How to write your angel investment thesis
As an angel investor you will have many options of where to invest your money and if you get your hands on some great deal flow you may need to decide between a number of really good ideas. Assuming you don’t have an unlimited amount of money, the decision process can become difficult and you’re likely to be swayed by the crowd (other investors) and hype (press/ trends) which adds even more complexity.
To make your decision process more purposeful and enjoyable, it might be worthwhile taking the time to note down your investment thesis: a set of principles that justify why you invest (or don't invest) in certain companies.
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
Avoid being swayed to invest based on hype trends
Writing your investment thesis
To write your thesis you will need to answer three questions:
What do you understand really well?
What do you believe to be true about the future?
What do you want to support and influence?
1. What do you understand really well? (industry/ tech/ business type)
You will be better at spotting useful innovations in industries you understand
You will be clearer about whether your investment is doing well or not, whether to reinvest or try to exit at the next round
If you understand it, you can add value to it and contribute to its success
Example: I am deeply embedded in the hospitality industry and have useful connections in this space
2. What do you believe to be true about the future?
There are a number of different ways the future will play out, how markets will develop, how people will behave and what problems they will have.
Think ahead 10+ years - what is your prediction for the world?
How will certain markets develop, how will people behave, what problems will they have?
The biggest opportunities (and risks) tend to lie in the moonshot predictions
Example: I believe that in the future, people will not own anything, everything will be rented
3. What do you want to support and influence?
- As an investor you're not just betting on a future, you're contributing to it
- How do you want to use your economic power as an investor?
- This gives more meaning to your investments, especially when they don't work out
Example: I want to support innovation in energy so that we can have less impact on the planet
How to use your investment thesis
Now that you have it written down, how should you use it?
Refer to it: every time you are making an investment decision, how many out of the 3 statements align with this startup?
Share it: with your investment group, your network, or publicly to narrow down your deal flow.
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