I work with a bunch of founders with incredible stories, great pitch decks and solid companies – and they get confused when investors turn them down anyway. Often it doesn’t matter how good your business is. What matters is whether it fits in with your investor’s investment thesis.
An investment thesis is sometimes a detailed document, sometimes a deck and sometimes something as vague as “we’ll know when we see it”. However, what it has in common is that this is a set of “rules” that the VC has. It presents this thesis to its own investors – the LPs – so that they have an idea of what the venture company will invest in. Investing outside of this thesis is sometimes possible for deals that are too good to pass up, but it will often manage some on the VC/LP side of things.
What makes a “wrong” investor?
For some funds, this dissertation may be very broad — “all California startups” — while others get quite narrow: “$1 million checks for crypto startups founded by blue-haired New Jersey graduates.”
If you fall outside their “thesis”, some investors may still invest – if an extremely promising opportunity presents itself, they will at least consider it – but remember that the “thesis” is what the investment partners used to raise money from their limited partners (LPs). If a fund starts investing a lot of money in startups that are outside the scope of the thesis, the LPs will get jittery and lose confidence.
What goes into a dissertation?
Investment theses usually contain a combination of the below. Some funds care deeply about some of these things, and others are less sensitive. For some, these things can be a deal breaker – and others take a more flexible approach.