angel investing investment thesis

How to develop an investment thesis in 3 easy steps as a beginner angel investor

Introduction

Starting your angel investing journey can be both exciting and daunting as a beginner. As an angel investor, there are so many things you need to consider before making your first investment. It can get overwhelming without the right guidance and information. However, if you break it down step by step, angel investing can be a very rewarding activity, both financially and personally. The most important thing is to not invest blindly but to have a clear set of rules that you follow so you don’t get too excited or spend all your money in the first few months once you become a confident and experienced angel investor. One crucial rule of becoming a successful angel investor is the importance of crafting a thesis —a set of guiding principles that shape your investment strategy. In this article, we will show you how we teach students in 3 easy steps how to develop their investment thesis as an angel investor, which will lay the groundwork for successful and purposeful investments.

Here are the 3 easy steps:

Step 1. Identify Your Interests and Expertise

The first step in building your investment thesis is identifying your interests and areas of expertise. Consider industries or sectors where you have relevant knowledge, experience, or a genuine passion. Whether it’s technology, healthcare, consumer goods, or fintech, focusing on areas that align with your background can give you a competitive edge in evaluating investment opportunities. Additionally, think about any unique insights or networks you possess that could provide value to startups in your chosen field. By honing in on your strengths and interests, you can narrow down the universe of potential investments and focus your efforts where you can make the most impact.

Step 2. Define Your Investment Criteria

Once you’ve identified your areas of interest, it’s essential to define your investment criteria. This involves outlining the specific attributes or characteristics you’re looking for in potential startup investments. Consider factors such as stage (early-stage, seed, or Series A), business model, market size, team expertise, traction, and scalability. Additionally, think about your risk tolerance and return expectations. Are you willing to take on higher risk for the potential of greater rewards, or do you prefer more conservative investments? By clearly defining your investment criteria, you can filter out opportunities that don’t align with your objectives and focus on those that have the greatest potential to deliver returns.

Step 3. Continuously Learn and Iterate

Building a thesis as an angel investor is an iterative process that requires continuous learning and refinement. Stay informed about industry trends, market dynamics, and emerging technologies through networking, attending conferences, and reading relevant publications. Engage with other investors, entrepreneurs, and experts to gain new perspectives and insights. As you gain experience and gather feedback from your investments, be willing to adapt and refine your thesis accordingly. What works today may not work tomorrow, so staying flexible and open-minded is key to long-term success in angel investing.

Building a thesis as a beginner angel investor may seem like a daunting task, but by following these three easy steps, you can develop a strong thesis, which will lay the foundation for your successful investment journey. We believe it is smarter to make 25 £1,000 investments rather than invest £25,000 in a single startup. The primary reason being that it provides 25 learning opportunities to learn more about yourself, founders and of course evolve your thesis.

By identifying your interests and expertise, defining your investment criteria and continuously learning and iterating, you can develop a clear and purposeful investment thesis that aligns with your personal goals and financial objectives. Remember that angel investing is as much an art as it is a science, and success often comes from a combination of intuition, experience, and diligent research. With patience, perseverance, and a well-defined thesis, you can navigate the world of startup investments with confidence and conviction.

The Angel Investment Thesis for Focused Startup Investing

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An investment thesis is a compass for angel investors to guide them on their own startup investment journey, guide entrepreneurs they seek to invest in to find their way to them & find guidance, advice, and funding, as well as for their ecosystem to gain insight into their guiding principals to join them along the journey. The thesis is a roadmap for investing, a sense of gravity around what an investor cares about. It guides the investor towards the investments that fit their objectives.

As one of the most useful and insightful tools in the innovation economy, the INVESTMENT THESIS guides, connects & clarifies. From angel investors having their own personal statements to angel groups developing a collective affirmation to VC funds, this simple yet impactful statement should be used as a trust-building tool. For investors, you can keep clear on your objectives for being an investor and not falling in love with a charismatic founder and investing in a deal that you cannot bring any value to and thus, should not be investing in. A strong investment thesis will help guide you to your true north star along your winding path as an investor, will inform how you will source deals, how you will make critical decisions, and ultimately, build a more diverse, impactful, and growing portfolio. For entrepreneurs, you can ask an investor what their investment thesis is to start a wonderful discussion about their passions, aspirations, and experience, allowing for deeper conversations and better investor relations.

Some Caution, bias & patterns.

A good investment thesis sits at the intersection of experience, aspirations, assets, passion, values, and opportunity. It should fit the financial objectives & goals of the investor. You, as an investor, bring so much value to a founder & company, on top of your $$. This will inform your investment thesis. However, be aware of the unconscious bias that our society has placed in front of us from birth about what “successful” patterns to “bet on” and remember diversification. While you should focus on a particular industry or sector that you are familiar with, you can diversify other variables, such as geography, business model, technology, or customer segment to create a more balanced portfolio of angel investments. This should also be calibrated with your personal net worth. Developing a personal angel investment thesis will guide you towards what you want to invest your time, treasure and talent into and guide others to find you, collaborate with you, and syndicate deals for more values-aligned opportunities.

“As an investor, people are always talking about what’s your thesis. And a thesis is important, but it can be really intimidating. You may not know your thesis right away. So think about your why, what do you want to accomplish in investing?” ( 05:41 ) -Caitlin Wege, President of TCA on the She Invests! Podcast, Episode 37

Creating an Angel Investment Thesis.

Have a clear, simple purpose for the why and what you are investing in. Consider the following considerations to outline:

What would be your typical check size? Angel investors can invest $5,000 – $200K into a single startup company, typically the average is $10K – $25K.
What stage will you be investing in? Friends and Family to early Series A is the range of where angel investors are active, but predominantly in the Seed to Seed+ stage.
Do you want to stick with a specific geography? In multiple HALO Reports done by the Angel Capital Association & Angel Resource Institute , there is a direct correlation between the success of an investment and how close the investor is in geography to the founder. With our new zoom-heavy world, this has been eroded, but consider how close you want to be and how you can conduct due diligence with the founder & their HQ (albeit manufacturing, offices, labs) to promote a positive & effective due diligence experience.
Are you specific with the type of founder, team, or investment lens you prefer to invest in? Will you invest only in women-led startups, cognitive diverse teams, underrepresented founders, 1st-time founders, impact-driven companies or tech-enabled startups?
What sector are you knowledgeable in or are passionate about? This could be from your professional experience because you have a specific competitive edge when evaluating companies in your area of expertise or a personal passion in a sector. alternatively, you can also join an angel group to learn and gain expertise from the collective knowledge of other experts in the field you want to invest in.
Any special sauce needed in a startup that you feel is an opportunity to invest in? This could be that there needs to be a heavy AI component or Web3.0 strategy or CPG (Consumer Product Goods) companies with a strong community component that produce a stickier customer retention strategy. These all would be indications that you feel would de-risk your investments significantly for you to invest.

Then, put this all together:

You can add some more specificity if you would like…

“I provide [assets you can bring to the company] to all portfolio companies because I am [your background/interest] to [Secret Sauce].”

“I like to [how do you interact with companies/founders], I [prefer/ not prefer] a board seed, and request [typical asks of founders, like information rights, etc]”

“I look for liquidity in less than [typical horizon of investment periods].”

HERE IS MY PERSONAL INVESTMENT THESIS:

“I invest typically $10,000 – $25,000 each deal at the seed stage in the US to fund women-led or BIPOC-led or LGBTQ+ impact-driven startups. I am industry agnostic but prefer tech-enabled solutions. I focus on looking for difficult problems that I believe can be solved with the right team. I can either lead a round* if it is in my wheelhouse of expertise or follow on. I like to take an active role in the advising of the founder, prefer a board seat but not necessary, & request information rights. I look for a liquidity event in 3-5 years and 5-7 years for life science.” -Dr. Silvia Mah (*note: for me, personally, to lead a round, the startup has to be at the right stage (typically pre-seed) & the right funding opportunity (syndicaion with other individual angel investors or angel groups who accept individual due diligence) or platform (like Wefunder) to bring other investors on board for the benefit of the founder – I know, super-specific, but it's what it takes.)

Having a focus can help you stay efficient and become a better angel investor

Here is some insight from another angel investor about their investment thesis:

“We want to invest in companies with underrepresented founders which means women, people of color, LGBTQIA+. The CEO herself needs to be diverse, but also the founding team needs to represent diversity.” -Sonia Steinway, Stella Angels, TCA, & Village Up San Diego, speaking about her & her wife's investment thesis on the She Invests! Podcast, Episode 31 ( 22:36 )

The Benefits of an Investment Thesis for ALL

A. for the investor.

An investment thesis keeps you disciplined on your selections and focused on where you want to go with your investments. With a deep understanding of the types of industries and businesses you want to invest in, the risks you’re willing to take (and those you’re not), and the parameters you want to see in companies, you are much better equipped to find the right fit for your money.

Being the right investor. A thesis is a clear indicator to start-up founders of whether you are the right investor for their companies. It's a win-win when the right investor funds the right startup in the industry that they have expertise or interest because capital is a 3-part benefit: Relational/Network Capital, Financial Capital, and Resource Capital.
Saves time. PERIOD.
Share insights. Provides founders with insight into how you will work with them during due diligence and post-investment.
Increased communication. Better communication through a clear thesis with co-investors, entrepreneurs, and your ecosystem, in general, will allow for you to gain access to great deals, help in due diligence needs and post-investment advice.
Increased referral efficiency. The efficiency of referral, incoming and outgoing, both are crucial in delivering more value to the innovation ecosystem
Stay laser-focused. It's the same principle of going after a customer persona or a specific beachhead market, the more you focus, the better you are in attracting the right customers who will become evangelical customers of your product or offering. A strong investment thesis with laser focus commitment to the startups you want to invest in for the RIGHT reasons will build a stronger individual portfolio with startups exactly in your wheelhouse.
Become more proactive instead of reactive. By having a clear direction as to where you as an investor want to allocate your funding of startups, your process becomes more proactive towards finding the right investment instead of reacting to shiny bright opportunities.
Increased trust with the ecosystem. Trust is the most valuable currency in investing. By having an investment thesis, transparency increases as does trust amongst entrepreneurs an investor serves and the investors in their networks.
Decreases anxiety. Angel investing is a risky endeavor, so knowing the core principles of your investment decisions can lend a grounding presence to your investor activities, conversations, and discussions.
Helps you gain clarity. The act of writing an investment thesis in itself can help an investor gain clarity. Then, as a tool for meeting and speaking with entrepreneurs, the thesis affords clarity of the type of startups you want to hear from and those you don't.

B. Benefits for the startup founder:

An investment thesis, from very high-level thesis' to super specific, also benefits the entrepreneurs seeking funding. It assists them in gaining a glimpse into the mindset of an investor and understanding if there is a good fit for investment. This can only happen when expectations are delineated clearly from the beginning. so, entrepreneurs, as your investors about their investment thesis and also compile the thesis from what you know about the investor.

Saves time. This happens in two ways, (1) pitch to only those investors who want to invest in you and (2) better target your entire list of investors. I know what you are thinking, “how would I know what their investment thesis is?” Well, see what they talk about on social, what they share and reshare on Linked In or post in Twitter and be a detective in finding out what they have already invested in. Secondly, knowing the investment thesis of many investors saves you time in knowing who is actually on your list of investors & what they invest in.
Increases efficiency. Understanding the investment thesis of your potential investors narrow down the list of investors to reach out to. You only pitch to and interact with the investors who are interested in investing in your type of company with the amazing team you have amassed.
Saves energy. Even the fact of being aware of angel investors having an investment thesis allows for you to save your energy, because the fundraising journey is an energy-draining experience for most, as you research each investor and recognize the signs of a thesis (helps to use the template).
Focuses conversations. Speaking about the investment thesis between the founder & funder when conducting a coffee meeting allows for better conversations and during a pitch, a focused question at the very end about the investor's thesis has a personal touch to a typically more transactional pitch. As part of follow-on meetings, a great topic of discussion is the investor's thesis and who else shares the thesis with them (growing your list of the exact investors who would be interested in hearing from you).
Assist in building your network. Allows for entrepreneurs to piece together who are the right investors at every stage of their fundraising journey by connecting the thesis' together to build a stronger ecosystem of investor support & guidance.
Helps in building an investor persona. Every entrepreneur should have an investor persona built out, knowing WHO is your ideal investor for your industry, team, stage, product, and geography. By anchoring on a certain investors' thesis and building from there allows for you to get super focused on the exact investor who you are pitching to and evolve that persona with more detail as you ask different investors about their own thesis'.

C. Benefits for the Innovation Ecosystem

A clear investment thesis signals professionalism, intentionality, openness, and reciprocity to your growing innovation ecosystem, from other investors to entrepreneurs to service providers to mentors.

Increased effective deal flow. Deal flow is very important to the success of angel investors, and those deals often come from other angels, venture capitalists, accelerator directors — other early-stage investors.
Helps syndication success. When you syndicate, or share, great deals with other investors or in your angel group, there is an exchange of trust and value. This connectivity helps syndication in knowing through practical & actionable steps that there is success in doing deals with you as an investor.
Saves time. It's easy to know what you want to invest in so your ecosystem can easily know how to bring you value and vice versa.
Better communication with co-investors. If you have a focused investment thesis, there are richer communications & cross-collaborations with co-investors from syndication to sale.

Remember, all early-stage investments are risky and can fail even with the best idea, perfected product, aligned product-market fit and amazing team. Building a way to guide you through fantastic & passionate entrepreneurs and their transformational products is key. An investment thesis will decrease your risk as an investor and increase the probability of investment success aligned to your own beliefs & experience.

Do not rush it.

Developing & refining a personal investment thesis as an angel investor should take thought, research, and time. An angel investor's investment thesis is very important to get right because if seriously considered the right investor finds the right entrepreneur in the right industry to make magic happen.

Investors should invest in the innovation & impact they want to see in the world.

There are tangible and intangible benefits not only for the angel investor but for the startups they serve and the ecosystem they collectively build with their trusted network of other investors, experts, mentors and advisors.

Without an investment thesis, investors are likely to find it difficult to stay disciplined and concentrate on the startups that match their investment objectives.
Without an investment thesis, investors don't have an intentional compass to guide their deal flow sourcing & make the best investment decisions for their portfolio.
Without an investment thesis, investors are likely to waste a lot of time talking about the wrong things to the wrong people.

Developing and using a compelling investment thesis as an angel investor not only minimizes their risk and exposure but also increases an investor's ability to help more companies scale, increasing return on investment. As a dynamic tool, the investment thesis can evolve and be refined as an investor grows their portfolio and talks to more founders. Intentionality from the beginning makes for more efficient sourcing, better decision-making, and an efficient way to build the right portfolio with the right types of innovation to make the most impact.

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Crafting a Successful Investment Thesis: A Guide for New Angel Investors

The world of angel investing brings together high risk and high reward, drawing in investors who are willing to delve into the startup ecosystem. With the allure of uncovering a unicorn startup comes the pressure to craft a clear investment thesis that can guide investment decisions, and ultimately, lead to robust portfolio returns.

Understanding the Fundamentals of Angel Investing

Angel investing has established itself as a crucial stage in the capital fund lifecycle, coming in when startups need early-stage backing by high-net-worth individuals or investment groups. The angel community, equipped with resources beyond capital, such as domain expertise, mentorship, and networking, provides instrumental support to fledgling companies.

Yet, the path to realizing great deal flow in this venture isn't without its obstacles. Identifying startups with strong business models and growth potential requires understanding industry trends, assessing each company's burn rate, conducting through due diligence, and devising an effective decision process.

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Defining the Role of an Angel Investor

An angel investor is more than just a benefactor; they provide startups with the guidance and support needed to navigate the early stages of the growth stage. Balancing an intricate mix of personal value adding, risk appetite, and a strong sense of where certain market developments are heading, angel investors not only fuel startups but also help steer them towards their potential. This is especially true of the operator angel archetype, which has redefined what being helpful means as an investor.

The Cornerstones of a Solid Investment Thesis

When it comes to angel investment, the importance of constructing a solid investment thesis that acts as a guiding principle cannot be overstated. Your investment thesis, touched and shaped by your multi-year vision for the particular sector(s) and your overall decision-making process will determine the track you set your angel investing journey on.

Setting Your Investment Criteria and Goals

A well-articulated investment thesis requires setting clear, specific, and realistic investment criteria and goals. Aligning with your risk appetite, understanding of the market, and investment expectations, these factors form the basis of good practices in angel investing. By meticulously defining the sectors, stages of development, and geographic regions you're interested in, you narrow down the vast pool of potential investments to those that best match your expertise and interests. This focus not only enhances your ability to conduct effective due diligence but also increases the likelihood of contributing meaningfully to your portfolio companies. Setting clear goals, such as desired return on investment, timeline for exit, and level of involvement with the startup, helps in aligning your investments with your personal and financial objectives. Furthermore, revisiting and refining these criteria and goals over time allows you to adapt to changing market conditions and learn from past investment outcomes, continuously improving your strategy for future investments.

Assessing Market Trends and Startup Viability

In the fast-paced world of startups, keeping abreast of market developments is paramount. Being able to evaluate market fit, understand the ramifications of rapid market developments, and assess the capabilities of early-stage companies are all integral to the investment decision-making process. This necessitates not only a keen understanding of the current market landscape but also an ability to forecast future trends and identify sectors poised for growth or disruption. Investors should delve into market research reports, competitor analyses, and consumer behavior studies to form a comprehensive view of the startup's operating environment. Assessing a startup's adaptability to market changes and its potential to scale within this context can reveal much about its long-term viability. Furthermore, engaging with industry experts and leveraging data analytics tools can provide deeper insights into market dynamics, helping to make more informed decisions about where to allocate investment capital for optimal returns.

Building Your Angel Investment Portfolio

Crafting an investment portfolio is not a static process but an iterative one. Right from getting started, investors need to establish a balanced portfolio that mitigates risks while maximizing returns. Building a diverse portfolio requires staying informed about industry fluctuations, and having both a pulse on and access to deal flow in the startup ecosystem.

An angel investment portfolio, much like any other, thrives on diversification. Spreading investments across differing stages of companies - from early-stage startups to more established players - can help achieve a balance of risk and returns. Further, investing across sectors opens doors to varied industries, increasing the chances of cashing in on the next big market disruption. The act of investing based on an angel investment thesis extends well beyond the identification phase. A critical aspect of the decision-making process lies in conducting due diligence. A thorough understanding of a company's financial health, market potential, and competitive landscape significantly influences investment decisions.

Developing an Edge as an Angel Investor

Developing an edge as an angel investor is about leveraging domain expertise, enhancing decision speed, and gaining insight from experiences. Demonstrating skills beyond the ability to identify high-potential early-stage startups is what sets apart successful angel investors. Strong network connections and a knack for value-adding in the particular sector can provide significant advantages. A robust network and deep sector expertise allow investors to add value beyond capital. By fostering relationships, sharing insights, and consistently learning from the community, angel investors can position themselves as leaders within the startup world.

Insight into the startup ecosystem and investment cycles is invaluable for angel investors. It's crucial to understand how early-stage companies differ from their late-stage counterparts and how this impacts the investment thesis that needs building.

Revising and Refining Your Investment Strategy

As the market develops and evolves, so should the angel investment thesis. An effective angel investing strategy accounts for market trends, continually re-evaluating past investment experiences, and adjusting risk appetite accordingly. What works for one venture capitalist may not work for another. Every experience, every startup funded, every return (or loss) is a lesson in angel investing. Building on these accumulated experiences can provide a strong foundation for refining an investment thesis and optimizing future strategies.

To embody this flexibility, investors should continuously educate themselves on emerging trends and technologies through podcasts, industry reports, and conferences. Cultivating a diverse network of entrepreneurs, fellow investors, and industry experts can also provide early insights into shifting market dynamics and uncover potential investment opportunities. It's important to set aside a portion of your portfolio for experimental bets in emerging sectors or innovative business models, as these can offer outsized returns and hedge against the unpredictability of the market. Lastly, regularly reviewing and adjusting your investment strategy in light of new information and market feedback ensures that your approach remains aligned with the evolving landscape, keeping you one step ahead in the competitive world of venture capital.

Crafting a successful angel investment thesis is an iterative process - one that requires understanding, analysis, and constant refinement. With clear investment criteria, rigorous due diligence, and an adaptable approach, budding investors can navigate the dynamics of angel investing. Remember to leverage the vast experience that lies within the angel community and to stay focused on the bigger picture while taking confident steps forward. Stay curious, continue on your learning journey, and feel free to dive deeper into the wealth of resources that await to help you master the art of angel investing.

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Charting the Waters of Angel Investing: A Due Diligence Checklist for Success

Angel investing is a critical form of early-stage financing that powers the growth of startups at a stage when they may be too nascent for venture capitalists or banks to consider. Due diligence serves as the foundation for making informed investment decisions, allowing angel investors to meticulously assess the viability, potential risks, and opportunities of a startup before committing their capital.

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Developing an Investment Thesis for Angel Investor Networks

1. introduction to angel investing and investor networks, 2. understanding market dynamics for strategic investments, 3. crafting your unique investment thesis, 4. the role of due diligence in shaping investment decisions, 5. portfolio diversification strategies for angel investors, 6. a guide for angels, 7. the impact of technological trends on investment opportunities, 8. building and leveraging a strong network in angel investing, 9. exit strategies and success metrics for angel investments.

Angel investing represents a unique and dynamic segment of the financial world, one that has seen significant growth and evolution in recent years. It is a space where individuals, often affluent and with a keen eye for potential, provide capital for business startups , usually in exchange for convertible debt or ownership equity . These investors are typically the first external financiers that a startup encounters, bridging the gap between the initial seed funding from friends and family and the more substantial venture capital investment . angel investors not only bring funds to the table but also offer invaluable mentorship, industry connections, and strategic guidance to help nascent companies navigate the treacherous waters of early business development.

1. Diversity of angel investors : Angel investors come from a myriad of backgrounds. Some are successful entrepreneurs themselves, looking to give back to the startup community, while others are seasoned executives or professionals who seek to diversify their investment portfolios. For example, an angel investor might be someone like Sarah, a former tech executive who uses her wealth and experience to support emerging tech startups, or John, a retired athlete who invests in health and fitness ventures.

2. Investor Networks : To streamline the investment process and share due diligence efforts , angel investors often band together to form networks or syndicates. These networks can be formal, with structured membership and pooled investment funds, or informal, functioning more as a community of like-minded individuals. The New York Angels is one such network, comprising over 100 active members who have collectively invested over $100 million in more than 100 startup companies.

3. The Investment Process : The typical investment process in angel investing involves several stages, starting with deal sourcing and screening, followed by due diligence, where the investor evaluates the startup's team, market potential, business model, and financial projections. If the due diligence is positive , the negotiation of terms and investment follows. An example of this process in action is when the Band of Angels , a Silicon Valley-based investor group, screened over 50 proposals before investing in a promising AI startup, which later went on to secure a lucrative acquisition deal .

4. impact of Angel investing : The impact of angel investing extends beyond the financial gains for both the investor and the startup. It plays a crucial role in job creation, innovation, and economic growth. Startups like WhatsApp and Uber , which once relied on angel investments, have become household names, revolutionizing their respective industries and contributing significantly to the economy.

5. Risks and Rewards : Angel investing is not without its risks. The majority of startups fail, and thus, the risk of losing one's entire investment is high. However, the potential rewards can be substantial. A small stake in a company that goes on to become a unicorn, like Google or Facebook , can result in a return of many times the original investment.

Angel investing and investor networks play a pivotal role in the startup ecosystem. They provide not just capital but also the essential support and resources that can make the difference between a startup's success or failure . As the landscape of angel investing continues to evolve, it remains a vibrant and essential component of the broader financial market, offering opportunities for both investors and entrepreneurs alike.

Introduction to Angel Investing and Investor Networks - Developing an Investment Thesis for Angel Investor Networks

In the realm of angel investing, understanding market dynamics is pivotal for making strategic investments that yield high returns . Market dynamics refer to the forces that impact prices and behaviors in a market, encompassing a range of factors from economic indicators, industry trends, to consumer behavior and regulatory changes. These dynamics are not static; they are influenced by global events, technological advancements, and shifts in consumer preferences, making the market a complex and ever-evolving entity. For angel investors, who typically engage in early-stage funding, grasping these nuances can be the difference between a lucrative investment and a missed opportunity.

Insights from Different Perspectives:

1. Economic Indicators:

- GDP Growth Rates: A country's GDP growth can signal market expansion or contraction, influencing investment decisions.

- Inflation Rates: Inflation impacts consumer purchasing power , which in turn affects business revenues and investment attractiveness.

2. Industry Trends:

- Technological Disruptions: Innovations can create new markets or render existing ones obsolete. For instance, the rise of electric vehicles is reshaping the automotive industry .

- Regulatory Changes: New regulations can open up opportunities or pose challenges. The GDPR, for example, has significantly impacted data-driven businesses .

3. Consumer Behavior:

- Shifts in Demand: Changes in consumer preferences can lead to the emergence of new sectors. The growing demand for plant-based foods is driving investment in alternative protein sources.

- Brand Loyalty: Understanding what drives loyalty can help investors predict long-term success.

4. Competitive Landscape:

- Market Share: Companies with increasing market share may represent promising investment opportunities .

- Barriers to Entry: High barriers can protect incumbents but also challenge new entrants, affecting investment risk.

Examples to Highlight Ideas:

- Case Study of a Disruptive Company: Airbnb's entry into the hospitality market disrupted traditional hotel businesses and attracted significant investment due to its innovative business model and rapid growth .

- Impact of Regulatory Changes: The legalization of cannabis in some regions has led to the growth of an entirely new industry, with early investors reaping substantial rewards.

By analyzing these aspects, angel investors can develop a robust investment thesis that aligns with market dynamics, potentially leading to successful ventures and substantial financial gains. It's a strategic approach that requires diligence, foresight, and a willingness to adapt to the ever-changing market landscape.

Understanding Market Dynamics for Strategic Investments - Developing an Investment Thesis for Angel Investor Networks

Crafting a unique investment thesis is a critical step for any angel investor or investment network. It serves as a guiding framework that outlines the specific criteria and strategic approach for selecting potential investment opportunities . A well-articulated investment thesis not only helps in making informed decisions but also in communicating the value proposition to stakeholders and aligning the interests of the investment group.

From the perspective of an angel investor, the investment thesis should reflect personal values, expertise, and market understanding. It's about identifying sectors or business models where the investor has a competitive edge or can add significant value beyond capital. For instance, an investor with a background in healthcare might focus on early-stage biotech startups, leveraging their industry knowledge to assess the viability and potential of the innovations.

On the other hand, an investment network might develop a collective thesis that draws from the diverse experiences of its members. This could involve a focus on emerging technologies, sustainable practices, or social impact ventures , depending on the shared interests and goals of the network.

Here are some key elements to consider when developing an investment thesis:

1. Market Analysis : Understanding the current trends, challenges, and opportunities within the target market is essential. For example, the rise of remote work has spurred investment in cloud computing and cybersecurity startups .

2. Value Proposition : What unique value can you or your network bring to a startup? This could be industry connections, technical expertise, or mentorship capabilities.

3. Risk Assessment : Evaluate the risk profile of potential investments. High-risk, high-reward ventures like space tourism might appeal to some, while others may prefer the steady growth of SaaS companies.

4. Investment Horizon : Determine the time frame for expected returns. Some networks may prefer quick exits through acquisitions, while others may support long-term growth strategies .

5. Portfolio Diversification : Decide on the level of diversification to mitigate risks. This could mean investing across different industries, stages of development, or geographic locations.

6. Impact Considerations : For many, the potential social or environmental impact of an investment is as important as the financial return. This could guide investment towards renewable energy startups or companies with strong corporate governance .

An example to illustrate the importance of an investment thesis can be seen in the success of investors who early on identified the potential of mobile technology. They focused on startups that were building apps or mobile-first services, which paid off significantly as smartphones became ubiquitous.

A unique investment thesis is not just about what to invest in, but also why, how, and when. It's a dynamic document that evolves with market conditions and the growth of the investor's experience and insights. By adhering to a well-crafted thesis, angel investors and networks can make more strategic, confident, and ultimately successful investment decisions.

Crafting Your Unique Investment Thesis - Developing an Investment Thesis for Angel Investor Networks

Due diligence serves as the critical bridge between initial interest and final investment decision, acting as a comprehensive audit of a potential investment, examining its legal, financial, and operational aspects. This process is not merely a box-ticking exercise; it is a deep dive into the heart of the business, its market position, and its potential for growth. It's the investor's tool for uncovering any hidden liabilities, assessing the quality of the earnings , verifying the accuracy of the financial information , and ensuring that the investment thesis holds water. From the perspective of angel investor networks , due diligence is the cornerstone of risk mitigation. It allows investors to make informed decisions, backed by empirical data and thorough analysis, rather than relying solely on gut feeling or market trends.

1. Financial Scrutiny : At the core of due diligence is the financial analysis , which involves a meticulous review of the company's financial statements, cash flow models , and projections. For example, when angel investors considered investing in a promising tech startup, they discovered through due diligence that the company's burn rate was unsustainable, leading to a renegotiation of the investment terms.

2. Legal Examination : legal due diligence encompasses a review of all legal documents , including contracts, ownership documents, and intellectual property rights . A case in point is the acquisition of a small e-commerce platform by a larger conglomerate, where due diligence revealed a series of pending lawsuits that could have significantly impacted the valuation.

3. Operational Evaluation : This involves assessing the company's business model , the robustness of its supply chain , and the efficiency of its operations. For instance, an angel investor network uncovered, through operational due diligence , that a manufacturing firm had a single-source supplier, posing a significant risk to business continuity .

4. Market Analysis : Understanding the market dynamics, competitive landscape, and customer base is essential. An angel investor network might use due diligence to validate the market size and growth projections provided by a SaaS company, ensuring that the market potential justifies the investment.

5. management Team assessment : The quality and experience of the management team are often indicative of the company's future success. Due diligence can reveal gaps in the team or past successes that increase confidence in the team's ability to execute the business plan .

6. Risk Management : Identifying potential risks, both internal and external, is a crucial aspect of due diligence . For example, during the due diligence process , investors might discover regulatory changes that could adversely affect the business model of a fintech startup .

7. exit Strategy evaluation : angel investors are particularly interested in understanding the potential exit strategies for the investment. due diligence might uncover previous exit attempts or explore the likelihood of an IPO or acquisition.

Through these lenses, due diligence shapes investment decisions by providing a structured approach to evaluating the viability and potential of an investment. It's a multifaceted process that requires attention to detail, a skeptical eye, and the ability to see beyond the numbers to the people and processes that drive the business. By conducting thorough due diligence , angel investor networks can significantly increase their chances of success , turning hopeful prospects into profitable realities.

The Role of Due Diligence in Shaping Investment Decisions - Developing an Investment Thesis for Angel Investor Networks

Diversification is a cornerstone of prudent investment strategy, and for angel investors, it's no less critical. The very nature of angel investing involves high risk, given the early stage of the companies and the lack of liquidity in the investments. However, by spreading investments across various sectors, stages of business development , and even geographies, angel investors can mitigate some of the inherent risks. This approach not only helps in managing risk but also opens up a wider array of opportunities for potential high returns .

From the perspective of an angel investor, diversification strategies can take many forms. Here are some key strategies:

1. Sector Diversification : Investing across different industries is vital. For example, an angel investor might allocate funds to a promising biotech startup, a burgeoning fintech company, and a revolutionary clean energy firm. This way, if one sector experiences a downturn, the others may remain unaffected or even thrive.

2. Stage Diversification : Some angel investors prefer to invest in startups at the ideation stage, while others may look for those that have already developed a minimum viable product or have started generating revenue. A balanced portfolio might include investments in companies at various stages of development.

3. Geographical Diversification : By investing in startups located in different regions or countries, an angel investor can capitalize on local growth trends and hedge against regional economic fluctuations.

4. Investment Size Diversification : Not all investments need to be of the same size. angel investors might choose to make smaller investments in a larger number of companies or larger investments in a select few.

5. Co-Investment : Partnering with other investors or angel networks can allow for sharing of due diligence efforts and risks. For instance, if an angel investor is unsure about a particular technology startup, they might co-invest with a seasoned tech investor who brings expertise to the table.

6. exit Strategy diversification : It's important to have investments with varying time horizons for potential exits. Some startups may aim for an IPO, while others might be acquisition targets or plan for a management buyout.

An example of sector diversification in action could be an angel investor who has traditionally invested in software startups deciding to invest in a healthcare startup that uses AI for diagnostic purposes. This not only diversifies their portfolio but also allows them to leverage their experience in technology in a new and growing field.

By employing these diversification strategies, angel investors can build a robust portfolio that balances the pursuit of high returns with the management of risk, aligning with the broader investment thesis of seeking out disruptive innovation while maintaining a disciplined approach to investment .

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Portfolio Diversification Strategies for Angel Investors - Developing an Investment Thesis for Angel Investor Networks

Assessing the valuation of a start-up is a critical and complex task for angel investors , as it involves not only scrutinizing the current financial metrics but also forecasting the potential for future growth and success. Unlike established companies, where valuation can often be determined based on earnings or revenue multiples, start-ups require a more nuanced approach due to their unique nature and the high level of uncertainty involved. Angel investors must consider a myriad of factors, from the founding team's experience and the robustness of the business model to the competitive landscape and the start-up's intellectual property. It's a delicate balance between the tangible and intangible, the quantitative and qualitative, and the present and the future.

1. Founding Team : The experience, skills, and track record of the founding team can significantly influence a start-up's valuation. A team with a history of successful ventures and industry expertise may command a higher valuation. For example, a start-up led by a founder who previously sold a company for a substantial amount is likely to be valued more favorably.

2. market Size and growth : Investors look for start-ups that operate in large and growing markets. A start-up addressing a niche market with limited growth potential will typically have a lower valuation compared to one targeting a broader, expanding market. Consider a start-up in the renewable energy sector , which is expected to grow exponentially; such a company might be valued higher due to the market's potential.

3. Product Differentiation : The uniqueness of the product and its competitive edge in the market are crucial. A start-up offering a patented technology that solves a significant problem in a way that no other product does can justify a higher valuation. An example is a biotech start-up with a novel drug delivery system that has been granted a patent.

4. Revenue and Monetization Strategy : Current revenue, though often minimal, and the clarity of the monetization strategy play a role in valuation. A start-up with a clear path to revenue generation , such as a Software as a Service (SaaS) company with a subscription model, may be more attractive to investors.

5. Traction and Customer Growth : Evidence of traction, such as user growth or partnership agreements, can be indicative of future success. A start-up that has secured a contract with a major corporation may see an uptick in its valuation.

6. Financial Projections : While inherently speculative, detailed and realistic financial projections can help investors assess a start-up's potential. A fintech start-up projecting to break even within two years due to a scalable business model might be valued higher than one without clear financial forecasts.

7. Exit Strategy : The potential for a lucrative exit, whether through an acquisition or an IPO, is a significant factor. A start-up in a sector with a history of successful exits, such as tech, may have a higher valuation based on the likelihood of a profitable return for investors.

8. Risk Profile : The level of risk associated with the start-up's industry, stage of development, and regulatory environment can impact valuation. A start-up in a heavily regulated industry like healthcare may have a lower valuation due to the higher perceived risk.

Valuing a start-up is as much an art as it is a science. Angel investors must blend analytical rigor with intuitive judgment to arrive at a valuation that reflects the start-up's true potential. By considering these factors and incorporating them into a comprehensive investment thesis , angels can make informed decisions that align with their risk tolerance and investment goals .

A Guide for Angels - Developing an Investment Thesis for Angel Investor Networks

In the dynamic landscape of modern finance, technological trends are not just peripheral factors; they are central to the identification and exploitation of investment opportunities. As angel investors, the ability to discern which technological trends have the potential to disrupt markets or create new ones is paramount. This discernment is not a mere prediction of the future; it's an informed analysis based on current trajectories, market demands, and the innovative capacity of emerging technologies. From blockchain's promise of decentralized finance to artificial intelligence's role in predictive analytics , each trend carries with it a myriad of implications for investment strategies .

1. Blockchain and Cryptocurrency : Once seen as a niche interest for tech enthusiasts, blockchain technology has burgeoned into a foundational element for a new financial ecosystem. Cryptocurrencies like Bitcoin and Ethereum have demonstrated the potential for high returns, but the real investment opportunity lies in the underlying blockchain technology. For instance, companies leveraging blockchain for supply chain transparency or secure transactions are ripe for investment, as they offer solutions to real-world problems .

2. Artificial Intelligence (AI) and Machine Learning (ML) : AI and ML are revolutionizing industries by enabling data-driven decision-making and predictive analytics. Startups that harness these technologies to offer innovative services, such as personalized healthcare plans or automated financial advice, present attractive investment opportunities . An example is the use of AI by fintech companies to provide credit scores based on alternative data, opening up lending to previously underserved markets.

3. Internet of Things (IoT) : The proliferation of IoT devices has created a connected world where everyday objects can communicate and collect data. This connectivity allows for smarter cities, efficient energy management , and enhanced security systems. Investing in companies that develop IoT solutions, such as smart home devices or industrial automation, can be lucrative as the demand for interconnected technologies grows.

4. renewable Energy technologies : With the global push towards sustainability, renewable energy technologies are not just environmentally friendly choices; they are economically sound investments. Solar, wind, and hydroelectric power are becoming more cost-effective and efficient, making companies in this sector increasingly attractive for investors looking for long-term growth.

5. Biotechnology and Genomics : The biotech sector is at the forefront of medical innovation, with genomics playing a crucial role in personalized medicine and therapeutics. Companies that develop gene editing technologies , such as CRISPR, or those that work on individualized treatment plans based on genetic information, are at the cutting edge of healthcare and represent significant investment opportunities.

6. Autonomous Vehicles and Electric Mobility : The shift towards electric vehicles (EVs) and the development of autonomous driving technology are reshaping the automotive industry. Investments in EV infrastructure, such as charging stations, or in startups developing self-driving software, could yield substantial returns as society moves away from fossil fuels and towards autonomous transportation solutions.

7. EdTech : The education technology sector has seen a surge in demand, especially in the wake of global shifts towards remote learning. Platforms that offer online courses, virtual classrooms, and adaptive learning software are transforming the educational landscape, making EdTech startups a compelling choice for investors.

The intersection of technology and investment is a fertile ground for angel investors . By staying informed about technological trends and understanding their potential impact , investors can identify opportunities that not only promise financial returns but also drive innovation and progress. It's a balancing act between foresight, flexibility, and the courage to back the game-changers of tomorrow .

The Impact of Technological Trends on Investment Opportunities - Developing an Investment Thesis for Angel Investor Networks

In the realm of angel investing, the strength and breadth of one's network can be a game-changer . A robust network provides access to a diverse range of investment opportunities, insights into emerging trends, and the collective wisdom of experienced investors. It's not merely about the quantity of connections, but the quality and strategic value they bring. angel investors with a strong network can tap into the expertise of industry specialists, collaborate with fellow investors for due diligence , and even co-invest to spread risk. Moreover, a well-connected angel can offer more than capital to their portfolio companies; they can open doors to potential customers, partners, and future funding rounds .

Here are some in-depth insights into building and leveraging a strong network in angel investing :

1. Diversify Your Network : Aim to connect with people from various sectors, including technology, finance, academia, and other industries relevant to your investment focus. For example, an angel investor interested in biotech startups might benefit from connections with university researchers and healthcare professionals.

2. Engage with Angel Groups : joining an angel investor group can provide a structured way to meet like-minded investors, share deal flow, and learn from others' experiences. For instance, Tech Coast Angels, one of the largest angel groups in the US, offers a platform for networking and collaborative investing.

3. attend Industry events : Conferences, pitch events, and webinars are excellent venues for meeting entrepreneurs and fellow investors. These events often feature panel discussions and networking sessions that can lead to valuable connections.

4. leverage Online platforms : Utilize online investment platforms and social networks like LinkedIn to connect with other investors and startups. online forums and groups dedicated to angel investing can also be a rich source of information and networking opportunities.

5. Offer Value First : When reaching out to new contacts, focus on how you can help them before seeking something in return. This could involve sharing your expertise, making introductions, or providing feedback on a pitch.

6. Follow Up and Stay Engaged : Building a network is an ongoing process. Regularly touch base with your contacts, share updates about your investments, and stay informed about their endeavors.

7. Co-Invest with Experienced Angels : Partnering with seasoned investors on deals can lead to mentorship opportunities and deeper insights into the investment process .

8. Support Portfolio Companies : Beyond funding, offer your network's resources to your portfolio companies. Introducing a startup to potential clients or advisors can significantly impact its growth trajectory.

9. Stay informed About Market trends : Keep abreast of the latest industry trends and market dynamics to be a valuable resource to your network and make informed investment decisions .

10. Cultivate a Reputation : Your personal brand as an investor is crucial. Be known for your integrity, expertise, and collaborative approach.

By incorporating these strategies, angel investors can build a network that not only enhances their investment thesis but also contributes to the success of the startups they support. Remember, the most successful angel investors are those who understand that investing is not just about capital—it's about connections and collaboration.

Building and Leveraging a Strong Network in Angel Investing - Developing an Investment Thesis for Angel Investor Networks

When it comes to angel investing, the endgame is as critical as the initial funding. exit strategies and success metrics are the twin beacons that guide angel investors through the often turbulent waters of startup investing . These strategies not only provide a roadmap for realizing returns but also serve as benchmarks for assessing the performance of investments. Angel investors typically enter the fray with an understanding that their capital will be locked in for a considerable period, usually ranging from 5 to 7 years, sometimes even longer. During this time, the primary goal is to increase the value of the startup to a point where an exit is both possible and profitable.

Exit strategies may vary widely but commonly include:

1. Acquisition : The startup is bought by another company. This is often the most straightforward path to liquidity and can come in the form of a strategic acquisition or a financial buyout.

- Example : WhatsApp's acquisition by Facebook in 2014 for $19 billion, which provided significant returns for its angel investors .

2. initial Public offering (IPO) : The company goes public, offering shares on the stock market . This can lead to substantial returns but comes with increased scrutiny and regulatory requirements.

- Example : The IPO of Alibaba in 2014, which raised $25 billion and rewarded early backers handsomely.

3. secondary Market sale : Shares are sold to other private investors or investment firms . This can happen in private equity secondary markets where shares of private companies are traded.

- Example : Shares of SpaceX have been frequently traded on secondary markets, allowing early investors to exit partially or fully.

4. Management Buyout (MBO) : The company’s management team buys the business, often with the help of private equity or debt financing .

- Example : Dell's MBO in 2013, where Michael Dell and Silver Lake Partners bought out the company for $24.4 billion.

5. Merger : Combining with another company can provide an exit opportunity if the merger terms are favorable and the combined entity is more valuable.

- Example : The merger of Sprint and T-Mobile, which concluded in 2020, provided exits for various investors.

Success metrics , on the other hand, help investors track progress and make informed decisions. These can include:

1. Return on Investment (ROI) : A simple yet powerful metric that measures the gain or loss generated on an investment relative to the amount of money invested.

2. internal Rate of return (IRR) : This metric estimates the profitability of potential investments and is calculated using the net present value of all cash flows .

3. Cash-on-Cash Return : This measures the cash income earned on the cash invested in a property and is particularly relevant in real estate angel investing .

4. Time to Exit : The duration from the initial investment to the exit event. A shorter time to exit can be particularly attractive.

5. Multiple on Invested Capital (MOIC) : This measures the value of an investment as a multiple of the original investment amount.

By carefully considering these exit strategies and success metrics , angel investors can navigate their investments towards successful conclusions, balancing risk with the potential for substantial rewards. It's a delicate dance of patience, strategy, and foresight, with the ultimate goal of achieving a lucrative exit that validates the initial belief in the startup's potential.

Exit Strategies and Success Metrics for Angel Investments - Developing an Investment Thesis for Angel Investor Networks

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Investment thesis for Angels: Not just for VCs

🖖 Welcome to Closing The Gap by JVH Ventures . After founding multiple companies and investing into more than 50 startups and 9 funds, we realized that a common understanding between founders, angels, and VCs is often missing. We want to close this gap and combine perspectives from all sides. Our goal is to look behind closed curtains and tell the honest truth.

Follow along to gain insights from all directions!

Investing in startups can be both exciting and frustrating. To opt for a positive outcome in the long-run, it's crucial to have a clear roadmap to guide your investment decisions as an angel investor. Many might argue that building an investment thesis is more of a VC concern, but this couldn't be further from the truth. In this article, we'll explore the reasons why thesis building is just as important for angels, and how it can help you become a more strategic and successful investor.

Set your guiding north star

An investment thesis acts as your guiding star in the vast galaxy of startup opportunities. Seeing dozens if not hundreds of opportunities every month, it gets increasingly difficult to quickly make decisions.

Having a thesis introduces clarity to your investment strategy and sets clear objectives. It will also serve as a benchmark to evaluate potential opportunities and ensure they align with your long-term goals.

This is especially helpful, once you enter the space of emotions, and an “incredibly hot deal” enters the stage. Your thesis and strategy helps you to stay cool, focussed and prevents rushed, impulsive investments.

Next to helping you focus, it also serves as a baseline to re-assess your strategy within a given structure. Therewith, setting rules enables you to change this rules with learning over time - but in a structured and analytical manner.

Make quicker decisions

Time is of the essence in the startup world. Startups move fast, and opportunities can disappear in the blink of an eye. In addition, as a business angel, your time is scarce and efficiency should be the main goal here. That being said, it’s often about speeding up the “time to say no”. Especially, if new innovative concepts excite you, they often develop to be rabbit holes, sucking in your valuable attention.

With a solid investment thesis, you can make quicker decisions, because you set your “default no” and automate your decision-making processes with it. On the contrary, you'll know exactly what you're looking for and be able to recognize it when you see it.

This clarity enables you to save time and show strong conviction (or even branding) early on, to get better deals done.

Develop your brand

Having a well-crafted investment thesis can also set you apart from other angel investors. In fact, it’s an important part of your personal brand as an investor. When startups know that you have a clear focus and a well-defined strategy, they are more likely to approach you with relevant opportunities. This boost in reputation as an investor is incredibly helpful because it increases the quality of your deal flow. That’s the goal with the highest priority, because it both saves time and increases chances of great returns.

How to build an investment thesis for your strategy

Hopefully, we have you sold on the importance of having an investment thesis. But how do you develop a set of theses and strategy? Let’s see how you can build your own tailored strategy.

1. Start with the macro & market development

This might be a no-brainer while reading it, but we seldomly see this within the angel world. It’s important to remember that you are looking for the game changers of the next 10 years. So it’s important to adopt a broader mindset and try looking into the future.

Start by analyzing macroeconomic trends and how our world develops. Dive into global developments on all kind of layers. This can be way beyond the classical startup world. For example, we look into categories like these:

Macroeconomic development (Recessions, stock markets, interest rate development, etc.)

Geographical and political conflicts (war, instability, immigration, etc.)

Climate and weather changes

Societal developments (growing elderly population, health problems, mental health, etc.)

Regional developments (urbanization, water & food shortage, extreme weather)

It always helps to start with a bigger picture. Ask yourself: In what areas would I found a startup myself? What will happen in 10 years from now? Remember, this is not your daily task, but a more yearly summary of what happens in the world around you and set the stage for everything else.

2. Work and tech trends

This is what everyone thinks about, when it comes to thesis building. Of course, it’s about staying updated on technology trends and the future of work and business. Technology is often a key driver of startup success. By keeping an eye on emerging technologies and their potential applications, you can identify startups that are positioned to disrupt industries and create value.

More precisely, understand the industries and sectors that are poised for growth. Identify areas where innovation is or will thriving and where there are unmet needs. Your thesis should be aligned with these broader dynamics. Try to dive in deeper and not just settle with “AI will disrupt the world”. For example, you could look into the following categories:

Skilled blue-collar workers shortage

Highest risk of cybersecurity

(Theft of) digital identity

3. Funding climate

Of course, as an angel, you are free to invest into anything you like. But facing reality, you also have to take a look into the VC scene. Ultimately, most startups raise multiple rounds of funding and heavily rely on VC money to be successfully.

That’s why you need to consider the current funding climate. Talk to VCs openly about it and align with their investment theses. Not all funds just go for AI and green tech right now. Openly talk to VC investors and see what they think. Are investors pouring money into a particular sector? Are there any shifts in investment preferences?

In any way, your thesis should take into account the availability of funding.

4. Own strength and weaknesses

Last, but not least, it’s about you. Ultimately, you have your own set of strength, weaknesses, experiences and know how, which helps you to set yourself apart from YOUR competition (other investors). It will also enable a good fit with the founders, which is essential for your ability to help them (and also the fun involved).

Next to understanding your strength, it also helps to reflect weaknesses and failures of the past. Overestimating once abilities is definitely a common weakness among angels. Especially, pointing out areas of low expertise that might lead to consequential sub-par decisions could be one easy to cross-off fallacy. For example, we decided not to do any more hardware based investments, because we are just not experienced enough in this field to understand development cycles deep enough.

After all, communicating your experience and strengths is obviously one of your main marketing tools. Placing your expertise and your network publicly at the forefront will attract founders that specifically search for you.

Developing clear investment profiles

By mapping both your external and internal environment, it will become much clearer what areas your sweet spot lies in. In general, we would advise adjusting both ends of the spectrum:

Define your focus fields : Your thesis will clearly define the fields or sectors you want to invest in, allowing you to concentrate your efforts on opportunities that matter most to you. In turn, communicating your focus fields, helps to generate higher quality deal flow.

Set boundaries (hard vs. soft) : Your thesis can include both hard boundaries (e.g., no hardware at all) and soft boundaries (e.g., hardware only within specific industries). Clarifying your boundaries will help you to make way faster decisions when deal flow is pouring in.

There is not a set blueprint to formulating your strategic theses. Your thesis might be very broad, covering an entire industry, or can actually be very precise, diving into a specific vertical in a specific region at a specific growth stage.

Whatever it may be, we think it’s an extremely helpful tool for angels to reflect and formulate your thoughts in order to make better and faster decisions.

Thank you for reading! If you liked, feel free to share it with someone else who could profit from it - angels, founders, VCs, anyone :) If you haven’t already, subscribe and make sure you don’t miss out.

PS: We are always happy to answer your questions or take on topics you want to hear about to close the gap! Just let us know.

Ready for more?

Building your investment thesis

Having an investment thesis can help make you a more focused investor, and is a good place to start when setting out to start angel investing. A strong investment thesis will help guide how you will source deals and how you will make decisions.

A strong investment thesis can be the basis for a very strong angel investment portfolio, a weak, or misguided investment thesis, on the other hand, can lead to lower portfolio performance. Some angels and venture capitalists build out very detailed investment theses, whereas others are more general.

Many investors focus their thesis on a specific sector where they have domain expertise as it can can give them an upper hand in creating deal flow and in picking winning companies. Popular sectors today include; Fintech, Cleantech, Digital Health, Hardware, Enterprise Software, Cybersecurity.

You should be able to list out criteria under your investment thesis, helping to guide what you choose to invest in and what you don’t. By investing in companies that fall within your investment thesis, you should see a greater fit with your ability to help the companies growth through your expertise and connections, and an opportunity for large investment returns, over a period of time.

Once you’ve had an opportunity to think about your own investment thesis, can you think of any successful companies in today’s market that had you seen them in the early days you would have invested, based on your thesis?

If you choose to focus your investments around a particular sector, be sure to diversify on other factors like product, technology, geography, business model, customer segment etc in order to create a balanced portfolio.

When focusing on a sector you can also become much more focused in your deal sourcing. There are venture capital funds and other angels focused on particular sectors that you can align yourself with, for example, RockHealth , a San Francisco accelerator and investment fund for healthcare startups. There are also industry events and tradeshows that you can attend to meet new companies. (For more on dealflow and sourcing deals, see our post on building your pipeline ).

You will find quickly that sectors are very tight-knit communities. Before long — if you put enough effort into connecting with key players in the industry — you will start to see how the ecosystem works and begin to build a name for yourself.

A word of advice if you plan to invest in businesses in the same industry, that may compete now or in the future, the best thing to do to maintain strong relationships with your founders is to be honest about any conflicts up front. By knowing you have a conflict, founders can choose what information to share more selectively given your competing interests.

Note that if you are a company director you may have legal limitations to invest in competing businesses, be sure to check with a lawyer beforehand.

October 21, 2021

Investment theses aren’t just for VCs. Angels need them too self.__wrap_b(":Rl5ilm:",0.7)

Having a focus can help you stay efficient and become a better angel investor self.__wrap_b(":rt5ilm:",1).

Sarah Drinkwater

In the last couple of years, aided by a place in VC Atomico’s angel programme , I’ve fallen in love with angel investing: making small bets on early-stage founders. And over time, I’ve realised how few angels have distinctive investing theses.

An investing thesis is really a fancy way of saying a mission statement that articulates a point of view and strategy. And mine is that, with few exceptions, I tend to focus on community-directed products. Think contraceptive review platform The Lowdown , audio advice network Anyone or The Stack World, a destination for entrepreneurial women. Whether femtech or economy, these are companies where community is their competitive moat.

But why would an angel need a thesis? Surely you just meet founders and offer them some cash? Well, yes. But the market’s noisier than ever; capital is becoming cheap. We’re seeing more funds move into pre-seed plus an increasing number of super-angels and having a thesis, even a simple one, helps founders know what you look at. If you’re angel investing alongside a day job, which most of us are, a thesis helps you stay efficient. And lastly, this can lead, I believe, to true mastery; whether in terms of the network you’re building, the trends you follow or the advice you give.

Angel investing is risky, so it’s smart to start small

Look at funds. You’d never see Felix , known for their angle of “technology/creativity”, or Connect, with their love of opinionated products, do a quantum computing deal.

How to build a thesis

A good investment thesis sits at the intersection of experience, passion and opportunity.

To build one, first start with you. What’s your professional experience? Who have you worked for or with? What are the networks you have access to? Consider the amount of capital you want to commit and your risk appetite; angel investing is risky, so it’s smart to start small.

Next, what fields are you most excited about? One way to develop your knowledge here is to see a lot of startups pitch, whether through going to demo days or joining communities like Alma Angels where a lot of dealflow is shared. I’ve seen a legal friend fall passionately in love with healthtech after a family member’s personal experience, and work to understand the blockers and opportunities to ensure she was a great value-add investor to companies in this space.

Lastly, think about opportunity. With the experience and passion you have, what trends or white spaces do you see that feel overlooked by others?

The most effective way to get your point of view out there is to repeat it a hundred times

In my case, I’ve spent years building community teams and community strategies in tech companies big and small and, however much “community” is an overused word on tech Twitter this year, there are still very few angels with long-term expertise, and even in the US only a few who specialise in this space.

Once you have a rough idea, start mapping it out on paper. Then start testing. The most effective way to get your point of view out there is to repeat it a hundred times — tell founders when you meet them, join relevant events, write Twitter threads (or Sifted articles). For inspiration, there are already a few European angels who have shared their theses: my fellow Atomico angel Sameer Singh is all about network effect, while Sophia Bendz has a love of femtech.

And each company you decide to fund or seriously look at will confirm or shift your thinking.

Congratulations, you’ve got an angel investing thesis!

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Why angel investors should have an investment thesis.

Venture capitalists all have investment theses, which they need to raise money from their limited partners. Because venture capitalists have a fiduciary duty to invest the LPs’ money in ways consistent with the approach they have outlined to their limited partners when obtaining capital, they need investment theses. The thesis allows the LPs to verify if the promised approach has been followed.

What is an Investment Thesis?

Additional benefits of an investment thesis.

A third benefit of having an investor thesis is better communication with co-investors. Deal flow is very important to the success of angel investors, and those deals often come from other angels, venture capitalists, accelerator directors — other early stage investors. People do not like to refer deals if the person receiving the referral isn’t interested. That makes the referrer feel like they are bothering the recipient and makes them look like they don’t know what they are doing to founders. Simply put, other investors will find it easier to make referrals to you if you have articulated your investment thesis to them.

Startup Financing for Consumer Tech Ventures

Consumer tech startups seeking financing options must navigate a complex landscape of funding sources, each with its unique benefits, risks, and suitability factors. Seed funding presents diverse options, including bootstrapping, crowdfunding, angel investors, and venture capital. Venture capital investments require a clear investment thesis, traction, and a strong founding team. Alternative funding sources, such as angel investor networks, crowdfunding platforms, and venture debt options, offer flexible and less dilutive alternatives. A well-thought-out funding strategy is vital for securing capital and driving growth. By understanding the nuances of each option, startups can access the financing they need to thrive and reach scale.

Table of Contents

Understanding Seed Funding Options

Seed funding, the earliest and most critical stage of startup financing, presents entrepreneurs with a diverse array of options, each with its unique benefits, risks, and suitability factors. At this stage, entrepreneurs must carefully evaluate their funding strategy to verify it aligns with their business goals and vision. Bootstrapping, crowdfunding, and angel investors are popular seed funding options, each offering distinct advantages. Bootstrapping, for instance, allows entrepreneurs to maintain control and avoid debt, while crowdfunding provides access to a large pool of potential investors. Angel investors, on the other hand, bring valuable knowledge and networks to the table.

When selecting a seed funding option, entrepreneurs must consider factors such as their business model, market conditions, and growth prospects. A well-thought-out funding strategy at the seed stage can lay the foundation for future success, providing the necessary resources to drive product development, marketing, and talent acquisition. By carefully weighing the pros and cons of each option, entrepreneurs can create a robust seed funding strategy that propels their venture forward. A vital understanding of seed funding options is essential for entrepreneurs to make informed decisions and set their startup on a path to success.

Venture Capital for Consumer Tech

Beyond the seed stage, venture capital emerges as a vital funding source for consumer tech startups, providing the necessary fuel to scale innovative products and services that capture significant market share. In the VC landscape, consumer tech startups often attract significant investment due to their potential for rapid growth and high returns. To secure VC funding, startups must demonstrate a clear investment thesis, outlining their unique value proposition, target market, and scalable business model.

A well-crafted investment thesis is imperative for convincing VCs to invest in a consumer tech startup. It must convey the startup's competitive advantage, market opportunity, and potential for exponential growth. VCs typically invest in startups that have already demonstrated traction, with a minimum viable product (MVP) and early customer adoption. They also look for a strong founding team with a deep understanding of the market and a clear vision for scaling the business. By understanding the VC landscape and developing a compelling investment thesis, consumer tech startups can increase their chances of securing the funding needed to drive growth and success.

Crowdfunding for Startup Success

Leveraging the collective power of the crowd, crowdfunding has emerged as a viable financing alternative for startups, offering a unique opportunity to validate products, build brand awareness, and raise capital from a diverse range of investors.

To succeed in crowdfunding, it is crucial to develop a well-structured campaign strategy that resonates with potential backers. This involves creating a compelling pitch, setting realistic funding goals, and offering attractive rewards to incentivize contributions.


Define target audience	Build email list
Set funding goal	Offer exclusive rewards
Create engaging content	Foster community involvement
Leverage social media	Provide regular updates
Optimize campaign page	Encourage sharing and referral

Alternative Funding Sources Explained

As startup founders explore financing options beyond traditional routes, alternative funding sources offer a promising landscape of opportunities. This sphere comprises a range of innovative platforms and networks, including angel investor networks, crowdfunding platforms, and venture debt options, each with its unique benefits and suitability for different business needs. By understanding the nuances of these alternative funding sources, entrepreneurs can strategically navigate the complexities of startup financing and secure the capital required to drive growth and success.

Angel Investor Networks

Among the alternative funding sources, angel investor networks have emerged as a vital conduit for startups seeking capital, providing access to a collective pool of high-net-worth individuals who invest in early-stage ventures in exchange for equity. These networks tap into the investor mindset, where individuals with a passion for entrepreneurship and innovation invest in startups that resonate with their values and interests. By pooling their resources and specialized knowledge, angel investor networks create a multiplier effect, amplifying the impact of individual investments. This network effect enables startups to access a broader range of capital, guidance, and connections, increasing their chances of success. Additionally, angel investor networks provide a platform for startups to refine their pitches, receive feedback, and build relationships with potential investors. This symbiotic relationship between startups and angel investors fosters a culture of collaboration, driving innovation and growth in the consumer tech sector. By leveraging these networks, startups can secure the capital and guidance needed to propel their ventures forward.

Crowdfunding Platforms Rise

Beyond traditional angel investor networks, crowdfunding platforms have emerged as a democratizing force in startup financing, enabling entrepreneurs to tap into a vast, online community of backers who contribute small amounts of capital in exchange for rewards or equity. This alternative funding source has gained significant traction, particularly in the consumer tech space, where social media platforms have played a vital part in amplifying campaigns and reaching a wider audience. The likes of Kickstarter, Indiegogo, and Seedrs have become household names, offering a platform for startups to showcase their innovative products and services.

However, as the crowdfunding landscape continues to evolve, regulator oversight has become increasingly important. The Securities and Exchange Commission (SEC) has implemented regulations to guarantee that crowdfunding platforms operate in a transparent and secure environment, protecting both investors and entrepreneurs. Despite these measures, crowdfunding remains a high-risk, high-reward option for startups, with success rates varying greatly depending on factors such as marketing strategy, product viability, and campaign execution. Nevertheless, for consumer tech ventures with a strong online presence and a compelling value proposition, crowdfunding can be a viable and attractive alternative to traditional funding sources.

Venture Debt Options

Venture debt options, which have gained popularity as a complementary financing strategy, offer startups a flexible and less dilutive alternative to equity financing, allowing founders to maintain control while accessing the capital needed to drive growth and scalability. By structuring debt strategically, startups can optimize their capital structure, reduce dilution, and preserve equity for future rounds. Effective debt structuring involves careful consideration of repayment terms, interest rates, and covenants to ensure alignment with the startup's growth trajectory.

A thorough risk assessment is essential to determine the feasibility of venture debt options. Startups must evaluate their creditworthiness, cash flow projections, and industry-specific risks to determine their ability to service debt. Lenders, too, must conduct rigorous risk assessments to mitigate default risks. By doing so, they can offer more competitive terms and structures that cater to the unique needs of startups. When executed correctly, venture debt options can provide a vital source of capital, allowing startups to accelerate growth, expand their customer base, and increase their valuation.

Bootstrapping for Early Growth

Bootstrapping is a strategic approach to financing that enables startups to maintain control and flexibility during the early growth phase. By adopting a bootstrapped model, entrepreneurs can allocate resources efficiently, prioritize product development, and self-fund operations to achieve milestones without external pressure. This approach requires discipline and a keen eye on burn rate, but can yield significant returns in the long run.

Control Your Burn Rate

Consistently monitoring and adjusting your burn rate is vital during the early growth stages, as it directly impacts your startup's financial sustainability and ability to reach scalability. A high burn rate can lead to cash flow constraints, hindering your ability to invest in growth initiatives. It is imperative to maintain a tight grip on expenses, making certain that every dollar spent generates a tangible return on investment.

Financial discipline is key to controlling your burn rate. Establish a detailed budget that accounts for all expenses, and regularly review it to identify sections for optimization. Implement cost-saving measures, such as reducing overhead costs, renegotiating contracts, and streamlining operations. Additionally, prioritize investments that drive revenue growth, and continually assess their effectiveness. By maintaining a lean financial structure, you can allocate resources more efficiently, extend your cash runway, and create a solid foundation for sustainable growth. By exercising financial discipline and controlling your burn rate, you can navigate the early growth stages with confidence, paving the way for long-term success.

Focus On Product Development

Optimizing product development is crucial for early growth, as it enables startups to create a unique value proposition that resonates with their target market and drives revenue generation. By concentrating on product development, startups can differentiate themselves from competitors, build a loyal customer base, and establish a strong market presence. A well-defined Product Roadmap serves as a guiding framework, outlining key milestones, timelines, and resource allocation for product development. Through iterative Design Iterations, startups can refine their product offerings, incorporating customer feedback, and market insights to create a superior user experience. By prioritizing product development, startups can accelerate time-to-market, reduce costs, and enhance their overall competitiveness. Additionally, a robust product development process allows startups to pivot quickly in response to changing market conditions, thereby maintaining adaptability and resilience. By bootstrapping product development, startups can conserve capital, maintain control, and drive early growth, setting themselves up for long-term success.

Self-Fund Early Operations

By leveraging internal resources and exercising fiscal discipline, startups can self-fund early operations, thereby maintaining control and driving sustainable growth. This approach, known as bootstrapping, allows entrepreneurs to conserve cash, minimize debt, and make the most of their limited resources. By doing so, they can concentrate on developing a solid product, refining their business model, and building a loyal customer base.

Some common ways to self-fund early operations include:

Tapping into Personal Savings : Entrepreneurs can use their own money to fund their venture, reducing the need for external capital.
Seeking Family Loans : Borrowing from family members or friends can provide a low-cost, flexible source of funding.
Reducing overhead costs: By keeping operational expenses low, startups can conserve cash and allocate resources more efficiently.
Generating revenue early: By launching a minimum viable product (MVP) or offering a pilot service, startups can start generating revenue and reinvesting it into the business.

Government Grants and Incentives

Government grants and incentives provide a valuable source of funding for startups, offering a non-dilutive and often conditional means of supporting innovative ventures and driving economic growth. These programs can be especially beneficial for consumer tech startups, which often require significant investment in research and development.


Tax Credits	Offset R&D expenses, reduce tax liability	Startups with qualified R&D expenditures
Research Grants	Funding for specific projects or initiatives	Startups with innovative, high-impact projects
Small Business Innovation Research (SBIR) Grants	Early-stage funding for R&D projects	US-based startups with fewer than 500 employees
State and Local Incentives	Location-based tax breaks, funding, or resources	Startups operating in specific regions or industries

Strategic Partnerships for Funding

Strategic partnerships can serve as a vital funding alternative for startups, offering access to capital, resources, and proficiency that can accelerate growth and drive innovation. By forming alliances with established companies, startups can leverage brand synergies to expand their market reach, enhance their credibility, and gain access to new customers. In addition, strategic partnerships enable resource sharing, allowing startups to tap into the partner's knowledge, technology, and distribution channels.

Some key benefits of strategic partnerships for funding include:

Access to new markets : Partnerships can provide startups with entry points into new geographic markets, customer segments, or industries.
Shared risk and reward : Partners can share the risks and rewards of a joint venture, reducing the financial burden on the startup.
Innovative solutions : Collaborations can lead to the development of innovative products, services, or business models that might not have been possible for the startup to achieve alone.
Enhanced credibility : Partnerships with reputable companies can enhance the startup's credibility and reputation, making it more attractive to investors and customers.

Frequently Asked Questions

How do i create a compelling pitch for investors?.

To craft a compelling pitch, establish a clear Pitch Structure, weaving together key elements such as problem statement, solution, and market opportunity. Employ Storytelling Techniques, like anecdotes and vivid imagery, to captivate investors and convey your vision.

What Are the Tax Implications of Startup Financing Options?

When exploring financing options, entrepreneurs must consider tax implications. Venture capital investments can provide tax shields, reducing taxable income and increasing cash flow. Strategic tax planning can optimize financial performance, promoting sustainable growth and profitability.

Can I Finance My Startup With Personal Credit Cards?

Financing a startup with personal credit cards can be risky, as high-interest rates and credit limits may lead to debt accumulation, potentially jeopardizing personal and business credit scores, and hindering scalability.

How Do I Protect My Equity in a Funding Round?

To safeguard your equity in a funding round, employ robust Valuation Methods, providing accurate company worth assessments. Incorporate protective Equity Clauses in investment agreements, limiting dilution and specifying shareholder rights to maintain control and optimize returns.

What Are the Biggest Funding Mistakes Startups Make?

Common funding mistakes startups make include overleveraging options, sacrificing long-term control for short-term gains, and presenting unrealistic projections, which can lead to investor skepticism, misallocated resources, and ultimately, a failed funding round.

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2018 Theses Doctoral

Essays on Angel Investing in the Entrepreneurial Ecosystem

Piazza, Alessandro

Throughout its three chapters, this dissertation examines a phenomenon that, although underappreciated and underinvestigated in the existing literature, should be of great interest to entrepreneurship scholars: angel investing in the United States. While most of the existing studies of venture financing have predominantly focused on venture capital (VC) funding, angel investing—that is, wealthy individuals investing their own money in new ventures—represents almost as large of a market as venture capital, and recent empirical evidence suggests that ventures financed by angel investors tend to be more successful than comparable ventures that are not angel-financed. More interestingly, perhaps, angel investing tends to focus on ventures at the earliest stage, which leads to investor making decisions based on very little hard evidence. This results in the attempt, on the investors’ part, to reduce uncertainty by leveraging one’s connections and community-level patterns of social relations. In this regard, this dissertation’s main objective is perhaps to tackle the existing literature’s “undersocialized” take on venture financing, and to show the sociological mechanisms that might underpin the decision by entrepreneurs to enter the angel investing market by becoming suppliers of capital, as well as their capital allocation choices, i.e. their investment decisions. Additionally, this work also examines the drivers of success for angel investors, with a view to explaining—at least in part—why certain individuals are wildly more successful than others at angel investing. Empirically, my work relies on a combination of archival data—primarily data gathered from online data source CrunchBase, but also U.S. Census data and hand-collected information from LinkedIn—and fieldwork in the form of interviews with entrepreneurs and angel investors, as well as participant observation at the Angel Capital Association Annual Meeting in San Francisco, the largest yearly gathering of angel investors. The resulting empirical patterns, both qualitative and quantitative, when taken in their entirety suggests that angel investing is a social process, and particularly that entrepreneurs are socialized into becoming angel investors by interacting with the angels who finance their ventures. Further, this work offers evidence that community-level patterns of socialization—i.e. what is generally known in sociology as community social capital—also plays a role in determining whether entrepreneurs will become angel investors and, once they choose to take this step, whether they will show a preference for financing local ventures vis-à-vis pursuing investment opportunities elsewhere. Finally, this work also addresses the question of angel investing outcomes—that is, why some angel investors are more successful than others, as measured by the number of exits in their investment portfolio. In this regard, empirical results suggest that generalists do better than specialists, and that angel investors with broad entrepreneurial experience are found to do especially well. Success is also a function of effective knowledge translation: on average, successful entrepreneurs tend to become more successful angels, and especially so the greater the overlap between the entrepreneurial experience of the founder and their angel investment portfolio.

Entrepreneurship
Angels (Investors)
Investments

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What is a venture capital fund, how do venture capital funds help startups, how do venture capital funds make money, what are the different stages of venture investment, venture capital fund lifecycle, who can invest in a venture capital fund, how much money do you need to invest in a venture capital fund, how to start a venture capital fund, how is a venture capital fund structured, venture capital fund documentation, how do venture capital funds raise capital, how do venture capital funds deploy capital, how do venture capital funds generate and distribute returns, venture capital fund management fees, hedge fund vs. venture capital fund, venture capital funds on angellist.

Venture capital funds are pooled investment vehicles that provide capital to startups in exchange for equity.

Venture capital funds invest in startups in exchange for an ownership stake in each company.
Venture investments are riskier than other asset classes but also carry the prospect for outsized returns.
VCs raise money from a network of limited partners, who can be wealthy individuals or institutional investors.
Venture capital funds make money when a portfolio company exits (e.g., via acquisition or IPO), typically within a 10-year timeframe.
Funds typically split profits between the fund manager (the general partner) and limited partners.

Venture capital is a vital source of funding for high-growth startups across the globe and plays a disproportionately important role in spurring job creation and economic productivity.

Many of the world’s biggest companies (Alibaba, Alphabet, Apple, Amazon, Facebook, Microsoft, Tencent, and Tesla, etc.) started with funding and advice from venture capitalists (VCs). Venture-backed companies constitute nearly half of IPOs in the U.S.

Venture capitalists make risky investments in startups in the hopes of outsized returns—which is happening with greater frequency .

The industry has experienced substantial growth and innovation in the past decade. Today, more VCs than ever are investing more capital than ever .

A venture capital fund can now mean many things—from a traditional fund that invests in a portfolio of companies over a 10-year horizon, to a single-deal SPV , to a Rolling Fund that accepts quarterly commitments.

In this article, we’ll break down the different components of running a venture capital fund, including how they’re structured, how they invest in portfolio companies, and how they generate and distribute returns to their investors.

Venture capital funds are pooled investment vehicles that invest in startups in exchange for ownership in those companies. Venture capital is a type of private equity, which means investments are not made available on a public market.

Venture capital funds earn returns for investors in different ways. Most commonly, a fund will receive returns following a “ liquidity event ,” such as an initial public offering (IPO) or acquisition from another company. The proceeds will then be distributed among the fund’s investors on a pro rata basis.

The manager of a venture capital fund is called a “ general partner ” (GP). A GP is responsible for raising money from a network of investors, selecting investments, and overseeing all of the operational, accounting, and legal aspects of the fund. A GP often follows an investment thesis to select investments, targeting a specific segment of the market and/or stage of investment.

Investors in a venture capital fund are called “ limited partners ” (LPs). They’re often high-net-worth individuals or other financial institutions seeking exposure to the venture asset class.

Venture capital funds typically invest in a number of startups, expecting some to fail, while hoping for a handful of big winners. The typical time horizon for most venture investments is 6-10 years.

Venture capital plays an important role in a company’s success.

According to HBR, more than 80% of the money invested by venture capitalists goes into building infrastructure required to grow the business—in expense investments (manufacturing, marketing, and sales) and the balance sheet (providing fixed assets and working capital).

In addition to capital, many venture fund managers provide guidance to portfolio companies.

In fact, many VC firms build reputations for helping portfolio companies with recruitment, customer acquisition, access to follow-on funding, and advice on other challenges startups encounter.

A venture capital fund invests in a company and then monitors the investment—potentially providing future financing in subsequent rounds—until the company experiences a “liquidity event” (e.g., an IPO or acquisition) that generates returns for investors.

VC returns follow a power law distribution , which means one homerun investment in a portfolio of many companies can generate outsized returns for the entire fund. Funds often invest in a number of companies expecting that some could fail and hoping that others will experience large exits that “make” the fund.

According to AngelList data, a venture-backed seed-stage startup has an estimated 1 in 40 shot —or 2.5% chance—of becoming a “unicorn” (company valued at over $1B) today.

Because venture capital funds invest in early-stage companies, these investments carry a high degree of risk. The high return potential for these investments help incentivize this risk taking.

When a startup raises funding, the name of the fundraising round often implies the size/sophistication of the company. Common round names are:

There’s no hard-and-fast rule for what qualifies as a “seed stage” or “Series D” company. A useful way to think about it is by looking at the average investment sizes for each round name.

As the chart shows, startups increasingly raise larger rounds as they progress from pre-seed to Series D.

Venture capital funds might have investment theses that target specific financing rounds. Some funds may primarily invest small amounts of capital in early-stage startups, while others may cut larger checks into later-stage businesses.

Venture capital funds have a long lifetime because it usually takes years for the portfolio companies to exit.

Venture capital funds are typically structured under the assumption that fund managers will invest in new companies over a period of 2-3 years, deploy all (or nearly all) of the capital in a fund within 5 years, and return capital to investors within 10 years. Of course, there’s tremendous variety with investment periods and return periods in practice.

To invest in a venture capital fund, you must be an accredited investor (though some exceptions do exist). An accredited investor is a person or entity that satisfies one of the below:

Individual or joint net worth in excess of $1M (not including the value of a primary residence);
Individual income in excess of $200k or joint income in excess of $300k for the two most recent years, with a reasonable expectation of reaching this level in the current year; or
Individual holding a Series 7, 62, or 65 license.

An accredited investor with certain heightened investing or networth requirements can also classify as a “qualifying purchaser,” which provides access to investment opportunities exclusively reserved for qualified purchasers.

Read our guide to accredited investors and qualified purchasers for more information.

Most venture capital funds have minimum investment amounts, but they can vary widely depending on the fund, its investment thesis, how much it's hoping to raise, etc. Some SPVs on AngelList have investment minimums as low as $1k, while Rolling Funds and Traditional Funds typically require a larger capital commitment (given they're investing in a portfolio of companies). One analysis found angel investors' average check size is between $25k - $100k.

To start a venture capital fund, one must form a legal entity (more on this later) and raise capital from LPs.

Venture capitalists often get experience working with and investing in startups before managing venture capital funds, so that they can form an investment thesis and establish a network that can help them fundraise.

For example, an investor might have a portfolio of personal investments or a network of founders who rely on them for advice, or they might be closely involved with the people, organizations, and systems related to their investment thesis.

Someone starting a fund will need support in several legal and compliance disciplines—such as securities, employment, tax, and corporate laws, and some other skills, too (more on this later).

Management company . A management company is a business entity created by a venture firm’s general partners (GPs). It’s responsible for managing a venture firm’s operations across its funds. The management company collects fees and pays expenses. It also typically owns the fund’s trademark and brand. Single-member companies , which are most common for new GPs, are treated as “disregarded entities” under U.S. tax code, while multi-member companies are treated as partnerships.
General partner (GP) . In a limited partnership, there must be at least one general partner The GP is responsible for the active management of the fund and filing and signing the tax returns. The general partner has unlimited liability for the partnership.
Limited partners (LPs) . The fund’s limited partners are passive investors in the fund. Examples of LPs include pension funds, foundations, insurance companies, and wealthy individuals. The liability of limited partners is capped at the amount of capital the limited partner contributed to the fund.
Portfolio companies . Companies the fund invests in.

Though requirements can vary, these are the typical documents you’ll need to set up and run your own VC fund (to learn more about this, see our guide to venture capital equity financing documents ):

Fund documents:

Limited partnership agreement. This is an agreement that designates the general partner of the fund, lists the rights of the general and limited partners, and spells out the details of how a fund will operate. The terms in a fund’s LPA can be standard for everyone participating in the fund or customized for certain limited partners via a side letter or other separate agreement.
Private placement memorandum. Like a prospectus in a mutual fund, this is a disclosure document that’s given to investors.
Subscription agreement. This details the LP’s financial commitment and how contributions will work.

Deal-specific documents:

Term sheet . Lays out the terms under which the GP agrees to invest in the company.
Stock purchase agreement (SPA) . Dictates the specific terms related to the sale of stock to investors.
Disclosure schedule for SPA . Provides exceptions or explanations to representations and warranties agreed upon in the SPA.
Voting agreement . Sets forth requirements as to how certain shareholders must vote their shares in certain instances.
Investor rights agreement (IRA) . Breaks down the rights and privileges afforded to shareholders.
Right of first refusal / co-sale agreement . Provides the company the first opportunity to purchase the shares of an investor who wishes to sell them.
Certificate of incorporation. Lays out the privileges and rights that come with owning stock in a corporation. In this case, a portfolio company.

Tax documents:

Schedule K-1 . Funds issue the Schedule K-1 to LPs to record their investments and any reported earnings for the year.
Form 1065, Return of Partnership Income . This is how VC funds document and report income and expenses.

Funds begin with a capital-raising period, where the venture capital firm seeks out LPs for the new fund. Depending on the firm’s reputation, market conditions, and fund strategy, the process can take months or even years.

Once the targeted funding amount’s been reached, the fund is typically closed to new investors.

VC funds typically make investments according to a particular thesis—for example, supporting startups in a particular stage, industry, or geography.

They typically have an initial investment window of 1-3 years in which they find and invest in companies.

In a typical startup financing round, one fund will be the “lead” investor of the round. It’s the lead investor that often negotiates the price and other key terms of the round. Other funds and/or individual angel investors may choose to participate, usually on similar terms as the lead investor (though not always).

Typically, VCs generate returns when one of three things happens with one of their portfolio companies:

A portfolio company goes public through an initial public offering (IPO) on a public stock exchange;
A portfolio company undergoes a merger or acquisition; or
The fund manager sells the fund’s shares in a portfolio company to another entity.

Funds might wait for all of their positions to exit before distributing the returns to investors, or they might distribute returns as the liquidity events happen.

After fees and carried interest payment, limited partners take home the remainder of the returns. Typically, that remainder is 70-80% of the returns.

Two and twenty (“2 and 20”) is a common fee arrangement in venture capital and private equity. The “two” means 2% of committed capital, a fairly standard management fee. The “twenty” refers to 20% of profits made by the fund. This is the “carry,” or carried interest, that GPs of venture capital firms typically earn.

GPs sometimes reinvest returns into the fund if a company exits earlier in a fund’s lifecycle. This practice, known as capital recycling, can provide more dry powder for future investments.

Venture capital funds typically charge an annual management fee based on a percentage (2% is common) of committed capital—though some funds use a percentage of returns earned or assets under management (AUM). The management fees help pay for the salaries and expenses of the general partner(s).

Sometimes, fees for large funds may only be charged on invested capital or decline after a certain number of years.

Venture investing is different from other types of equity financing —like mutual funds, the stock market, and hedge funds—because VCs focus on a very specific type of investment.

With the stock market and mutual funds, investors back companies that tend to be much more mature and proven. Hedge funds typically invest across many investment categories.

This focus on early-stage by VCs companies produces high-risk/high-return profiles compared to other asset classes.

AngelList offers investors a way to gain exposure to the startup ecosystem and venture capital deals.

Investors can start or invest in a venture capital fund on AngelList using one of three main structures:

Traditional Fund . A pooled fund for investing in multiple startups over a 10-year investment horizon.
Syndicates . A fund set up to invest in a single company.
Rolling Funds . A fund that allows investors to subscribe to quarterly investment vehicles and adjust their commitment size as their goals evolve.

To learn more, visit our website .

Get started with AngelList educational articles in your inbox.

What Does a General Partner Do?

The general partner of a venture fund raises and allocates investor capital and supports the founders of the companies they invest in.

Venture Capital Equity Financing Documents

The venture capital equity financing documents dictate the economics and control offered to investors and founders of a startup.

Preferred Shares vs. Common Shares

Venture investors typically negotiate for preferred shares because preferred shares grant certain rights, privileges, and preferences that common shareholders do not receive.

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Prediction: 2 Stocks That Will Be Worth More Than Apple 5 Years From Now

Most investors wouldn't own Apple if they were presented with the investment thesis without the company name.
Cloud computing is a huge catalyst for Amazon and Alphabet.
Motley Fool Issues Rare “All In” Buy Alert

NASDAQ: AMZN

Apple is trading on its past performance, not current fundamentals.

Currently, Apple ( AAPL -0.68% ) is atop the throne as the largest company in the world. It leads second-place Nvidia (NASDAQ: NVDA) by $280 billion, but I don't think it will maintain its leadership position.

In the next five years, I think multiple companies will overtake Apple, but two picks are Alphabet ( GOOG -1.13% ) ( GOOGL -1.11% ) and Amazon ( AMZN -1.34% ) . These two have a strong case for becoming larger than Apple, but it won't happen overnight.

Why am I bearish on Apple?

First off, let's talk about Apple. In my opinion, Apple is trading so high due to its past performance. If you look at the performance without the name attached, Apple isn't currently that great of an investment. If I approached you with a stock that posted shrinking revenue for five of the last seven quarters, and in the two quarters it delivered growth, the best growth rate was 5%, you'd probably pass. Throw in the fact that this company is trading at 34 times forward earnings, and you'd run for the hills.

But, because Apple is Apple, investors give it a pass. This won't go on forever, and eventually, something will give. This opens up a lane for Alphabet and Amazon to surpass it, as they still have multiple growth catalysts ahead of them.

Cloud computing is a huge part of Amazon's and Alphabet's investment thesis

While many think of Amazon as just an e-commerce channel, it's much more than that. Commerce businesses have notoriously low margins, so Amazon has multiple other divisions that help boost its profits. One of the fastest growing is its advertising services, which has been on fire over the past few years.

Another strong segment is Amazon Web Services (AWS), its cloud computing offering . AWS is the largest cloud computing business by market share but has recently delivered slightly less growth than its competition. However, AWS' growth has reaccelerated, which is a huge selling point for the stock.

Although AWS makes up 18% of Amazon's revenue, it accounted for 64% of its operating profit in the second quarter. Though Amazon's business is much broader than cloud computing, its cloud services are a massive part of the Amazon investment thesis. With the cloud computing market expected to expand from $680 billion in 2024 to $1.44 trillion in 2029, it has a huge demand wave pushing it.

An investment in Alphabet is also an investment in its advertising business. With ad revenue making up around three-fourths of total revenue, it's a huge part of its business. Many are worried its search engine dominance may come to an end with competitors like OpenAI entering the arena. However, I think these concerns are overblown, as it would require billions of people to change their habits very quickly.

I don't see that happening anytime soon, so I'm not concerned about some of the increased competition.

Another bonus for Alphabet is its cloud computing wing, Google Cloud. While Google Cloud isn't as big as AWS, it's still a big part of the growth story, as cloud computing is in huge demand thanks to the AI arms race.

Both Amazon and Alphabet have their primary businesses, but their cloud computing wings are huge reasons to consider buying the stocks. Apple doesn't have the same kind of growth catalysts pushing it, so don't be surprised if either of these two passes up Apple within the next five years.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy .

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The Three Key Pillars For An Angel Investment Thesis
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Why Angel Investors Should Have an Investment Thesis
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The Three Key Pillars For An Angel Investment Thesis

COMMENTS

How to develop an investment thesis in 3 easy steps as a beginner angel
One crucial rule of becoming a successful angel investor is the importance of crafting a thesis—a set of guiding principles that shape your investment strategy. In this article, we will show you how we teach students in 3 easy steps how to develop their investment thesis as an angel investor, which will lay the groundwork for successful and ...
What is an ideal Investment Thesis and Portfolio Size for Angel Investors?
An investment thesis is a well-defined strategy that guides an angel investor's decision-making process. It outlines the specific industries, sectors, and startup stages the investor intends to focus on. While some angel investors might be tempted to cast a wide net, having a clear investment thesis offers several benefits:
Angel investors: Investment Thesis: Crafting an Investment Thesis
A successful investment thesis is the backbone of any effective investment strategy, particularly in the realm of angel investing.It serves as a guiding framework that helps investors make informed decisions about where to allocate their capital. The creation of a robust investment thesis requires a deep understanding of market dynamics, a clear identification of investment goals, and a keen ...
The Angel Investment Thesis for Focused Startup Investing
The thesis is a roadmap for investing, a sense of gravity around what an investor cares about. It guides the investor towards the investments that fit their objectives. As one of the most useful and insightful tools in the innovation economy, the INVESTMENT THESIS guides, connects & clarifies. From angel investors having their own personal ...
Angel investors: Investment Thesis: Crafting a Compelling Investment
In the realm of angel investing, the investment thesis stands as a cornerstone, guiding investors through the labyrinth of opportunities to those ventures that align with their vision and goals.It is a strategic blueprint that articulates the rationale behind investment decisions, encompassing market analysis, potential for innovation, and the entrepreneur's capability to navigate the business ...
Crafting a Successful Investment Thesis: A Guide for New Angel Investors
The world of angel investing brings together high risk and high reward, drawing in investors who are willing to delve into the startup ecosystem. With the allure of uncovering a unicorn startup comes the pressure to craft a clear investment thesis that can guide investment decisions, and ultimately, lead to robust portfolio returns.
Developing an Investment Thesis for Angel Investor Networks
Crafting a unique investment thesis is a critical step for any angel investor or investment network. It serves as a guiding framework that outlines the specific criteria and strategic approach for selecting potential investment opportunities.A well-articulated investment thesis not only helps in making informed decisions but also in communicating the value proposition to stakeholders and ...
How To Develop An Investment Thesis
This article delves into what constitutes an investment thesis, its necessity, motivations driving angel investing, the dichotomy between two categories of VCs, the key distinctions between VCs ...
Investment thesis for Angels: Not just for VCs
Investing in startups can be both exciting and frustrating. To opt for a positive outcome in the long-run, it's crucial to have a clear roadmap to guide your investment decisions as an angel investor. Many might argue that building an investment thesis is more of a VC concern, but this couldn't be further from the truth.
How to write your angel investment thesis
Having an investment thesis in place will help you to: Make faster decisions about whether to invest or not. Narrow your expertise so that you can understand opportunities better. Become known for a particular area and gain access to the best deals. You will be better at spotting useful innovations in industries you understand.
Building your investment thesis
Building your investment thesis. Having an investment thesis can help make you a more focused investor, and is a good place to start when setting out to start angel investing. A strong investment thesis will help guide how you will source deals and how you will make decisions. A strong investment thesis can be the basis for a very strong angel ...
Investment theses aren't just for VCs. Angels need them too
In the last couple of years, aided by a place in VC Atomico's angel programme, I've fallen in love with angel investing: making small bets on early-stage founders. And over time, I've realised how few angels have distinctive investing theses. An investing thesis is really a fancy way of saying a mission statement that articulates a point ...
The Three Key Pillars For An Angel Investment Thesis
An investment thesis simply is a combination of an angel investor's investment horizon, their risk appetite and domain expertise, according to some of India's most active angel investors Skip to ...
Why Angel Investors Should Have an Investment Thesis
Few angel investors have investment theses, short summaries of the person's strategy for what kinds of startups he or she will fund. Fewer still have these theses written down in a form that can ... An investment thesis is a roadmap for investing. It guides the investor towards the investments that fit their objectives. If you invest in start ...
Decoding My Angel Investment Thesis
Dec 31, 2023. 14. Angel investors have it tough, especially during a funding winter. They have to build their pipelines and analyze startups. Larger funds have separate teams for doing this, but angel investors still need to. What makes an Angel Investor's life easier is having an investment thesis. Most investors I have spoken with (angel or ...
2022 angel investor thesis for SaaS startups
My 2022 angel investment thesis. Hello there! My name is Nick, and I'm an entrepreneur, operator, and investor. I've co-founded 2 companies — ecommerce software-as-a-service company Shogun ...
Angel Financing: Matching Start-Up Firms with Angel Investors
the angel investor market. According to Jeffrey Sohl, the director of the Center for Research Venture, "angels have. decreased their appetite for seed and start-up stage investing, with 26 percent of quarter one and. quarter two angel investments in the seed and start-up stage, marking a steady decrease in the.
Thesis
We are generally industry agnostic, however, we do not invest in Life Sciences, Bio/Med/Health, Climate, Cannabis, GovTech, or pure hardware. Our geographical focus includes companies based and registered in North America (Canada and the USA), with a maximum post-money valuation of $25MM USD. Our typical check size is $100k to $350k USD.
PDF The Globalization of Angel Investments: Evidence across Countries
ABSTRACT. This paper examines investments made by 13 angel groups across 21 countries. We compare applicants just above and below the funding cutoff and find that these angel investors have a positive impact on the growth, performance, and survival of firms as well as their follow-on fundraising.
Startup Financing for Consumer Tech Ventures
A well-crafted investment thesis is imperative for convincing VCs to invest in a consumer tech startup. It must convey the startup's competitive advantage, market opportunity, and potential for exponential growth. VCs typically invest in startups that have already demonstrated traction, with a minimum viable product (MVP) and early customer ...
What Does a General Partner Do?
On the other hand, it's hard to get started as a GP. You need a founder network and expertise to find good deals, a network to find investors, and often the ability to travel. GPs generally have experience in the industries they invest in and often develop a unique investment thesis. Here's a breakdown of the differences between GPs and LPs:
Essays on Angel Investing in the Entrepreneurial Ecosystem
2018 Theses Doctoral. Essays on Angel Investing in the Entrepreneurial Ecosystem. Piazza, Alessandro. Throughout its three chapters, this dissertation examines a phenomenon that, although underappreciated and underinvestigated in the existing literature, should be of great interest to entrepreneurship scholars: angel investing in the United States.
What is a Venture Capital Fund?
A GP often follows an investment thesis to select investments, targeting a specific segment of the market and/or stage of investment. ... One analysis found angel investors' average check size is between $25k - $100k. How to Start a Venture Capital Fund. To start a venture capital fund, one must form a legal entity (more on this later) and ...
Angel investment and first impressions
1. Introduction. The tremendous growth of angel investment and venture capital (VC) investment over the past two decades (Chemmanur and Fulghieri, 2014; Gornall and Strebulaev, 2015) calls for a deeper understanding of the early stage startup investment decision process.Such investment decisions face a great deal of information asymmetry (Hochberg et al., 2018; Howell, 2020).
Understanding angel investing in India: an exploratory study based on
Understanding angel investing in India: an exploratory study based on publicly available data: Authors: Sabarinathan, G : ... First, it endeavours to map out the investment activity that has been undertaken by a variety of angels, including some of the more prominent angel networks in India, and outline their approach to investing, examine ...
Prediction: 2 Stocks That Will Be Worth More Than Apple 5 Years From
Most investors wouldn't own Apple if they were presented with the investment thesis without the company name. Cloud computing is a huge catalyst for Amazon and Alphabet. First off, let's talk ...