Venture capitalists enjoy to talk investment theses: on Twitter, Medium, Clubhouse, at conferences. And yet, when you take a closer look, theses are typically meaningless and/or deceptive.
OpenVC is a new, open-source effort to gather and examine all publicly available VC theses to help founders more effectively find the ideal financiers — — and vice-versa. For the very first time, we are sharing here our initial conclusions. We hope you’ll publish your own thesis to benchmark yourself. We have actually identified six common patterns of how VCs articulate their theses and some finest practices in doing so.
Our analysis is based on 2 complementary datasets:
- 125 theses up until now submitted by investors into the OpenVC database.
- 36 theses pulled straight from U.S. VC websites by David Teten and Sam Sabin, co-founder of Hireblue.
Our 4 main conclusions:
- Public theses are frequently irregular with how companies really release capital.
- VC theses are typically so unclear that they’re meaningless.
- We found seven categories of VC theses, plus a 8th: the non-thesis.
- Investment theses are simply hypotheses; the portfolio shows how accurate the hypothesis was.
For the sake of simplicity, we will consider “investment thesis” and “investment requirements” as equivalent terms moving forward, although we argue that the thesis leads to the financial investment requirements. We summarize how they interrelate in the table below.
1. Public theses are frequently inconsistent with how firms in fact release capital
A typical VC thesis: “We buy tech startups in Europe at an early stage.” Our experience reveals that in many cases “Europe” suggests a handful of nations, for instance, France, U.K. and Germany; and “tech” suggests B2B SaaS/fintech or customer apps.
Thirty-four VC companies in OpenVC call themselves “early phase.” Yet 30% of those don’t actually purchase pre-revenue startups. The expression is quite ambiguous; we recommend quantifying check size so that your financial investment choice is clearer.
Almost every VC states that they purchase the “best” founders. according to PitchBook Data, given that the start of 2016, companies with women creators have received only 4.4% of equity capital offers. Those business have garnered only about 2% of all capital invested. This is despite the reality that the data show you’re better off investing in females.
This absence of openness lead to baffled founders who go after the wrong investors. In turn, financiers are overwhelmed with improperly qualified chances.
2. VC theses are frequently so unclear that they’re worthless
Christoph Janz from Point Nine Capital wrote on Twitter:
The modal VC thesis is: “We purchase excellent groups dealing with big markets with disruptive solutions.” Who purchases lousy teams resolving small markets with out-of-date solutions? Theses likewise tend to utilize the same words across numerous companies, e.g., “bold” and “strong.”
In particular, in our second dataset, we found an out of proportion number of theses focused on “technical” companies (vaguely specified) and focused on business assaulting “problems of the future instead of today,” in numerous permutations of that language.
|Leading Visible Heuristics (in dataset of 36 U.S. VCs)||Occurrences|
|“Technical” business (i.e., any mention of a focus on tech business)||26|
|Regional affinity or predisposition||10|
|Attack issues of the future rather than today (or some version)||9|
Why are the financial investment criteria so imprecise on the VC websites? We have three theories, in descending order of significance:
- Choice worth. Financiers do not wish to be too limiting and miss out on an offer. However, we ‘d argue that for most smaller sized supervisors who are not brand names, it’s better to be highly determined in your specific niche than being a generalist. Many minimal partners we talk to concur.
- A desire to look “hot” and politically correct instead of being truthful. This is probably a significant reason. For example, stating publicly, “We invest mainly in white/Asian men who went to Stanford like us” precisely describes numerous VCs, but doesn’t sound very politically correct.
- VCs hesitate to offer their secret sauce. We believe this doesn’t make much sense; you can share your requirements without informing the whole reasoning behind them. Lots of top-tier VCs share in-depth public theses.
3. We discovered 7 categories of VC theses, plus an eighth: the non-thesis
Article curated by RJ Shara from Source. RJ Shara is a Bay Area Radio Host (Radio Jockey) who talks about the startup ecosystem – entrepreneurs, investments, policies and more on her show The Silicon Dreams. The show streams on Radio Zindagi 1170AM on Mondays from 3.30 PM to 4 PM.