Pre-Curriculum 1: Use the leading Investment Thesis template to craft your investment focus
In order to build a strong venture capital fund, you start with a strong fund Thesis.
What is the fund Thesis?
A fund Thesis is the strategy by which a venture capital fund makes money for the fund investors, called Limited Partners or LPs. It identifies the stage, geography and focus of investments, as well as the unique differentiation of the firm.
A fund Thesis is not for public consumption. It is private for Limited Partners only.
How do you write a compelling fund Thesis?
There are multiple components to a compelling fund Thesis that we have compiled into a simple to follow format. The ideal Thesis should not be longer than 40 words, preferably 35 to 37 words.
“[Fund Name] is launching a [$x MM] [Stage] venture fund in [Country / City] to back [Geography] [Sector / Market Companies] [with Secret Sauce]”
What are the key components of a fund Thesis?
Naming your Fund: [Fund Name]
When getting started, we recommend using a last name or color, like ‘Ressi Ventures’ or ‘Orange Fund,’ since the Thesis will evolve many times over the first months. After you feel that you have a final Thesis, then choose a name that represents your Thesis.
Fund Size: [$x MM]
This is the minimum size of committed capital by LPs to the fund. For new managers, the fund size should be no greater than $10 MM. Your goal is to oversubscribe whatever your target fund size is, so aim for a small number.
Investment Stage: [Stage]
This is the stage of portfolio companies where the fund will enter most investments. Stage is usually based on the fund size and the manager deal access. Most new managers choose angel, pre-seed, or seed as the stage. Limited partners prefer a focused stage over multi-stage funds, especially larger limited partners.
Your Location: [Country / City]
This is the city or country where the managers are living or plan to live while running the fund. Funds have a life of at least 10 years, so pick a city or country where the managers plan to be for some time. If you are living in a large country, then it is better to specify a city or region, such as “East Coast” versus the “United States.”
Geographic Focus: [Geography]
This is the geography where the fund will invest in most portfolio companies. The majority of limited partners want a focused geography, such a single country, a set of countries, or a small geographic region. When investing in multiple countries, managers and limited partners face complex legal and tax issues on entering and exiting deals.
Sector Focus: [Sector / Market Companies]
This is the sector or subsector that the fund will have the most portfolio companies. Target sectors or subsectors need to be in areas that most people understand, such as FinTech, digital health, SaaS, or marketplaces. Do not make up new sectors or phrases, such as “Lazy Tech” or “Innovation Origination.” The sector or subsectors of the Thesis are one of the most important ways to connect with limited partners.
Unique Selling Point: [with Secret Sauce]
The secret sauce is the applied track record of the managers to the Thesis using metrics to quantify experience and success. The top secret sauce metrics are the following in order: 1. investment exits, 2. investment performance, 3. capital raised, 4. sales closed, 5. companies helped, 6. size of network, 7. years of experience. The secret sauce needs to show why the managers are uniquely qualified to run this fund.
What are some sample fund Theses?
Using the above template, here are some clear and concise thesis examples:
Azure Capital is launching a $5 MM pre-seed fund in Toronto to back Canadian AI startups with the GP achieving 15+ successful exits for $3.5 B from a network of 500+ AI scientists.
Green Ventures is starting a $7 MM seed fund in Berlin to back European sustainability companies based on a track record of 200% ROI over 5 years of investing in the space.
Coral VC is creating a $10 MM angel fund in Sydney to back APAC e-commerce startups leveraging the managers experience helping 5 companies achieve 30% month over month revenue growth in ecommerce.
Blue Investments is launching a $2 MM pre-seed fund in São Paulo to back Brazilian Agritech startups from manager’s network of 1,200 leaders built from 20 years as CEO of the leader Agritech supplier in LATAM.
Pink Management is launching a $10 MM venture studio fund in Silicon Valley to back studio-created biotech hardware capitalizing on a history of raising over $500 MM for biotech startups and assisting in 20+ FDA approvals.
How specific should your fund Thesis be?
A compelling fund Thesis is very specific about stage, geography and focus to align with the allocation requirements of Limited Partners. A common problem is that New Managers are often afraid to be specific, since they feel it will limit their ability to do hot deals.
A Thesis states the intention of a firm to pursue certain kinds of investments, but is not legally binding in the firm or in the fund agreements. So, a fund Thesis has the effect of gravity. Venture capitalists often can do deals that are far away from the Thesis, but they have less attraction.
How do you refine your fund Thesis?
You will be refining your Thesis heavily for the first few months when forming your fund. A well-defined thesis is specific about stages, geographies, and focus, thus attracting the right LPs while allowing some flexibility. But the first person that you need to satisfy with your thesis is yourself.
Here is an initial exercise to get started that should take about 30 minutes to an hour.
First, use the template above and try to write three versions of a potential venture fund thesis. As mentioned above, be as concise and specific as possible.
Next, read each of them aloud while recording a video of yourself. Speak conversationally (in the same way you might casually pitch the idea to someone in an elevator), and in one video “take”.
Then, watch the videos and ask yourself if you would realistically invest in that thesis. How clear was the message? How confident was the delivery? What questions come to mind?
Finally, revise the thesis and video until you are satisfied with your work. Resist the urge to make the one-sentence thesis a one-page thesis. Remember: brevity is the key.
What are the next steps?
This is just one part of the first steps to starting a venture capital firm, which include:
The Decile Group develops industry-leading offerings to transform venture capital into an ethical force for good in the world, including VC Lab, Decile Hub, Decile Partners and Decile Capital.
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