The Angel Investment Thesis for Focused Startup Investing

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:

1. 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.
2. 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.
3. 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.
4. 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?
5. 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.
6. 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:

?“I invest [typical check size]

at the [typical stage of company] stage

in [geography]

to fund [specific adjective] startups in

[sector / market]

with [Secret Sauce].”

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.?

1. 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.
2. Saves time. PERIOD.
3. Share insights. Provides founders with insight into how you will work with them during due diligence and post-investment.
4. 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.
5. Increased referral efficiency. The efficiency of referral, incoming and outgoing, both are crucial in delivering more value to the innovation ecosystem
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.

1. 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.
2. 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.
3. 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).
4. 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).
5. 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.
6. 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.

1. 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.
2. 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. ?
3. 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.
4. 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.