Unlocking VC dollars: Understanding their investment thesis is your secret weapon
Alright, founders, let’s talk about why your beautifully crafted pitch deck and compelling story might be getting you nowhere with VCs. You might just be barking up the wrong tree. Here’s the lowdown on what you need to know about investment theses and why they matter.
Have you ever been frustrated by vague, non-committal rejections from VCs? “We’re going in a different direction,” or “It’s not a fit right now.” What does that even mean? Sometimes it’s because your startup simply doesn’t align with their investment thesis.
What’s an investment Thesis Anyway - and why does it matter?
Every venture capital fund has an investment thesis—a set of guidelines that dictate how it invests. It’s like its secret recipe for where and how it deploys its cash. If your startup doesn’t fit into this recipe, it doesn’t matter how shiny your pitch deck is or how promising your company sounds—they’re not biting.
For some funds, the thesis is broad, like “We invest in early-stage companies in California.” Others are more niche, like “We invest $1 million checks into crypto startups founded by Ramapo College graduates with blue hair.” No joke. If you don’t fit, even if they think you’re the next big thing, they might pass. Why? Because their thesis is what they promised their Limited Partners (LPs). Stray too far, and those LPs get jittery.
What goes into an investment thesis?
Here’s what typically goes into a VC’s investment thesis:
Investment Amount: Minimum and maximum check sizes.
Target Audience: B2B, B2C, or B2B2C.
Verticals: Specific sectors like med tech, ed tech, space, crypto, etc.
Ownership Targets: Desired percentage ownership in the company.
Education: Alumni networks or specific schools.
Demographic: Focus on certain founder demographics (e.g., female founders, Latinx founders).
Geographic Location: Regions where they invest.
Opportunity Size: Potential for outsized returns. They want investments that can “return the fund.”
Even if you tick all these boxes, your journey doesn’t end there. It would be best if you still had a killer team, a huge market, traction, and a solution to a meaningful problem. Plus, it would be best to weave all of this into a narrative that makes VCs sit up and notice - but if you try to pitch something that is off-thesis, that’s the quickest way to be laughed out of the office.
How do you find out what their thesis actually is?
Simple. Do your research. Some investors tell you on their front page: “We invest up to $5 million into SaaS companies”. If they’re not that explicit - they all have a portfolio page, and from those portfolio companies, you’ll get a good sense of the verticals and geographies they invest in.
Don’t waste your time - or theirs - on investors who don’t invest in companies like you.
Learn much more
Did you know: Our Ready to Raise in 14 days course will teach you everything you need to know to put together a world-class pitch in just two weeks.