Welcome to my new newsletter, Venture Capital & Alii! Today, I am returning to discuss the necessity of defining an investment thesis in Venture Capital. This is based on my personal experience and perspective. I won’t be going into too much detail to keep it accessible for everyone, and I might miss a few elements — feel free to reach out if you need any additional information.
Know the rules of the game
Evolution of investment theses in software from 1820 to today – Source: Fabric Ventures Investment Thesis.
By analogy, I would define an investment thesis as the rules of a board game. Whether formalized in a document or presented in slides, a venture capital fund’s investment thesis represents its investment strategy. It’s a plan that allows anyone—startup, other funds, fundraisers, or curious individuals—to understand a fund’s investment type.
This strategy forms the DNA of a fund (or network of private investors, called Business Angels) and reflects its personality. Without an investment thesis, a fund’s identity, investment goals, and true nature remain unclear. This thesis must express the core reasons answering the following questions:
Why do I want to invest in this startup?
What can I contribute to a company in my portfolio?
Just as the rules of a game are created before its launch (and can be broken), a fund’s investment thesis is the essence of its creation. It is also a reason why a Limited Partner might choose to invest millions of euros in the assets under management of the fund. Naturally, over time, this thesis may evolve, becoming either broader or more specific.
Today, for the general public, it often appears as a simple page on the fund’s website.
Their approaches differ, but the criteria they emphasize are quite common. Let's delve into the details.
Breakdown of the Investment Thesis
So, what are the criteria that define an investment thesis? They are obviously numerous, but a certain trend emerges in the comprehensiveness of European funds.
Investment Stage
The investment stage is one of the key pillars of investment. Should I invest in an Early-Stage startup? Series A? Growth? It’s essential to define the position a fund should take during a round:
Early-Stage: At the initial moments of the project, founders need support from their close network (Love Money) or Business Angels to move from the MVP (Minimum Viable Product) phase to a real product that needs to hit its first metrics. Kima Ventures & Kerala Ventures are perfect players to support these moments.
Series A: The startup starts gaining traction but needs resources to accelerate. Funds like Alven Capital, Partech Partners, or even Breega operate in this segment.
Series B: The time for scalability arrives. The startup scales up and may look to acquire smaller competitors. Iris Capital and Serena help with this transformation into a scaleup.
Series C (Growth Equity): The startup has become a “scaleup” and requires massive funding due to hypergrowth. With significant revenue, it may aim to expand internationally. Funds like Revaia in France, or Index Ventures, Accel in London or the U.S., specialize in this round.
Geographical Area
This may seem trivial, but a French fund can have a scope far beyond France (though, in most cases, it’s very European). Similarly, any fund based in Europe focuses on its own region to highlight the interest of European VCs in forming a block against other global players:
French funds investing exclusively or primarily in France, such as Kerala Ventures.
Funds focusing on direct and indirect neighbors: Iris Capital has offices in Paris, Berlin, and Tel Aviv to support international entrepreneurs.
European funds focused on specific geographic areas: Newfund invests in early-stage companies between France and the U.S., fostering synergies between the two countries.
Un secteur particulier, plusieurs ou une thèse agnostique
Évidemment, pour pouvoir identifier le correct interlocuteur, côté investissement et côté startup, comprendre le secteur d’investissement est un point essentiel.
Prenons quelques exemples de secteurs où certains fonds sont présents :
Marketplace, SaaS : Serena, Breega ou encore sont des fonds qui investissent totalement ou en partie dans ces deux secteurs étroitement liés qui peuvent générer des revenus récurrents (SaaS) et constituer une place de marché où se rencontre offre et demande (marketplace).
Consumers : , anciennement connu sous le nom d’Otium Brands, s’est très rapidement distingué dès 2018 par sa pure approche tournée vers des startups dites “consumers” ou Digitally Native Vertical Brands (DNVB).
Deeptech : est un fonds français spécialisé dans l’industrie de la deeptech, un secteur où des sociétés développent des technologies disruptives et repoussent les frontières technologiques.
Agnostique : le fonds est convaincu que la technologie ne se limite pas à un seul secteur et une seule industrie.
A Specific Sector, Several, or an Agnostic Thesis
Obviously, to identify the right interlocutor—both from the investment and startup sides—understanding the investment sector is crucial.
Here are some examples of sectors where certain funds are active:
Marketplace, SaaS: Serena, Breega, and Point Nine Capital invest fully or partially in these closely linked sectors, which can generate recurring revenue (SaaS) or create a marketplace connecting supply and demand;
Consumers: Eutopia, formerly Otium Brands, has stood out since 2018 for its pure focus on consumer startups or Digitally Native Vertical Brands (DNVB);
Deeptech: Starquest is a French fund specializing in deeptech, where companies develop disruptive technologies and push technological boundaries;
Quantum: with investment in Pasqal, VeriQloud or Quandela, Quantonation Quantonation has emerged as one of the leading funds in investing in companies specializing in quantum technology.
Agnostic: Daphni is convinced that technology is not limited to a single sector or industry.
Human and Business Values
Finally, I believe it's important to have strong convictions in your investment thesis:
Should you target unexplored markets?
Support entrepreneurs who are product-obsessed?
Guide entrepreneurs toward lucrative exit opportunities in terms of equity ownership and future valuation?
These questions help shape decisions when drafting an investment thesis.
These human and business values can be tied to the hands-on approach funds might take. For instance, Serena, beyond its investment team, strives to maximize its startup portfolio by providing an operational team to address specific startup needs: marketing, operations, strategy, finance, etc.
Some funds, like Point Nine Capital, aim to adopt a humble approach, continuing to work long-term with companies they have already supported.
Funds naturally emphasize exceptional, complementary, talented, and... friendly entrepreneurs who align with the investors' values, ensuring a “fit.” The investment relationship may last 3, 4, or 5 years, so it’s important that the relationship between both parties remains positive over time.
Defining YOUR Investment Thesis
In my view, these elements define a typical VC fund, but they also apply to a network of business angels or even to yourself if you’re interested in taking a closer look at startups. Take the time to identify the elements you value in a tech company, what you can understand, and what aligns with your personal and entrepreneurial values. Choose a sector where you can contribute your expertise or, even better, your network.
Defining your investment thesis and formalizing it on paper may take time, as will the words that follow. Create expressions that may enhance your clarity with potential investments. Showcase your clear interest in specific topics and illustrate your uniqueness.
To go further:
Investment Thesis Collection, Alexander Jarvis
Investment Thesis, Investopedia
The Fabric Ventures Investment Thesis, Fabric Ventures
Thank you for reading this article! What specific topics in VC or regarding software would you be interested in? Feel free to share your feedback 🌐 and give a ❤️ if you enjoyed it!