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For investing in a startup, consider the future and what will be needed then; don’t just look at the world as it is today.
Map the trends and extrapolate out and consider what will be needed five years from now based on the direction of technology, the markets, and other factors. From this, you can build a view of the future and inform your investment thesis and begin your preparation for investing in startups.
Creating Your Investment Thesis
There are too many deals to look at all of them. You’ll want to narrow the field by building out your investment thesis. There are a few crucial steps to take if you haven’t done so already.
View 50 deals, then write down what you like and what you don’t. TEN Capital is a great resource to help you field deals regularly, show you how to review them, and what to look for.
Follow up one to three months later to see how each deal is working out. Checking-in regularly will inform your investment thesis as you will see some deals progressing forward, some stall out, and others pivoting to something else.
Write out your investment thesis in full, including:
- Your observation about a macro trend in an area you care about
- The position of the company in the trend
- Characterization of the company that gives it a competitive advantage
- Conditions for investing based on price and other factors
Example investment thesis statements include:
- “Healthcare is moving to the home.”
- “Companies providing technology-enabled services will succeed.”
- “Companies with recurring revenue and a CAC:LTV ratio of 1:8 are preferred.”
- “Companies with revenue above $500K and pre-money valuation below $5M are preferred.”
It’s essential to write out your investment thesis ahead of time, as you’ll often return to it.
In general, it’s best to keep your angel investing to 3-5% of your discretionary investment funds. These are funds you can lose and not impact your lifestyle or other investments.
Determine in advance how much you plan to invest. Use a five-year window.
Once you have that number, know how you’ll access those funds for when you need them.
Keeping these funds separated from the rest of your investments will make managing the process easier.
Hall T. Martin is the founder and CEO of the TEN Capital Network.TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: firstname.lastname@example.org