The VC Model Thesis is a succinct, one-sentence statement that articulates the guiding strategy for a VC fund. This Thesis, often the cornerstone of any successful fund, effectively communicates the fund’s unique value proposition, its targeted investment sectors, and the unique approach or Secret Sauce that sets it apart from competitors.
VC Lab has developed the VC Model Thesis and a Thesis Evaluator on Chat GPT version 4.0 to score initial Thesis work on a 1 to 5 rating system. The following article will help you to draft a strong Thesis, evaluate it using Chat GPT, and, ideally, get a score of a 4 or 5, guiding you towards crafting a world-class venture capital fund.
Understanding the Thesis Format
The first step towards building a superior fund Thesis is understanding the VC Model Thesis. Your Thesis should be presented as:
“[Fund Name] is launching a [$x MM] [Stage] venture fund in [Country / City] to back [Geography] [Sector / Market Companies] [with Secret Sauce]”
Breaking Down the Components
To deliver a well-crafted thesis, you need to understand the importance and requirements of each Component.
- 1. Fund Name: This should be unique and not overly generic. Avoid names comprising common words or terms associated with the venture capital industry.
- 2. Fund Size: Ensure that the proposed fund size reflects the experience and track record of your team. Over $10 MM demands proven investment experience, while anything less than $2 MM is not viable due to operational expenses.
- 3. Stage: Your thesis should target one specific investment stage such as Venture Studio, Venture Builder, Angel, Pre Seed, Seed, or Series A. Avoid vague terms like “early stage” or “late stage”.
- 4. Geography: A regional focus, such as CEE or MENA, is viable but difficult to execute. A single large country or a set of related countries is the best focus.
- 5. Sector/Market Companies: Choose a specific market, such as “B2B SaaS” or “FinTech,” that will attract LPs with a similar interest. Avoid generalist funds or those focused on multiple markets.
- 6. Secret Sauce: This component requires the team to quantify how they have helped startups in the past with metrics and numbers in one Metric Category. The metrics and numbers should be related to the chosen sector/market companies.
Following Key Rules
To ensure compliance with this format, your thesis must strictly adhere to the rules outlined below:
- 1. Length Rule: Brevity is key for a successful Thesis. Ensure it’s concise, clear, and capped at 37 words, as any Thesis exceeding this limit will be automatically downgraded to a score of 1.
- 2. Superlatives Rule: Hyperbole won’t win over limited partners. Steer clear of superlatives and overly assertive words like “first”, “best”, or “revolutionary”, which could lead to a credibility gap and result in a score of 1.
- 3. Adjectives Rule: Numbers speak louder than adjectives. Substituting quantifiable metrics for vague terms like “largest” or “most” ensures a precise, data-driven Thesis that can earn more than a score of 2.
- 4. English Rule: Poor wording can spell doom for your Thesis. To avoid being confined to a score of 2, focus on fluent, error-free language with concise expressions and correct grammar.
- 5. Component Rule: Each component of your Thesis—Fund Name, Fund Size, Stage, Geography, Sector/Market, and Secret Sauce—must be robust and realistic. A single flawed component caps your score at 4; multiple issues limit it to 2.
Note: Please bear in mind that ChatGPT currently faces limitations in accurately counting words. This may result in the ‘Thesis Evaluator’ incorrectly assessing the ‘Length Rule’ of your VC fund thesis. Thus, it’s highly recommended to manually ensure your Thesis doesn’t exceed the prescribed 37-word limit before submission.
Refining the Secret Sauce
The Secret Sauce component is the most difficult to master for most managers. This is where you showcase why your team is uniquely qualified to launch and manage the fund, drawing from your past experiences and achievements. What distinguishes your team’s approach? What evidence can you provide to convince LPs of your exceptional competency? This is the essence of the Secret Sauce.
The Secret Sauce should be a concrete, quantifiable metric derived from your past record—a single, critical piece of data that underpins your claim of superiority. It should be highly specific to your chosen sector/market companies, reinforcing the notion that you have a deep, data-driven understanding of your focus area.
Here are the Metric Categories that you can select from for your Secret Sauce, listed in descending order of their importance to limited partners:
1. Total exit value:
This Metric Category represents the sum total of the value realized from exits of portfolio companies. Total exit value conveys a strong message about your ability to pick winning companies and is likely to appeal to LPs seeking returns.
- – “…with a cumulative exit value of over $500 MM in the EdTech sector”
- – “…garnering an aggregate exit value of $1.5 Bn in HealthTech”
- – “…yielding a total exit value of $400 MM in AI-driven startups”
2. Investment markups, IRR or MOIC:
These metrics provide an indication of the returns on your investments and are a direct measure of your past success as an investor.
- – “…having achieved a remarkable IRR of 35% across our portfolio companies”
- – “…with an average MOIC of 3x in the BioTech industry”
- – “…boasting an average markup of 5x on our early-stage investments”
3. Total amount raised:
This Metric Category represents the cumulative amount raised by your portfolio companies. It suggests that you can identify and support companies that successfully raise funds.
- – “…having assisted portfolio companies in raising over $2 Bn in total”
- – “…helping BioTech startups raise a collective $800 MM”
- – “…guiding FinTech ventures to raise a total of $1.2 Bn”
4. Measurable sales increases:
Here you are not only demonstrating percentage increases but also adding the dollar value and mentioning critical new accounts, which indicates strategic partnerships or significant customers.
- – “…facilitating portfolio companies to achieve an average sales increase of 200%, adding $20 MM to their annual revenue, and onboarding three Fortune 500 accounts”
- – “…driving HealthTech startups to a median sales boost of 150%, contributing an additional $10 MM in sales, and securing partnerships with five major hospitals”
- – “…aiding eCommerce ventures in realizing a mean sales growth of 180%, contributing an extra $15 MM in revenue, and gaining accounts with two leading online marketplaces”
5. Number of companies helped, programs run or exposure:
When stating the number of programs run or companies helped, the impact is further magnified by highlighting the number of unicorns produced, the capital raised, or successful fundings.
- – “…having successfully mentored over 100 promising startups, resulting in five unicorns and over $500 MM in capital raised”
- – “…running 50 acceleration programs worldwide, empowering aspiring entrepreneurs, leading to ten successful fundings and a cumulative capital raise of $200 MM”
- – “…providing portfolio companies exposure to our 2 million social media followers, contributing to the successful fundings of 20 ventures”
6. Years of experience:
When mentioning years of experience, bolster the claim with a measurable accomplishment related to startups or investing.
- – “…leveraging our collective 50 years of experience in the Cybersecurity sector, during which we’ve led 20 startups to successful exits”
- – “…capitalizing on our team’s 40 years of hands-on experience in the AI industry, during which we’ve helped portfolio companies raise over $500 MM”
- – “…drawing from our 30 years of rich experience in the FinTech space, during which we’ve guided 15 startups to achieve unicorn status”
Avoid using metrics for Metric Categories 4, 5, and 6 unless they are exceptional. Also, ensure that you only focus on one primary Metric Category.
While these Metric Categories are ranked in terms of relevancy to LPs, remember that the best metric for your Secret Sauce depends on your unique circumstances and strengths. Always prioritize authenticity and verifiable data over perceived attractiveness.
Chat GPT Thesis Evaluation
Having crafted your Thesis, carefully adhering to the guidelines and integrating significant metrics, it’s time for assessment with the ‘VC Lab Thesis Evaluator.’
The assessment will only provide valuable insights if you are using Chat GPT version 4.0.
The Thesis Evaluator is on Version 4.2. New versions will be released and placed on the link above.
Note: A well-scoring Thesis doesn’t automatically signify an effective Thesis. The evaluation tool provided by ChatGPT is designed to review the structure and compliance of your Thesis—it is not a definitive measure of your fund’s viability or potential for success.
In an increasingly competitive venture capital landscape, harnessing the power of ChatGPT for creating a compelling VC Thesis can help accelerate your iterations with fast feedback. Once you’ve refined your Thesis and achieved a score of 4 or 5, take the next step forward: apply to the VC Lab venture capital accelerator. There, you can gain valuable insights, network with like-minded professionals, and further elevate your fund’s potential. Your journey to success in venture capital starts with a strong Thesis.