In the world of venture capital, investment criteria serve as the guiding stars in the night sky, illuminating the path to the next great innovation and opportunity.”
- Based on your analysis of past performance, define specific investment criteria that align with your strengths, risk tolerance, and expertise. These criteria should guide your future investment decisions.
- For example, your criteria might include industry focus, geographic preference, stage of development, or exit strategy preference.
Regularly Update and Refine Your Thesis:
- Last but not least, the investment landscape evolves, and your investment thesis should adapt accordingly. Continuously gather data and refine your thesis based on new insights and changing market conditions.
The rapid advancement of technology is poised to usher in a new era of unprecedented human potential, where artificial intelligence and automation will augment our capabilities, freeing us to explore creative and innovative frontiers. In manufacturing and industry, this means smart factories and supply chains, where machines work seamlessly alongside humans, optimizing production and resource utilization. As we continue to harness the power of renewable energy sources and sustainable technologies, we’re on the cusp of a future where our cities will thrive with clean energy, and our world will be on a path to environmental restoration and harmonious coexistence with nature. Industrial processes will undergo a green transformation, reducing carbon footprints and embracing eco-friendly practices. The convergence of emerging technologies, such as quantum computing and biotechnology, promises to unlock mysteries of the universe, revolutionize healthcare, and enable solutions to complex global challenges, propelling humanity toward a brighter and more connected future. In manufacturing, this means precision engineering at the atomic level and the ability to customize products and medications with unparalleled precision, forever changing the way we produce and consume.
It’s a great privilege to live in a time when foundational technologies are being defined and the world is changing at a pace like never before so let’s reflect, define direction, and support founders who are the main drivers of the innovations that are becoming a new normal for generations to come.
