investment thesis in french

Venture Capital & Alii

Définir sa thèse d’investissement

Bienvenue sur ma nouvelle newsletter, Venture Capital & Alii ! VCA est une introduction à l'univers du Venture Capital et de l'écosystème tech pour les débutants. Aujourd’hui je reviens pour vous sur la nécessité en Venture Capital de définir sa thèse d’investissement. Ceci est basé sur mon expérience et ressenti personnel. Je ne tiens pas à aller en détails pour toucher le plus grand nombre et il se peut que j'oublie des éléments : n'hésitez pas à revenir vers moi pour tout complément d’information.

Connaître les règles du jeu

Évolution des thèses d’investissement dans le Software de 1820 à nos jours - Source : Fabric Ventures Investment Thesis 

Par analogie je définirais une thèse d’investissement comme les règles d’un jeu de société . Qu’elle soit rédigée de manière formelle via un document ou bien présente dans une présentation sous formes de diapositives, la thèse d’investissement d’un fonds de capital-risque est la représentation de sa stratégie d’investissement . Sa rédaction est un plan qui permet à n’importe quel lecteur, startup, autre fonds, leveurs de fonds ou bien même simple curieux de connaître la typologie d’investissement de ce fonds. 

Cette stratégie constitue l’ADN d’un fonds (ou bien d’un réseaux d’investisseurs privés, appelés Business Angels ) et illustre sa personnalité. Sans thèse d’investissement on ne peut définir clairement l’identité d’un fonds, ses envies d’investissement et sa nature profonde. Cette thèse doit montrer les raisons profondes qui répondent aux questions suivantes :

Pourquoi ai-je envie d’investir dans cette startup ? 

Qu’est-ce que je peux apporter à une société dans mon portefeuille ? 

Les règles d’un jeu sont évidemment conçues avant sa commercialisation (et peuvent-être transgressées). Il en est de même pour un fonds. Cette thèse d’investissement est l’essence même de la création du fonds et elle constitue en partie la raison pour laquelle un Limited Partner aura envie d’investir X millions d’euros, présents dans les actifs sous gestion de ce fonds. Elle peut naturellement au fil du temps évoluer et être plus large ou au contraire beaucoup plus précise. 

Aujourd’hui, pour le grand public, elle se présente simplement sous la forme d’une page du site web des fonds. 

 “Manifesto” (Thèse d’investissement) d’Alven Capital - Source : https://alven.co/

Thèse d’investissement de XAnge - Source : https://www.xange.fr/fr/

Il est par ailleurs intéressant de noter les différences de présentation sur ces deux thèses d’investissement. Alors qu’ Alven choisi de mettre en avant une réelle description poétique basée sur leur histoire, leurs compétences et leurs valeurs, XAnge choisi une décomposition très précise de son ADN. Pour autant ces deux présentations constituent une annonce claire d’une thèse d’investissement. Leurs approches sont différentes mais les critères mis en avant sont assez communs. Revenons y en détails.

Décomposition de la thèse d’investissement 

Alors quels sont les critères qui définissent une thèse d’investissement ? Ils sont évidemment multiples mais une certaine tendance se dessine dans l'exhaustivité des fonds européens. 

Le stade d’investissement 

Le stade d’investissement est un des socles clés de l’investissement. Dois-je investir dans une startup en Early-Stage ? Série A ? Growth ? Il est nécessaire de définir la position qu’un fonds doit adopter lors d’un tour de table : 

Early-Stage : aux premiers instants du projet, les créateurs d’entreprises ont besoin du soutien de leurs proches (Love Money) ou bien de Business Angels afin de passer de la phase de MVP (Minimum Valuable Product) à un réel produit qui doit atteindre ses premières metrics. Kima Ventures & Kerala Ventures sont les parfaits acteurs pour soutenir ces instants.

Série A : la startup commence à générer de la traction, mais elle a besoin de ressources pour pouvoir l’accélerer. Des fonds tels qu’Alven Capital, Partech Ventures ou même Breega Capital sont présents dans ce segment. 

Série B : vient le moment de la “scalabilité” la startup grossit par échelle et cherche à par exemple racheter des concurrents plus petits. Iris Capital ou encore Serena Capital viennent accompagner la mutation vers la scaleup. 

Thèse d’investissement de Serena Capital - Source : https://www.serena.vc/

Série C (Growth Equity) : la startup est devenue une “scaleup” et à un besoin massif d’argent car elle est en hypercroissance. Avec un chiffre d’affaires significatif elle cherche à se tourner vers l’international par exemple. Des fonds tels que Gaia Capital Partners en France ou encore Index Ventures , Accel Partners à Londres ou aux États-Unis sont spécialisés dans ce tour de table. 

La zone géographique

Cela peut paraître anodin mais un fonds français peut posséder un scope allant bien au-delà de la France (mais sauf cas particulier très européen), de même que n’importe quel fonds présent en Europe sur sa propre zone afin de montrer l’intérêt des VC européens à former un bloc face aux autre acteurs mondiaux : 

Des fonds français qui investissent exclusivement ou majoritairement en France comme Kerala Ventures

Des fonds qui tournent vers nos voisins directs et indirects : Iris Capital a des bureaux présents à Paris, Berlin ou encore Tel-Aviv afin de suivre des entrepreneurs internationaux

Des fonds européens uniquement concentrés sur des zones géographiques précises : Newfund est un acteur qui investi en early-stage entre la France et les États-Unis afin de créer des synergies entre les deux pays

Thèse d’investissement de Newfund - Source : https://newfundcap.com/

Un secteur particulier, plusieurs ou une thèse agnostique

Évidemment, pour pouvoir identifier le correct interlocuteur, côté investissement et côté startup, comprendre le secteur d’investissement est un point essentiel. 

Prenons quelques exemples de secteurs où certains fonds sont présents : 

Marketplace, SaaS : Serena, Breega ou encore Point Nine Capital sont des fonds qui investissent totalement ou en partie dans ces deux secteurs étroitement liés qui peuvent générer des revenus récurrents (SaaS) et constituer une place de marché où se rencontre offre et demande (marketplace).

Consumers : Eutopia , anciennement connu sous le nom d’Otium Brands, s’est très rapidement distingué dès 2018 par sa pure approche tournée vers des startups dites “ consumers ” ou Digitally Native Vertical Brands (DNVB) .

Deeptech : Starquest est un fonds français spécialisé dans l’industrie de la deeptech, un secteur où des sociétés développent des technologies disruptives et repoussent les frontières technologiques.

Agnostique : le fonds Daphni est convaincu que la technologie ne se limite pas à un seul secteur et une seule industrie.

Les valeurs humaines et business 

Enfin, il est à mon sens important d’avoir des convictions profondes dans sa thèse d’investissement : 

Aller vers des marchés non explorés ?  

Accompagner des entrepreneurs obsédés par le produit ? 

Amener des entrepreneurs vers des opportunités de sortie lucrative au niveau du pourcentage de détention au capital ainsi que la possible valorisation future ? 

Ces questions aident à la prise de décision lors de la rédaction de cette thèse d’investissement. 

Ces valeurs humaines et business peuvent être liées à l’approche Hands-On que peuvent adopter les fonds. Par exemple, Serena Capital, au-delà d’une simple équipe d’investissement cherche à maximiser son portefeuille de startups en mettant à disposition une équipe d’opérationnel répondant à des besoins spécifiques aux startups : marketing, opérations, stratégie, finance… 

Certains fonds tels que Point Nine Capital cherchent à avoir une démarche humble et pouvoir continuer à travailler sur le long terme avec des sociétés qu’elles ont déjà accompagnées.

Les fonds mettent bien évidemment l’accent sur des entrepreneurs exceptionnels, complémentaires, talentueux et … sympas, qui correspondent aux valeurs des investisseurs et donc pour pouvoir “fiter”. L’investissement peut durer 3, 4, 5 ans. Il est important durant cet espace-temps que la relation entre les deux parties soit globalement bonne. 

Définir SA thèse d’investissement 

À mon sens ces éléments définissent un fonds VC classique, mais également un réseau de business angels ou bien vous même qui désirez regarder de plus prêt les startups. Prenez le temps d’identifier les éléments qui vous plaisent dans une société technologique. Ce que vous pouvez comprendre. Ce qui est aligné à vos valeurs humaines et entrepreneuriales. Un secteur où vous pouvez apporter votre expertise ou mieux encore votre carnet d’adresses. 

Définir en tant qu’investisseur sa thèse d’investissement, la formaliser sur papier peut prendre du temps et les mots qui suivent également. Inventez des expressions qui vous permettront, peut-être, de gagner en lisibilité auprès de vos potentiels investissements. Montrez votre appétence claire sur des sujets et illustrez votre singularité . 

Pour aller plus loin :

Investment Thesis Collection , par Alexander Jarvis

Investment Thesis , Investopedia

The Fabric Ventures Investment Thesis , par Fabric Ventures

Merci d’avoir lu cet article ! Vous seriez intéressé par quel sujet en particulier en VC ? Types d'industries de startups ? N'hésitez pas à me faire part de vos retours 🌐 et à mettre un ❤️ si vous avez aimé !

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Writing a Credible Investment Thesis

Only a third of acquiring executives actually write down the reasons for doing a deal.

By David Harding and Sam Rovit

• November 15, 2004

Every deal your company proposes to do—big or small, strategic or tactical—should start with a clear statement how that particular deal would create value for your company. We call this the investment thesis. The investment thesis is no more or less than a definitive statement, based on a clear understanding of how money is made in your business, that outlines how adding this particular business to your portfolio will make your company more valuable. Many of the best acquirers write out their investment theses in black and white. Joe Trustey, managing partner of private equity and venture capital firm Summit Partners, describes the tool in one short sentence: "It tells me why I would want to own this business."

Perhaps you're rolling your eyes and saying to yourself, "Well, of course our company uses an investment thesis!" But unless you're in the private equity business—which in our experience is more disciplined in crafting investment theses than are corporate buyers—the odds aren't with you. For example, our survey of 250 senior executives across all industries revealed that only 29% of acquiring executives started out with an investment thesis (defined in that survey as a "sound reason for buying a company") that stood the test of time. More than 40% had no investment thesis whatsoever (!). Of those who did, fully half discovered within three years of closing the deal that their thesis was wrong.

Studies conducted by other firms support the conclusion that most companies are terrifyingly unclear about why they spend their shareholders' capital on acquisitions. A 2002 Accenture study, for example, found that 83% of executives surveyed admitted they were unable to distinguish between the value levers of M&A deals. In Booz Allen Hamilton's 1999 review of thirty-four frequent acquirers, which focused chiefly on integration, unsuccessful acquirers admitted that they fished in uncharted waters. They ranked "learning about new (and potentially related) business areas" as a top reason for making an acquisition. (Surely companies should know whether a business area is related to their core before they decide to buy into it!) Successful acquirers, by contrast, were more likely to cite "leading or responding to industry restructuring" as a reason for making an acquisition, suggesting that these companies had at least thought through the strategic implications of their moves.

Not that tipping one's hat to strategy is a cure-all. In our work with companies that are thinking about doing a deal, we often hear that the acquisition is intended for "strategic" reasons. That's simply not good enough. A credible investment thesis should describe a concrete benefit, rather than a vaguely stated strategic value.

A credible investment thesis should describe a concrete benefit, rather than a vaguely stated strategic value. This point needs underscoring. Justifying a deal as being "strategic" ex post facto is, in most cases, an invitation to inferior returns. Given how frequently we have heard weak "strategic" justifications after a deal has closed, it's worth passing along a warning from Craig Tall, vice chair of corporate development and strategic planning at Washington Mutual. In recent years, Tall's bank has made acquisitions a key part of a stunningly successful growth record. "When I see an expensive deal," Tall told us, "and they say it was a 'strategic' deal, it's a code for me that somebody paid too much."

And although sometimes the best offense is a good defense, this axiom does not really stand in for a valid investment thesis. On more than a few occasions, we have been witness to deals that were initiated because an investment banker uttered the Eight Magic Words: If you don't buy it, your competitors will.

Well, so be it. If a potential acquisition is not compelling to you on its own merits, let it go. Let your competitors put their good money down, and prove that their investment theses are strong.

Let's look at a case in point: [Clear Channel Communications' leaders Lowry, Mark and Randall] Mayses' decision to move from radios into outdoor advertising (billboards, to most of us). Based on our conversations with Randall Mays, we summarize their investment thesis for buying into the billboard business as follows:

Clear Channel's expansion into outdoor advertising leverages the company's core competencies in two ways: First, the local market sales force that is already in place to sell radio ads can now sell outdoor ads to many of the same buyers, and Clear Channel is uniquely positioned to sell both local and national advertisements. Second, similar to the radio industry twenty years ago, the outdoor advertising industry is fragmented and undercapitalized. Clear Channel has the capital needed to "roll up" a significant fraction of this industry, as well as the cash flow and management systems needed to reduce operating expenses across a consolidated business.

Note that in Clear Channel's investment thesis (at least as we've stated it), the benefits would be derived from three sources:

• Leveraging an existing sales force more extensively
• Using the balance sheet to roll up and fund an undercapitalized business
• Applying operating skills learned in the radio trade

Note also the emphasis on tangible and quantifiable results, which can be easily communicated and tested. All stakeholders, including investors, employees, debtors and vendors, should understand why a deal will make their company stronger. Does the investment thesis make sense only to those who know the company best? If so, that's probably a bad sign. Is senior management arguing that a deal's inherent genius is too complex to be understood by all stakeholders, or simply asserting that the deal is "strategic"? These, too, are probably bad signs.

Most of the best acquirers we've studied try to get the thesis down on paper as soon as possible. Getting it down in black and white—wrapping specific words around the ideas—allows them to circulate the thesis internally and to generate reactions early and often.

The perils of the "transformational" deal. Some readers may be wondering whether there isn't a less tangible, but equally credible, rationale for an investment thesis: the transformational deal. Such transactions, which became popular in the exuberant '90s, aim to turn companies (and sometimes even whole industries) on their head and "transform" them. In effect, they change a company's basis of competition through a dramatic redeployment of assets.

The roster of companies that have favored transformational deals includes Vivendi Universal, AOL Time Warner (which changed its name back to Time Warner in October 2003), Enron, Williams, and others. Perhaps that list alone is enough to turn our readers off the concept of the transformational deal. (We admit it: We keep wanting to put that word transformational in quotes.) But let's dig a little deeper.

Sometimes what looks like a successful transformational deal is really a case of mistaken identity. In search of effective transformations, people sometimes cite the examples of DuPont—which after World War I used M&A to transform itself from a maker of explosives into a broad-based leader in the chemicals industry—and General Motors, which, through the consolidation of several car companies, transformed the auto industry. But when you actually dissect the moves of such industry winners, you find that they worked their way down the same learning curve as the best-practice companies in our global study. GM never attempted the transformational deal; instead, it rolled up smaller car companies until it had the scale to take on a Ford—and win. DuPont was similarly patient; it broadened its product scope into a range of chemistry-based industries, acquisition by acquisition.

In a more recent example, Rexam PLC has transformed itself from a broad-based conglomerate into a global leader in packaging by actively managing its portfolio and growing its core business. Beginning in the late '90s, Rexam shed diverse businesses in cyclical industries and grew scale in cans. First it acquired Europe's largest beverage—can manufacturer, Sweden's PLM, in 1999. Then it bought U.S.-based packager American National Can in 2000, making itself the largest beverage-can maker in the world. In other words, Rexam acquired with a clear investment thesis in mind: to grow scale in can making or broaden geographic scope. The collective impact of these many small steps was transformation. 14

But what of the literal transformational deal? You saw the preceding list of companies. Our advice is unequivocal: Stay out of this high-stakes game. Recent efforts to transform companies via the megadeal have failed or faltered. The glamour is blinding, which only makes the route more treacherous and the destination less clear. If you go this route, you are very likely to destroy value for your shareholders.

By definition, the transformational deal can't have a clear investment thesis, and evidence from the movement of stock prices immediately following deal announcements suggests that the market prefers deals that have a clear investment thesis. In "Deals That Create Value," for example, McKinsey scrutinized stock price movements before and after 231 corporate transactions over a five-year period. The study concluded that the market prefers "expansionist" deals, in which a company "seeks to boost its market share by consolidating, by moving into new geographic regions, or by adding new distribution channels for existing products and services."

On average, McKinsey reported, deals of the "expansionist" variety earned a stock market premium in the days following their announcement. By contrast, "transformative" deals—whereby companies threw themselves bodily into a new line of business—destroyed an average of 5.3% of market value immediately after the deal's announcement. Translating these findings into our own terminology:

• Expansionist deals are more likely to have a clear investment thesis, while "transformative" deals often have no credible rationale.
• The market is likely to reward the former and punish the latter.
• The dilution/accretion debate. One more side discussion that comes to bear on the investment thesis: Deal making is often driven by what we'll call the dilution/accretion debate. We will argue that this debate must be taken into account as you develop your investment thesis, but your thesis making should not be driven by this debate.

Sometimes what looks like a successful transformational deal is really a case of mistaken identity. Simply put, a deal is dilutive if it causes the acquiring company to have lower earnings per share (EPS) than it had before the transaction. As they teach in Finance 101, this happens when the asset return on the purchased business is less than the cost of the debt or equity (e.g., through the issuance of new shares) needed to pay for the deal. Dilution can also occur when an asset is sold, because the earnings power of the business being sold is greater than the return on the alternative use of the proceeds (e.g., paying down debt, redeeming shares or buying something else). An accretive deal, of course, has the opposite outcomes.

But that's only the first of two shoes that may drop. The second shoe is, How will Wall Street respond? Will investors punish the company (or reward it) for its dilutive ways?

Aware of this two-shoes-dropping phenomenon, many CEOs and CFOs use the litmus test of earnings accretion/dilution as the first hurdle that should be put in front of every proposed deal. One of these skilled acquirers is Citigroup's [former] CFO Todd Thomson, who told us:

It's an incredibly powerful discipline to put in place a rule of thumb that deals have to be accretive within some [specific] period of time. At Citigroup, my rule of thumb is it has to be accretive within the first twelve months, in terms of EPS, and it has to reach our capital rate of return, which is over 20% return within three to four years. And it has to make sense both financially and strategically, which means it has to have at least as fast a growth rate as we expect from our businesses in general, which is 10 to 15% a year.

Now, not all of our deals meet that hurdle. But if I set that up to begin with, then if [a deal is] not going to meet that hurdle, people know they better make a heck of a compelling argument about why it doesn't have to be accretive in year one, or why it may take year four or five or six to be able to hit that return level.

Unfortunately, dilution is a problem that has to be wrestled with on a regular basis. As Mike Bertasso, the head of H. J. Heinz's Asia-Pacific businesses, told us, "If a business is accretive, it is probably low-growth and cheap for a reason. If it is dilutive, it's probably high-growth and attractive, and we can't afford it." Even if you can't afford them, steering clear of dilutive deals seems sensible enough, on the face of it. Why would a company's leaders ever knowingly take steps that would decrease their EPS?

The answer, of course, is to invest for the future. As part of the research leading up to this book, Bain looked at a hundred deals that involved EPS accretion and dilution. All the deals were large enough and public enough to have had an effect on the buyer's stock price. The result was surprising: First-year accretion and dilution did not matter to shareholders. In other words, there was no statistical correlation between future stock performance and whether the company did an accretive or dilutive deal. If anything, the dilutive deals slightly outperformed. Why? Because dilutive deals are almost always involved in buying higher-growth assets, and therefore by their nature pass Thomson's test of a "heck of a compelling argument."

As a rule, investors like to see their companies investing in growth. We believe that investors in the stock market do, in fact, look past reported EPS numbers in an effort to understand how the investment thesis will improve the business they already own. If the investment thesis holds up to this kind of scrutiny, then some short-term dilution is probably acceptable.

Reprinted with permission of Harvard Business School Press. Mastering the Merger: Four Critical Decisions That Make or Break the Deal , by David Harding and Sam Rovit. Copyright 2004 Bain & Company; All Rights Reserved.

David Harding (HBS MBA '84) is a director in Bain & Company's Boston office and is an expert in corporate strategy and organizational effectiveness.

Sam Rovit (HBS MBA '89) is a director in the Chicago office and leader of Bain & Company's Global Mergers and Acquisitions Practice.                                              

10. Joe Trustey, telephone interview by David Harding, Bain & Company. Boston: 13 May 2003. Subsequent comments by Trustey are also from this interview.

11. Accenture, "Accenture Survey Shows Executives Are Cautiously Optimistic Regarding Future Mergers and Acquisitions," Accenture Press Release, 30 May 2002.

12. John R. Harbison, Albert J. Viscio, and Amy T. Asin, "Making Acquisitions Work: Capturing Value After the Deal," Booz Allen & Hamilton Series of View-points on Alliances, 1999.

13. Craig Tall, telephone interview by Catherine Lemire, Bain & Company. Toronto: 1 October 2002.

14. Rolf Börjesson, interview by Tom Shannon, Bain & Company. London: 2001.

15. Hans Bieshaar, Jeremy Knight, and Alexander van Wassenaer, "Deals That Create Value," McKinsey Quarterly 1 (2001).

16. Todd Thomson, speaking on "Strategic M&A in an Opportunistic Environment." (Presentation at Bain & Company's Getting Back to Offense conference, New York City, 20 June 2002.)

17. Mike Bertasso, correspondence with David Harding, 15 December 2003.

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Access Theses.fr

Thèses.fr is the search engine for French doctoral theses set up by ABES in 2011. This unique tool is supplied by the thesis-supporting institutions. It lists theses in preparation for the last 10 years in all disciplines and all institutions, as well as all theses defended since 1985.

• Search Search Please fill out this field.

What Is an Investment Thesis?

• Understanding the Thesis

Special Considerations

• What's Included?

The Bottom Line

• Portfolio Management

Investment Thesis: An Argument in Support of Investing Decisions

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

The term investment thesis refers to a reasoned argument for a particular investment strategy, backed up by research and analysis. Investment theses are commonly prepared by (and for) individual investors and businesses. These formal written documents may be prepared by analysts or other financial professionals for presentation to their clients.

Key Takeaways

• An investment thesis is a written document that recommends a new investment, based on research and analysis of its potential for profit.
• Individual investors can use this technique to investigate and select investments that meet their goals.
• Financial professionals use the investment thesis to pitch their ideas.

Understanding the Investment Thesis

As noted above, an investment thesis is a written document that provides information about a potential investment. It is a research- and analysis-based proposal that is usually drafted by an investment or financial professional to provide insight into investments and to pitch investment ideas. In some cases, the investor will draft their own investment thesis, as is the case with venture capitalists and private equity firms.

This thesis can be used as a strategic decision-making tool. Investors and companies can use a thesis to decide whether or not to pursue a particular investment, such as a stock or acquiring another company. Or it can be used as a way to look back and analyze why a particular decision was made in the first place—and whether it was the right one. Putting things in writing can have a huge impact on the direction of a potential investment.

Let's say an investor purchases a stock based on the investment thesis that the stock is undervalued . The thesis states that the investor plans to hold the stock for three years, during which its price will rise to reflect its true worth. At that point, the stock will be sold at a profit. A year later, the stock market crashes, and the investor's pick crashes with it. The investor recalls the investment thesis, relies on the integrity of its conclusions, and continues to hold the stock.

That is a sound strategy unless some event that is totally unexpected and entirely absent from the investment thesis occurs. Examples of these might include the 2007-2008 financial crisis or the Brexit vote that forced the United Kingdom out of the European Union (EU) in 2016. These were highly unexpected events, and they might affect someone's investment thesis.

If you think your investment thesis holds up, stick with it through thick and thin.

An investment thesis is generally formally documented, but there are no universal standards for the contents. Some require fast action and are not elaborate compositions. When a thesis concerns a big trend, such as a global macro perspective, the investment thesis may be well documented and might even include a fair amount of promotional materials for presentation to potential investing partners.

Portfolio management is now a science-based discipline, not unlike engineering or medicine. As in those fields, breakthroughs in basic theory, technology, and market structures continuously translate into improvements in products and in professional practices. The investment thesis has been strengthened with qualitative and quantitative methods that are now widely accepted.

As with any thesis, an idea may surface but it is methodical research that takes it from an abstract concept to a recommendation for action. In the world of investments, the thesis serves as a game plan.

What's Included in an Investment Thesis?

Although there's no industry standard, there are usually some common components to this document. Remember, an investment thesis is generally a proposal that is based on research and analysis. As such, it is meant to be a guide about the viability of a particular investment.

Most investment theses include (but aren't limited to) the following information:

• The investment in question
• The investment goal(s)
• Viability of the investment, including any trends that support the investment
• Potential downsides and risks that may be associated with the investment
• Costs and potential returns as well as any losses that may result

Some theses also try to answer some key questions, including:

• Does the investment align with the intended goal(s)?
• What could go wrong?
• What do the financial statements say?
• What is the growth potential of this investment?

Putting everything in writing can help investors make more informed decisions. For instance, a company's management team can use a thesis to decide whether or not to pursue the acquisition of a rival. The thesis may highlight whether the target's vision aligns with the acquirer or it may identify opportunities for growth in the market.

Keep in mind that the complexity of an investment thesis depends on the type of investor involved and the nature of the investment. So the investment thesis for a corporation looking to acquire a rival may be more in-depth and complicated compared to that of an individual investor who wants to develop an investment portfolio.

Examples of an Investment Thesis

Portfolio managers and investment companies often post information about their investment theses on their websites. The following are just two examples.

Morgan Stanley

Morgan Stanley ( MS ) is one of the world's leading financial services firms. It offers investment management services, investment banking, securities, and wealth management services. According to the company, it has five steps that make up its investment process, including idea generation, quality assessment, valuation, risk management , and portfolio construction.

When it comes to developing its investment thesis, the company tries to answer three questions as part of its quality assessment step:

• "Is the company a disruptor or is it insulated from disruptive change? 
• Does the company demonstrate financial strength with high returns on invested capital, high margins, strong cash conversion, low capital intensity and low leverage? 
• Are there environmental or social externalities not borne by the company, or governance and accounting risks that may alter the investment thesis?"

Connetic Ventures

Connetic Adventures is a venture capital firm that invests in early-stage companies. The company uses data to develop its investment thesis, which is made up of three pillars. According to its blog, there were three pillars or principles that contributed to Connetic's venture capital investment strategy. These included diversification, value, and follow-on—each of which comes with a pro and con.

Why Is an Investment Thesis Important?

An investment thesis is a written proposal or research-based analysis of why investors or companies should pursue an investment. In some cases, it may also serve as a historical guide as to whether the investment was a good move or not. Whatever the reason, an investment thesis allows investors to make better, more informed decisions about whether to put their money into a specific investment. This written document provides insight into what the investment is, the goals of the investment, any associated costs, the potential for returns, as well as any possible risks and losses that may result.

Who Should Have an Investment Thesis?

An investment thesis is important for anyone who wants to invest their money. Individual investors can use a thesis to decide whether to purchase stock in a particular company and what strategy they should use, whether it's a buy-and-hold strategy or one where they only have the stock for a short period of time. A company can craft its own investment thesis to help weigh out whether an acquisition or growth strategy is worthwhile.

How Do You Create an Investment Thesis?

It's important to put your investment thesis in writing. Seeing your proposal in print can help you make a better decision. When you're writing your investment thesis, be sure to be clear and concise. Make sure you do your research and include any facts and figures that can help you make your decision. Be sure to include your goals, the potential for upside, and any risks that you may come across. Try to ask and answer some key questions, including whether the investment meets your investment goals and what could go wrong if you go ahead with the deal.

It's always important to have a plan, especially when it comes to investing. After all, you are putting your money at risk. Having an investment thesis can help you make more informed decisions about whether a potential investment is worth your while. Make sure you put your thesis in writing and answer some key questions about your goals, costs, and potential outcomes. Having a concrete proposal in place can spell the difference between earning returns and losing all your money. And that's if your thesis supports the investment in the first place.

Harvard Business School. " Writing a Credible Investment Thesis ."

Lanturn. " What is an Investment Thesis and 3 Tips to Make One ."

Morgan Stanley. " Global Opportunity ."

Medium. " The Data That Built Our Fund's Investment Thesis ."

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French dissertations and theses

There are a number of different resources available for finding French dissertations. 

• Atelier national de Reproduction des thèses Also known as tne National Center for the Reproduction of PhD theses
• SUDOC Le catalogue du Système Universitaire de Documentation
• Thèses en ligne (TEL): serveur de thèses multidisciplinaire Although multidisciplinary the majority of theses are in scientific disciplines.
• thèses.fr This research tool is maintained by ABES (Agence bibliographique de l'enseignement supérieur) and records titles of theses in preparation in French universities and higher education institutions

Belgian dissertations and theses

• Répertoire commun des thèses électroniques des universités de la Communauté Française de Belgique Portal to access French-language theses through relevant University repositories

General resources for dissertations and theses

• ProQuest Dissertations and Theses Global The world's most comprehensive collection of full-text dissertations and theses. As the official digital dissertations archive for the Library of Congress and as the database of record for graduate research, PQDTGlobal includes millions of searchable citations to dissertations and theses from 1861 to the present day together with over a million full-text dissertations that are available for download in PDF format. Over 2.1 million titles are available for purchase as printed copies. The database offers full text for most of the dissertations added since 1997 and strong retrospective full-text coverage for older graduate works. It also includes content from PQDT UK & Ireland (aka Index to Theses).
• Networked Digital Library of Theses and Dissertations (NDLTD) an international organization dedicated to promoting the adoption, creation, use, dissemination and preservation of electronic analogues to the traditional paper-based theses and dissertations.
• DART-Europe E-theses Portal DART-Europe is a partnership of research libraries and library consortia who are working together to improve global access to European research theses.
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Investment Thesis: What It Is, How To Write One & Examples

An investment thesis formulates the characteristics and criteria that define a potentially profitable investment. It outlines the reasons behind the investment decision, including various criteria, financial outcomes, and strategies to manage risks. Essentially, it serves as a detailed plan for investors.  

What is an Investment Thesis?

An investment thesis serves as a strategic blueprint for investors, guiding their decisions and actions by providing the rationale behind their investment choices. Typically crafted by financial analysts, portfolio managers, or investment professionals, the process begins with a thorough assessment of market potential. This involves scrutinizing trends, growth forecasts, and demand dynamics to identify opportunities. The investment thesis validates the significance of these opportunities by highlighting unmet needs or areas of dissatisfaction within the market.

Furthermore, it quantifies potential gains through meticulous financial scrutiny, including revenue forecasts and return on investment assessments. Beyond identifying opportunities, the investment thesis also plays a crucial role in managing risks by employing risk management tactics such as diversification and contingency plans, helping investors navigate market fluctuations and operational hurdles effectively.

Key Takeaways

• An investment thesis defines the criteria for profitable investments, providing a detailed plan and rationale for investors.
• An investment thesis serves as a guiding framework for investment decisions, enhancing comprehension and facilitating well-informed choices.
• Key components of an investment thesis include identifying the investment opportunity, clarifying goals, evaluating viability and risks, and assessing growth potential.

Understanding the Investment Thesis

An investment thesis is akin to a detailed plan for potential investments, often formulated by finance experts. It entails extensive research and analysis to articulate investment ideas effectively. While typically authored by professionals such as venture capitalists or private equity firms, individuals may also develop their own. This document holds significant importance in facilitating well-informed investment decisions, aiding both investors and companies in evaluating opportunities such as stocks or acquisitions.

By elucidating the reasons for investment, the thesis serves as a guiding framework for investors’ decisions. It streamlines decision-making processes, enhances comprehension of underlying rationales, and provides a means for investors to gauge the performance of their investments. Moreover, an investment thesis functions as a roadmap, charting the course toward successful investments.

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How to write an Investment Thesis

Crafting an investment thesis is essential for all investors, whether individuals or professionals. An investment thesis serves as a guide for making choices, explaining the reasoning behind decisions, and providing a framework for assessing investment opportunities. Here is a simple guide with the most important steps for crafting a good investment thesis:

Examples of an Investment Thesis

Portfolio managers and investment companies frequently share their investment strategies on their websites. Here are three examples from prominent investors:

Andreessen Horowitz

Andreessen Horowitz, often referred to as a16z, is a prominent venture capital firm established in 2009 by Marc Andreessen and Ben Horowitz. Active in the private markets, the firm invests in various sectors including AI, healthcare, consumer goods, cryptocurrency, enterprise solutions, fintech, and gaming.

Their investment strategy revolves around observing consumer trends and investing where AI intersects with consumer products. They stress the importance of developing the right AI applications to attract funding, particularly in areas like productivity enhancement and specialized tasks.

In this example, the firm explores how Moore’s Law contrasts with Eroom's Law in healthcare costs. They propose leveraging AI to cut costs and enhance outcomes by gradually integrating it into workflows. Combining AI with life sciences advancements offers transformative opportunities, advocating for a gradual transition to revolutionize healthcare and life sciences. [1]

Goldman Sachs

Goldman Sachs is a global financial powerhouse operating in major financial hubs worldwide, offering services in investment banking, IPO underwriting, securities trading, wealth, and asset management.

The bank’s investment thesis has resulted in a $1 billion investment in companies led by diverse individuals through the “Launch With GS” program aimed at supporting diverse leadership. [2] Goldman Sach collaborates with clients to invest in diverse General Partners across various strategies and offers the Entrepreneur Cohort for growth, reflecting their commitment to diversity and inclusion for achieving strong investment returns and driving industry innovation. [3]

ARK Invest provides  ETFs focused on disruptive innovation like AI and blockchain. The firm remains committed to long-term growth, leveraging innovative strategies and deep research across various sectors, including cryptocurrencies.

The Ark Invest thesis revolves around disruptive innovation, targeting transformative technologies nearing tipping points. They focus on five innovation platforms: AI, Robotics, Energy Storage, DNA Sequencing, and Blockchain. Ark Invest’s approach blends top-down and bottom-up research for early innovation capture and long-term value creation. Emphasizing high-conviction bets, long-term investment, and industry focus, Ark Invest anticipates exponential growth to benefit from technological disruptions. [4]

What should be in an investment thesis?

As an important document, an investment thesis explains why an investment opportunity is expected to be profitable. It should include key components to thoroughly analyze and guide decision-making effectively. These 7 pieces of information are indispensable:

• The Investment in Question: Identify the reason and the investment opportunity under consideration.
• Investment Goal(s): Clarify the investment's aims and aspirations by defining its objectives and goals.
• Viability of the Investment: Evaluate the investment's potential, considering any favorable trends or factors.
• Potential Downsides and Risks: Address and analyze the risks associated with the investment, highlighting any potential challenges or drawbacks.
• Costs and Potential Returns: Evaluate the financial aspects of the investment, including costs, expected returns, and potential losses.
• Alignment with Intended Goals: Ensure that the investment aligns with the overall investment objectives and strategies.
• Growth Potential: Assess the growth prospects of the investment opportunity.

What is the difference between investment thesis and investment mandate?

An investment thesis is the reasoning behind an investment strategy, based on research and analysis, helping investors make informed decisions. Conversely, an investment mandate is a set of instructions given by an investor to a manager, guiding how to manage funds according to the investor’s goals, risk tolerance, and desired outcomes. Here are the key differences:

What is a trade thesis?

A trading thesis is essentially an idea or argument made by a trader or investor about a particular financial instrument, market or asset. This process explains the reasoning behind a trading decision, considering things like market trends, economic indicators, and technical or fundamental analysis. This thesis acts as a plan for understanding the reasons behind a trade and what factors are likely to influence its outcome, aiding in making informed decisions in financial markets. Having a clear trading thesis helps traders and investors clarify their strategy and evaluate the possible risks and rewards of a trade.

Article Source

• Andreessen Horowitz: “ AI at the Intersection: The a16z Investment Thesis on AI in Bio + Health ”
• Goldman Sachs: “ Launch With GS ”
• Goldman Sachs: “ Goldman Sachs Research ”
• Ark Invest: “ Big Ideas 2022 ”  

Investment Thesis

An investment thesis refers to a set of criteria and principles that investors use to guide their decision-making process when evaluating potential investment opportunities. It serves as a framework that helps investors determine whether an investment aligns with their goals and risk tolerance.

1. Why is an investment thesis important?

An investment thesis is important because it provides a structured approach to evaluating investment opportunities. It helps investors make informed decisions based on their objectives, risk appetite, and market conditions.

2. What are the components of an investment thesis?

An investment thesis typically includes the following components:

• Investment goals : Clearly defined objectives that an investor aims to achieve through their investments.
• Risk tolerance : An assessment of the level of risk an investor is willing to take.
• Market analysis : A thorough evaluation of the market conditions, trends, and potential opportunities.
• Industry analysis : An examination of the specific industry or sector in which the investment opportunity exists.
• Company analysis : A detailed assessment of the company's financials, management team, competitive advantage, and growth prospects.
• Exit strategy : A plan for how and when the investor intends to exit the investment.

3. How does an investment thesis help mitigate risks?

By establishing clear criteria and principles, an investment thesis helps investors avoid impulsive or emotionally-driven investment decisions. It ensures that investments are aligned with the investor's goals and risk tolerance, reducing the likelihood of making poor investment choices.

4. Can an investment thesis change over time?

Yes, an investment thesis can evolve over time. As market conditions, industry trends, and an investor's goals change, it may be necessary to adjust the investment thesis accordingly. Regular reviews and updates to the investment thesis help ensure that it remains relevant and effective.

5. Are there different types of investment theses?

Yes, there can be various types of investment theses depending on the investor's strategy and preferences. Some common types include value investing, growth investing, income investing, and socially responsible investing. Each type focuses on different criteria and principles to guide investment decisions.

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• Investment thesis

What is an investment thesis?

Why you need a solid investment thesis, how to write an investment thesis , step one: determine your minimum viable fund size, step two: pinpoint your investment focus, step three: portfolio construction , how to present your fund thesis to lps, investment thesis example.

Breaking into the venture capital ecosystem is both challenging and competitive. Having a great investment thesis is key to running a successful VC fund. Without a clear investment strategy and effective portfolio construction , your fund won’t get very far.

In this article, we’ll cover how you can develop a strong investment thesis.

In private equity and venture capital , an investment thesis (sometimes called a fund thesis or fund strategy) outlines how you plan to use invested capital to generate returns. Your investment thesis clarifies how you’ll make money for the investors in your fund—it’s a definition of what your fund will do. 

Your investment thesis may include:

Your fund size

The number of companies in your portfolio

The stages and industries of those companies

The geographies those companies are located in

The differentiated way your fund will support your portfolio companies

Your average check size

The amount of capital reserved for follow-on investments

The return profile for your fund, based on the size of the stakes you’re trying to take in each company and your estimated success rate

How the fund will set itself apart from similarly sized or focused funds

An investment thesis tells a story by describing how each of these elements work together. 

Your fund’s investment thesis explains how you’ll cooperate with, compete with, and differentiate from other venture funds. An effective fund investment thesis is realistic and sustainable. It aligns with your investment team’s network of professional contacts (which provides access to deals), untapped opportunities in new and existing markets, and your LPs’ investment interests. 

Your fund thesis also supports compliance with the “ venture capital fund ” definition under the Investment Advisers Act of 1940 , which is important if you plan to rely on the related regulatory exemption for private funds. 

Creating your own fund investment thesis involves determining fund size, investment focus, and portfolio construction. 

The size of your fund influences almost every element of your investment strategy: The number of companies in your portfolio, your check size, the amount of reserve capital you have, and the return profile for your fund. Fund size also affects the types of LPs you attract and helps determine your fund’s portfolio management fees, which then dictate the operational expenses you can realistically support. 

Competitive research

To determine your ideal fund size, start by researching funds with goals and benchmarks like yours to see how they’re faring. You may also want to research successful funds across a handful of different industries and sectors to see what works. You can learn more information about funds by subscribing to trade publications, reading press releases from funds when they close, or on social media.

Once you’ve settled on a fund size, the next step is to outline the stage, industry, and location you’ll invest in. Articulating your investment focus helps narrow your aim and convince limited partners (LP) with interests in these sectors and stages to get on board with your strategy. It also makes it easier for founders who meet your parameters to identify your fund as a potential investor—and discourages founders who aren’t a good fit from pitching your firm.

At what point in a company’s life cycle do you want to invest and offer guidance? If you’re interested in being a sounding board for early-stage companies who are just getting started, you might want to invest at the pre-seed , seed , or Series A stages. However, if you prefer to work with companies that already have steady revenue and an established business model, you’ll probably want to focus on a later stage. 

Ultimately, the stage where you can focus your investments will be a function of your fund size and the anticipated number of companies in your portfolio. So keep this top of mind when building out your minimal viable fund size.   

Which sectors are you interested in? Do you plan to target a specific industry—like healthcare, fintech, or real estate—or focus on companies across a handful of different industries? 

Where are the companies you’ll be investing in? What particular challenges and assets do they have because of where they operate? You may choose to invest in local companies if you already have a deep network of contacts nearby. On the other hand, if you’re open to traveling, or want to capitalize on emerging, international, or underserved markets, you may want to expand your reach. This may also apply if your fund’s investment thesis is based on industry, for example, so you may be agnostic to geography. 

Other considerations

Depending on your investment goals, you might have other criteria to look at, like a company’s social impact, environmental influence, or commitment to diversity, equity, and inclusion. 

A thoughtful portfolio is critical to running a successful fund and shaping your overall investment thesis. Your strategy for portfolio construction signals to LPs how you plan to allocate their capital across investments. Your fund’s investment portfolio is essentially the roadmap for the life of the fund. It spells out the number of companies you’ll invest in, the amount of capital you’ll pour into each company, your target ownership for each company, how much you’ll set aside for initial investments, and how much you’ll reserve for follow-on investments.

Portfolio construction is made up of the following elements: 

Investment focus

Diversification: Types of companies you’ll invest in and what percent of the fund will be for non-qualifying investments or investments outside the thesis

Check size: The amount you’ll invest in each company

Investment horizon: How long you have to allocate the capital and how long you’ll hold each investment

Expected returns: How much you expect to return on the capital invested

Investor requirements: Maximum or minimum contributions

A good rule of practice is to ensure that your investments align with your portfolio construction model before making each investment decision, and then actively thereafter. Set aside time to regularly evaluate whether your investments align with your model, and where to course-correct. If your investments deviate from your original thesis, you’ll need to adjust your model or reset your focus. This is particularly important to track if you include a specific investment thesis in your fund’s legal documents.

Learn more about how to create a portfolio construction strategy

Most VCs prepare versions of their fund thesis that go into different levels of detail, ranging from a one-sentence elevator pitch, like the example below, to a full pitch deck.

You should be able to sum up your fund strategy in one or two straightforward sentences. Here’s an example investment thesis from a hypothetical venture fund:

“Krakatoa Ventures is raising a $25 million seed fund to back U.S.-based startups focused on climate technology and earth sciences. The fund will capitalize a highly specialized network of climate scientists the general partners developed during their two decades of academic study in volcanology and climatology.”

→Ready to make a full pitch deck for LPs? Prepare for your next meeting with investors using our free pitch deck template and example pitch decks .

This example highlights a key aspect of a great fund strategy: It shouldn’t be a thesis that just anybody can go out and execute. Your edge, such as your personal experience and network, are integral parts of the plan. Articulate why you’re better positioned than anyone else to execute your investment thesis.

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Top 10 Investment Thesis Templates with Examples and Samples

Angeline Babu

Rose Wilson, a passionate entrepreneur, is keen to present her innovative Robotics Company to potential investors. She and her enthusiastic team hope to secure funding for their groundbreaking technology that uses AI and automation to increase recycling and recover recycled products for raw materials. At the end of the presentation, the investors liked the concept but needed to figure out the product's future. They needed to see concrete data, but Rose did not have any, as this was a reasonably new invention, and the team needed more financial records or past results to showcase before them. Rose tried to convince the case, but the investors insisted on seeing numbers.

The question is:

Did Rose secure her funding?  And was she right in asking for investment without accurate data?

The obvious answer is no; she did not secure funding because she needed accurate statistics to prove to investors that her company has the market stability to be profitable.

So, what are the future steps Rose should consider exploring? Develop an Investment Thesis! 

It is the ideal way forward for Rose as it helps to determine the potential for profit using a set of criteria and principles. An investment thesis is a written document recommending a new investment based on research and analysis of its profit potential. This thesis can be used as a strategic decision-making tool.

This blog focuses on the Top 10 Investment Thesis Templates. Utilize our templates to showcase accurate data and connect with your investors. Our slides are ideal for portraying a convincing narrative to potential investors that helps secure the funding for your dream project.

If you want more information on investment proposals, please read our blog, " Top 10 Investment Proposal Templates."

Let us explore the templates!

Template 1 - Business Investment Thesis and Guidelines Model

A business investment thesis provides definitive reasons to follow a particular investment strategy supported by research and analysis. Businesses and investors need this insight actually to commit to an investment. Our slide is an ideal representation of a well-analyzed business investment thesis. Financial professionals, business analysts, etc., who are keen to secure a potential investment will find it comprehensive as it helps incorporate relevant data such as funding sources, various sources, grants, nonprofits, government," etc. Download our templates now and use them to secure the venture capital for your dream project!

Download Today

Template 2 - Investment Thesis and Strategic Rationale Framework

An investment thesis is a strategy for accurate decision-making. Investors require vital statistics before buying stocks or taking over a company. Further, it can be utilized to analyze a prior course of action and understand the need to take the right one. This template captures the investment thesis and strategic rationale framework by detailing industry favorability, growth opportunities, and favorable retune opportunities. Using our slides, you can offer an in-depth introduction to a project, investment analysis, valuation, and implementation methods. Download our slides and present a well-documented presentation of your project's investment thesis. 

Template 3 - Key Investment Thesis Showing 6 factors

Investors require crucial data backed by research to make timely and accurate financial decisions to achieve profitability. An investment thesis provides them with relevant information to decide before an essential financial investment. Our slide presents the Key Investment Thesis by showcasing the six factors to consider before investing. It outlines the monetary value, operational trends, strategic aspects, human resources, infrastructure, and internal/external factors. Download our slides to highlight positive reasons for investment and grab the opportunity to fulfill your goal as a successful entrepreneur.

Template 4 - Business Investment Thesis 4 boxes Model Showing Return Opportunities

Seeking funding from an investor is challenging. However, if you highlight the potential growth benefits and subsequent return on investment, you have sealed the deal. Most investors would look for statistics on the performance of similar industries, the growth strategy, and the business model you follow. Our slides focus on the "4 boxes" model showing return opportunities. It clarifies the industry's favourability, growth opportunities, return opportunities, and the result. Download our slides to present data-based financial projections to your potential investors, giving them good reasons to invest in your company!

Template 5 - Investment Thesis Industry Tailwinds Framework

Industry tailwinds in investment analysis are specific factors or events responsible for profits and revenue growth. In business, quite a few factors can lead to tailwinds. Consumer response to new policy, changing regulatory framework, or consumer demand are some tailwinds supporting investment possibilities. The tailwinds to check for an IPO would be industry trends, government regulations, and market volatility. Our slide overviews share price appreciation by considering Industry Tailwinds, Shareholder-Friendly Management, and Attractive Valuation. Download our slide to portray an attractive representation of the industry tailwinds framework to help you understand and decide the best time to invest!

Template 6 - Investment Thesis Valuation PPT PowerPoint Presentation Show Topics

When investors decide to invest in a particular fund or a business venture, they first and foremost observe the market conditions. They must be favorable as it is vital to the profitability of the investment. The factors that help develop a strong investment thesis are market research, industry trends, and challenges. It also considers the gaps, problems, and solutions. Our slide depicts the market conditions, the desirable portfolio at an attractive valuation, etc. Using the data, your investors can arrive at a positive conclusion, giving them a prize-winning investment opportunity.

Template 7 - Investment Thesis Business PPT PowerPoint Presentation Slides Icons

An investment thesis is highly dependent on the type of investment and the nature of the investment. Therefore, investors would look for an in-depth analysis to acquire a rival company, but for that of an individual investor, the investment thesis will have a less complicated overview. Ultimately, investors look for strategic data, such as if the investment is directly aligned with an intended goal or could have negative results. Our slide offers a "consensus view" and the 'our view" in a well-defined manner. It lists the negative impacts of the investment and suggestions that can help overcome them. Download our slides today to communicate a clear investment strategy perspective to your potential stakeholders.

Template 8 - Investment Thesis 5 Improvement in Margin High PPT PowerPoint Presentation Model Graphics

While tracking the improvement in Margin in a business, Data Analysts consider the profit margin, pricing strategies, and ways to reduce costs. These factors are crucial to the profitable projects the company can focus on and determine the best prices to increase profit margin. Furthermore, a reduction in operational costs increases profits. Our slide offers "key highlights" that show the driving factors that help improve an industry's profit margin. Use our attractive pre-designed slide to communicate vital statistics to prospective clients, providing essential strategies to maximize return on investment.

Template 9 - Investment Thesis Market Research Company Profile CP SS V

No investor is likely to invest in a company that does not have a vision, principles, or profitability factor. Therefore, business owners looking for investment must provide potential investors with an accurate market analysis reflecting product growth and stability. Our slide uses the Neilson Investment Thesis approach that helps provide strategic insights into consumer behavior and market sentiment. It highlights four crucial factors: "Recurring Revenue Model," "Driving Profitable Growth," "Disciplined Capital Expenditures," "Strong Cash Flow," and "Greater Capital Flexibility." Download our slides today to highlight consumer trends and market behavior accurately.

Template 10 - Investment Thesis Showcasing Key Growth Drivers

Identification of key growth drivers is crucial to a business's performance. These drivers can be internal or external, qualitative or quantitative. Market analysts look for customer behavior patterns, competition, and market trends. Our slide offers an attractive representation of "Key Growth Drivers" and "Positioning." Assess performance and set measurable targets using the data. Further, you can track and set achievable benchmarks that help to achieve profitability and growth. Download our slides today to showcase key growth drivers to potential investors and win them over with accurate statistics!

An investment thesis is a research-backed analysis that helps to understand the reasons for choosing an investment strategy. It offers several factors to identify potential business opportunities. Further, it aids in the decision-making process and provides a framework for monitoring and assessment. Our templates are ideal for analyzing critical parameters to evaluate investment and understand market dynamics. It also assists in highlighting the emerging trends and opportunities that help make accurate investment decisions. Download our slides today to offer potential investors and stakeholders a well-structured investment thesis that includes in-depth market research and valuation metrics. 

P.S. To know more about Equity Investment, read the  Top 5 Equity Investment Templates blog.

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What We Know About Kamala Harris’s $5 Trillion Tax Plan So Far

The vice president supports the tax increases proposed by the Biden White House, according to her campaign.

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By Andrew Duehren

Reporting from Washington

In a campaign otherwise light on policy specifics, Vice President Kamala Harris this week quietly rolled out her most detailed, far-ranging proposal yet: nearly $5 trillion in tax increases over a decade.

That’s how much more revenue the federal government would raise if it adopted a number of tax increases that President Biden proposed in the spring . Ms. Harris’s campaign said this week that she supported those tax hikes, which were thoroughly laid out in the most recent federal budget plan prepared by the Biden administration.

No one making less than $400,000 a year would see their taxes go up under the plan. Instead, Ms. Harris is seeking to significantly raise taxes on the wealthiest Americans and large corporations. Congress has previously rejected many of these tax ideas, even when Democrats controlled both chambers.

While tax policy is right now a subplot in a turbulent presidential campaign, it will be a primary policy issue in Washington next year. The next president will have to work with Congress to address the tax cuts Donald J. Trump signed into law in 2017. Many of those tax cuts expire after 2025, meaning millions of Americans will see their taxes go up if lawmakers don’t reach a deal next year.

Here’s an overview of what we now know — and still don’t know — about the Democratic nominee’s views on taxes.

Higher taxes on corporations

The most recent White House budget includes several proposals that would raise taxes on large corporations . Chief among them is raising the corporate tax rate to 28 percent from 21 percent, a step that the Treasury Department estimated could bring in $1.3 trillion in revenue over the next 10 years.

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Investment Thesis: An Argument in Support of Investing Decisions

October 29, 2023 by Abi Tyas Tunggal

An investment thesis is a well-reasoned argument that supports a specific investment decision, playing a vital role in the strategic planning process for individual investors and businesses alike. It comprises detailed research and analysis to evaluate an investment's potential profitability. A good investment thesis serves multiple purposes, including helping in the decision-making process, providing a comprehensive framework for monitoring and assessment, and offering a structured approach to identifying potential opportunities.

There are different types of investment strategies, such as venture capital , private equity, and long-term value investments. The core of an investment thesis involves identifying key parameters for evaluating an investment, understanding the unique market dynamics and competitive landscape, and realizing how to create value through strategic planning. To ensure a comprehensive and detailed investment thesis, it is crucial to involve thorough research, considering emerging trends and opportunities, and incorporating industry case studies for better understanding. Ultimately, financial statements and valuation metrics play a significant role in determining a well-suited investment decision.

Key Takeaways

• An investment thesis is a well-reasoned, research-based argument supporting a specific investment decision
• There are several types of investment strategies, and a well-structured investment thesis addresses market dynamics and competition to create value
• Research, valuation metrics, and understanding emerging trends are crucial in crafting a compelling investment ideas

Defining an Investment Thesis

An investment thesis is a well-structured, logical argument that justifies a particular investment decision, based on thorough research and analysis. It is essential for investors, as well as financial professionals in the domains of investment banking, private equity, hedge funds, and venture capital funds . A confident and knowledgeable investor will build out clear investment criteria to successfully navigate the investment landscape.

The primary purpose of an investment thesis is to outline the reasons and expected outcomes of a proposed investment, often focusing on the potential for growth and profit. This document offers a roadmap for investors, guiding them through their decision-making process, and helping to ensure that they arrive at rational and informed conclusions. A comprehensive investment thesis should consider various aspects, such as market conditions, competitive landscape, and financial performance of the targeted asset or company.

A strong investment thesis is built on rigorous market research and analysis. This involves evaluating historical and current financial information, as well as scrutinizing industry trends and the overall economic environment. Skilled investors will also incorporate their expertise in the industry to better assess the merits of an investment opportunity. This level of thoroughness creates a confidently expressed thesis, allowing investors to remain steadfast in their investment decisions, even amid market volatility.

In summary, an investment thesis plays a pivotal role in the investing process. It presents a well-reasoned argument, grounded in extensive research and clear analysis, that supports an investment decision. Crafting a robust investment thesis is crucial for both individual and institutional investors as it provides a solid foundation for investment choices and ensures the alignment of investment strategies with long-term objectives.

Importance of Research in Crafting an Investment Thesis

Thorough research is a crucial aspect of creating a solid investment thesis. It allows investors to gather vital information and insights that will help guide their investment decisions. There are several elements to consider while conducting this research, with data analysis, understanding risks, and returns being essential components.

Data Analysis

Data analysis forms the backbone of any research conducted for crafting an investment thesis. It involves collecting, organizing, and interpreting various types of data, such as financial statements, market trends, and industry forecasts, to identify patterns and make informed predictions about a potential investment opportunity. A comprehensive data analysis can help investors make confident choices based on reliable information, which is essential for a successful investment strategy.

Some key data analysis techniques used in crafting an investment thesis include:

• Comparative analysis: Comparing the performance of different companies within the same industry to identify investment opportunities.
• Trend analysis: Monitoring historical data to determine patterns and potential future developments.
• Financial statement analysis: Examining the financial health of a company through its balance sheets, income statements, and cash flow statements.

Understanding Risks and Returns

One of the primary goals of research in developing an investment thesis is to assess the risk/reward profile of a potential investment. This involves evaluating the potential risks associated with the investment and weighing them against the expected returns. A sound investment thesis should demonstrate a clear understanding of these risks and offer a rationale for why the investment’s potential returns make it a worthwhile addition to a portfolio.

Some common risks to consider when crafting an investment thesis include:

• Market risk: The risk of an investment losing value due to fluctuations in the market.
• Credit risk: The risk that a company or issuer of a financial instrument may default on its obligations.
• Operational risk: The risk of losses arising from failed internal processes, systems, or personnel within a business.

Evaluating these risks requires investors to develop a deep understanding of the investment opportunity, its industry, and the factors that may impact its performance. A diligent and systematic approach to research can help investors identify potential risks and gains, leading to informed and confident decision-making in crafting a strong investment thesis.

Types of Investment Strategy

When it comes to crafting an investment thesis, selecting an appropriate investment strategy is crucial. In this section, we will discuss two popular strategies: Value Investing and Growth Investing.

Value Investing

Value investing is a strategy that focuses on identifying undervalued stocks or assets in the market. These investments typically have lower valuations, which are reflected in their price-to-earnings ratios or book values. The central idea behind value investing is that the market may sometimes undervalue a company or asset, presenting an opportunity for investors willing to do thorough research and analysis.

The process of value investing involves:

• Fundamental analysis : Evaluating a company's financial health, management, and competitive advantages
• Value metrics : Identifying various valuation metrics, such as price-to-earnings, price-to-book, and dividend yield
• Margin of safety : Discovering investment opportunities with a built-in cushion to reduce the risk of loss

Famous investors, such as Warren Buffett and Benjamin Graham, have implemented value investing strategies to achieve long-term success.

Growth Investing

On the other hand, growth investing centers on companies that are expected to grow at an above-average rate compared to their industry. Growth investors seek opportunities in businesses they believe will offer substantial capital appreciation through rapid expansion or market-share gains. They prioritize the potential for future profit over the stock's valuation.

Features of growth investing include:

• High expectations : Companies targeted by growth investors typically have a history of robust revenue and profit growth
• Momentum : Investors seek stocks with upward price momentum, as increasing demand for these stocks may drive prices even higher
• Risk tolerance : Growth stocks can be volatile, and investors must be prepared to weather price swings

Renowned growth investors like Peter Lynch and Phil Fisher have demonstrated the effectiveness of growth investing throughout their careers.

Both value and growth investing strategies have their unique advantages and require different levels of risk tolerance. Investors should carefully consider their investment thesis and select a strategy that aligns with their objectives and risk appetite.

Venture Capital and Private Equity Investment Theses

When considering investments in private companies, venture capital (VC) and private equity (PE) firms each have their own unique strategies encapsulated within their respective investment theses. These theses provide guidance on the focus of investments, the sectors or geographies of interest, and the stage of the target companies.

Learn more about the differences between private equity and venture capital .

Venture Capital Investment Thesis

A venture capital investment thesis outlines how a VC fund aims to make money for its investors, typically referred to as Limited Partners (LPs). This strategy identifies crucial factors such as the stage of companies the fund will invest in, commonly early-stage companies, the targeted geography, and specific sectors of focus.

The thesis may vary depending on a venture capitalist's unique specialization, with some firms concentrating on a specific vertical and stage, while others invest more broadly without a core thesis driving their decisions. The underlying objective of a VC investment thesis is to outline how the firm will achieve high returns on investment by supporting and nurturing the growth of portfolio companies.

Private Equity Investment Thesis

In contrast, a private equity investment thesis is an evidence-based case in support of a particular investment opportunity. It usually begins with a concise argument illustrating how the potential deal supports the fund's general investment strategy. The thesis then provides details that substantiate this preliminary conclusion.

Private equity firms often target more established companies compared to venture capital firms, focusing on businesses with a proven track record. The PE investment thesis may identify areas where operational improvements, strategic mergers, or better capital structures could enhance value, ultimately generating a good return for the firm and its investors.

Overall, both venture capital and private equity investment theses serve as critical frameworks guiding investment decisions. They not only help align these decisions with a firm's specialized strategy but also provide a basis for evaluating potential deals to ensure they contribute to the firm's goals and long-term value creation.

Key Parameters for Evaluating an Investment

When assessing the viability of an investment, it is essential to examine various key parameters to make informed decisions. By analyzing these factors, investors can gain a deeper understanding of a company's financial health and its potential for growth.

One vital metric to consider is earnings per share (EPS) , which represents the portion of a company's profit attributed to each outstanding share of its common stock. A higher EPS indicates higher earnings and suggests that the company may be a lucrative investment opportunity.

Another fundamental metric is the return on assets (ROA) , which measures the effectiveness of a company in using its assets to generate profit. The higher the ROA, the better the company is at utilizing its assets to generate earnings. Similarly, return on equity (ROE) is a measure of financial performance that calculates the proportion of net income generated by a company's equity. A higher ROE demonstrates the efficient usage of shareholders' investments.

Conducting a thorough analysis of the company's financial statements is crucial. This includes reviewing income statements, balance sheets, and cash flow statements. By doing so, investors can gain insights into the company's profitability, liquidity, and solvency.

Another important factor to consider is a company's cash position. Adequate cash reserves enable a company to meet its short-term obligations and invest in growth opportunities. On the other hand, a lack of cash can leave a company vulnerable to market fluctuations and financial stress.

It is also essential to evaluate a company's capital structure, which refers to the proportion of debt and equity financing it uses to fund its operations. A balanced capital structure ensures financial stability, while excessive debt may lead to financial distress.

Examining a company's debt level is crucial, as it can directly impact the company's financial flexibility and risk profile. A high level of debt can hinder a company's ability to grow and adapt to changes in the market, making it a less attractive investment option.

Assessing a company's assets and how they're managed plays a significant role in evaluating an investment opportunity. This includes tangible assets, such as property and equipment, and intangible assets, such as patents and trademarks. Effective asset management contributes to a company's ability to generate profit.

Finally, it is important to scrutinize a company's costs associated with its operations, such as production costs and overhead expenses. A company that efficiently manages its costs will likely generate higher profitability and provide better returns for investors.

Creating Value through Strategic Planning

Strategic planning plays a crucial role in creating value for investors and businesses. It serves as the foundation for effective decision-making and guides companies towards achieving their goals. Through strategic planning, management teams can identify and focus on core competencies that contribute to a company's competitive advantage.

One way to create value is to prioritize revenue growth. By identifying key growth drivers, such as product innovation or market expansion, companies can allocate resources accordingly to boost earnings. Such targeted investments in growth engines allow firms to capture a larger market share and drive long-term profitability.

Another aspect of strategic planning involves optimizing a company's holdings. By assessing the existing portfolio, management can decide whether to divest underperforming assets or make strategic acquisitions that align with their investment thesis. The right combinations and adjustments can significantly enhance a company's overall performance and shareholder value.

Risk management is also an essential aspect of strategic planning. Companies must assess potential risks and incorporate suitable mitigation measures in their plans. This ensures that organizations are prepared for unforeseen circumstances, which can safeguard profits and protect the company's assets.

Furthermore, creating value requires continuous improvement and adaptation to market trends. Companies should routinely reevaluate their strategies to identify both internal and external factors that may impact their current position. By setting clearly defined objectives and quantifiable financial targets, management teams can measure their progress effectively and adjust their strategic plans as needed.

In summary , creating value through strategic planning involves a combination of focusing on core competencies, prioritizing revenue growth, optimizing holdings, managing risk, and continuously reassessing the company's strategic direction. This holistic approach can help businesses enhance their profitability, strengthen their market position, and ultimately deliver strong value creation to investors.

Understanding the Market and Competition

Before developing an investment thesis, it is crucial to have a deep understanding of the market and its competition. The stock market is influenced by various factors such as economic supercycles, bear markets, and secular trends. Analyzing these elements will provide a solid foundation to recognize potential investment opportunities.

An economic supercycle is a long-term pattern that occurs over several decades, during which the economy undergoes periods of growth and contraction. Investors need to be aware of the current phase and how it may impact their investment decisions. For instance, during a growth period, certain industries tend to outperform, while others may underperform during a contraction phase.

In addition to analyzing these market conditions, investors must also pay heed to the competitive landscape of the sector in which they plan to invest. Examining the competitors within the industry enables one to identify companies with competitive advantages, which may lead to superior performance. These advantages can stem from factors such as lower costs, innovation, or a dominant market share.

A bear market occurs when the stock market experiences a prolonged decline, typically characterized by a decrease of 20% or more from recent highs. In such environments, it becomes even more crucial for investors to understand the competitive dynamics within an industry to identify resilient companies that can withstand market downturns.

A secular trend is a long-term movement in a particular direction that can last for several years or even decades. Identifying secular trends within industries is essential to spotting opportunities for long-term growth. For example, investors may capitalize on sectors benefiting from a shift towards clean energy usage or the increasing importance of artificial intelligence.

In summary, understanding the market and competition requires a deep analysis of the stock market, economic supercycles, bear markets, and secular trends. By researching industry trends, evaluating market opportunities, and assessing the strengths and weaknesses of competitors, investors can develop a robust investment thesis that increases the likelihood of achieving long-term returns.

Industry Case Studies

In the investment world, the importance of an investment thesis cannot be overstated. By examining various industry case studies, we can gain insight into how businesses make strategic investments to enhance their value. In this section, we'll discuss notable examples from companies such as DuPont, General Motors, Rexam PLC, and Clear Channel Communications.

DuPont is a leading science and innovation company with a focus on agriculture, advanced materials, and industrial biosciences. During its acquisition of Dow Chemical, DuPont developed a robust investment thesis to justify the merger. Their investment case relied on the belief that the combined entity would benefit from increased operational efficiencies, new market opportunities, and enhanced innovation capabilities. This approach provided a strong rationale for the deal, which has created a more competitive company in the global market.

General Motors (GM) , a multinational automobile manufacturer, crafted its investment thesis in response to evolving trends in the automotive industry, such as the increasing importance of emissions reduction, electrification, and autonomous technology. GM's investment case centered on embracing these trends, focusing on innovation, and expanding its product offerings through strategic M&A, investments, and partnerships. For example, GM has made significant investments in electric vehicles and autonomous driving technology, positioning the company for future growth in these areas.

Next, we have Rexam PLC , a former British packaging manufacturer that was a leading producer of beverage cans globally. When Ball Corporation sought to acquire Rexam, they developed an investment thesis based on the value derived from combining the two companies' strengths. This thesis outlined the strategic fit between both companies, synergies from combining production capabilities, and projected growth, particularly in developing markets. The successful acquisition helped Ball Corporation consolidate its position as a global leader in the packaging industry.

Lastly, Clear Channel Communications is a media company specializing in outdoor advertising. As the company sought to expand its presence in this sector, it created an investment thesis centered around leveraging its core competence in outdoor advertising and acquiring strategic assets. One example is Clear Channel's acquisition of crucial billboard locations to solidify its competitive edge in the outdoor advertising market. This targeted growth strategy has allowed Clear Channel to remain a dominant player in the industry.

In conclusion, these industry case studies demonstrate the value of a well-crafted investment thesis. Effective investment theses provide a roadmap for companies to pursue strategic acquisitions and investments that create long-term value, while also helping investors evaluate the viability of proposed deals. By understanding how companies like DuPont, General Motors, Rexam PLC, and Clear Channel Communications have strategically invested in the market, we can better appreciate the importance of a well-structured investment thesis.

Long-Term Investment Strategies

A long-term investment strategy refers to an approach where investors hold onto their investments for an extended period, typically more than one year. This type of strategy aims to achieve the investment goal by allowing assets to grow through market fluctuations and capitalizing on the power of compounding interest. Diversification and patience play pivotal roles in ensuring the success of a long-term investment strategy.

Portfolio managers often use various techniques and methods to craft long-term investment portfolios. Some of these techniques include targeting undervalued sectors or stocks, dividend reinvestment plans, dollar-cost averaging, and asset allocation. By employing these strategies, portfolio managers increase chances of achieving their clients' investment goals over time.

In order to develop long-term investment strategies, investors should first define their investment goal . This could include objectives such as saving for retirement, funding a child's college education, or purchasing a home. Clear investment goals help in designing an appropriate investment strategy, taking into account factors like the investor's risk tolerance, time horizon, and available capital.

One key aspect of a successful long-term strategy is diversification . Diversifying across asset classes and industries allows investors to spread risks and potentially achieve higher risk-adjusted returns. A well-diversified portfolio will typically consist of a mix of stocks, bonds, and other asset types, with variations in investment size, industry sector, and geographical location. This diversified approach minimizes the impact of underperforming investments on the overall portfolio.

Another crucial element in long-term investing is patience . Market fluctuations can be tempting for investors to react to their emotions and make impulsive decisions, which could derail a well-thought-out investment strategy. Maintaining a disciplined approach and sticking to one's investment plan, even during periods of market volatility, is paramount to achieving long-term success.

In conclusion, long-term investment strategies require investors to define clear goals, diversify their portfolio, and exercise patience in the face of market fluctuations. By adhering to these principles, investors and portfolio managers can steer a course towards achieving their investment objectives.

Emerging Trends and Opportunities

In recent years, various emerging trends have presented attractive opportunities for investors. Among these trends, renewable energy, megatrends, and the coffee shop market stand out as sectors with significant potential for growth.

Renewable energy has gained considerable attention and investment as a response to the global push for addressing climate change and reducing emissions. Solar, wind, and hydroelectric power are some of the most prominent technologies in this sector. With an increased interest in clean energy from both governments and consumers, companies in this space are poised to experience substantial growth.

Megatrends such as urbanization, aging populations, and technological advancements are also influencing investment opportunities. These large-scale shifts provide a backdrop for businesses to tap into new markets and adjust their strategies to capitalize on these changes. For instance, companies working in healthcare and biotechnology may benefit from catering to the needs of an aging population, while businesses focused on artificial intelligence (AI) and automation may find increased demand due to technological advancements.

The coffee shop market, too, presents investment opportunities. This industry has experienced robust growth in recent years as consumers increasingly seek out unique, high-quality coffee experiences. Independent and specialty coffee shops are at the forefront of this trend. Niche coffee shops that offer novel and authentic experiences have seen success by catering to the specialized preferences of today's consumers. As the demand for artisanal and premium beverages continues to rise, businesses operating in this space can expect to have ample opportunities for growth.

In conclusion, current emerging trends such as renewable energy, megatrends, and the coffee shop market offer a wealth of investment opportunities. As these sectors continue to develop and evolve, investors with well-informed investment theses stand to benefit from the potential rewards in these growing industries.

Role of Financial Statements and Valuation Metrics

Financial statements play a vital role in the investment thesis by providing crucial information about a company's financial health and performance. They consist of the balance sheet, income statement, and cash flow statement, which offer insights into the company's assets, liabilities, revenues, expenses, and cash flows. Investors use these statements to assess the company's past performance, current financial condition, and potential for future growth.

Valuation metrics, on the other hand, are vital yardsticks that investors use to compare different investment opportunities and make informed decisions. These metrics include price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, price-to-book (P/B) ratio, dividend yield, and return on equity (ROE), among others. By analyzing these ratios, investors can gauge a company's value relative to its peers and make better investment choices.

Analysts and investors scrutinize financial statements to identify growth trends, profitability, and financial stability. For instance, they may calculate the gross margin, operating margin, and net profit margin to determine the company's profitability across different stages of its operations. Additionally, they examine liquidity ratios, such as the current ratio and quick ratio, to assess the company's ability to meet its short-term obligations.

Valuation metrics provide a quantitative basis for comparing investment opportunities within the same industry or across different sectors. For example, a lower P/E ratio may indicate that a stock is undervalued, while a high P/E ratio might suggest overvaluation. Moreover, the P/B ratio can help investors determine if a stock is undervalued by comparing its market price to its book value.

Another key valuation metric is the dividend yield, which measures the annual dividend income per share relative to the stock's price. A higher dividend yield may attract income-oriented investors, while a lower yield might be more appealing to growth-focused investors. Furthermore, the ROE ratio, which measures a company's profitability in relation to its equity base, is an essential metric for evaluating the efficiency of management in creating shareholder value.

In conclusion, financial statements and valuation metrics are indispensable tools for investors to evaluate a company's financial health and investment attractiveness. By analyzing these data points, investors can make well-informed investment decisions that align with their risk tolerance and investment objectives.

Concluding Thoughts on Crafting a Compelling Investment Thesis

Crafting a compelling investment thesis is crucial for informed investing decisions, as it helps investors thoroughly analyze a potential opportunity. A well-researched investment thesis demonstrates the investor's conviction level and reinforces their confidence in the investment choice. This process involves a deep understanding of the business, its value drivers, and its potential growth trajectories.

A strong investment thesis should be definitive, clearly articulating the reasoning behind the opportunity and the expected returns. This allows investors to stay focused on their goals and maintain their conviction, even when the stock's price movement does not align with their expectations.

By adopting a confident, knowledgeable, and neutral tone, investors can effectively communicate their investment thesis to others. Clarity in presenting the investment case is essential for persuading potential partners or stakeholders to support the opportunity. Utilizing formatting tools such as tables and bullet points can aid in conveying essential information efficiently and ensuring the investment thesis is easy to understand.

In summary, crafting a compelling investment thesis enables investors to make well-informed decisions that align with their financial goals. By developing a thorough understanding of the investment opportunity and maintaining a strong conviction level, investors can better navigate the market and achieve long-term success.

Frequently Asked Questions

How do you develop a strong investment thesis.

A strong investment thesis begins with thorough research on the company or asset in question. This may include looking at the financials, competitive position, management team, industry trends, and future prospects. It's essential to critically analyze the available information, identify potential risks and rewards, and establish a clear rationale for the investment based on this analysis. Staying focused on the long-term outlook and maintaining a disciplined approach to the investment process can also contribute to developing a robust investment thesis.

What are the key elements to include in an investment thesis?

An investment thesis should include the following key elements:

• Overview of the company or asset: Provide a brief background of the company or asset, including its market, size, and competitive positioning.
• Investment rationale: Detail the reasons for investing, such as attractive valuation, strong revenue growth, or a unique business model.
• Risk assessment: Identify potential risks and how they could impact the investment returns.
• Expected return: Estimate the potential financial return based on the identified growth drivers or catalysts.
• Time horizon: Indicate the investment period, typically long-term, during which the thesis is expected to play out.
• Fund size: Specify the amount of invested capital that will be allocated to this particular investment, considering its impact on portfolio construction, liquidity, and potential returns within the overall portfolio strategy

How can one evaluate the success of an investment thesis?

Evaluating the success of an investment thesis involves tracking the progress of the company or asset against its initial expectations and underlying assumptions. This may involve measuring financial performance, analyzing key developments in the industry and the company's position within it, and monitoring potential changes in overall market conditions. It is helpful to revisit the investment thesis regularly to assess its validity and make adjustments as necessary.

What's the difference between an investment thesis for startups and publicly traded companies?

An investment thesis for a startup often focuses on the growth potential of a new or emerging market, considering the innovative products or services the startup offers in that market. Here, the focus may be more on the potential for long-term value creation, the management team's ability to execute on their vision, and market fit.

For publicly traded companies, the investment thesis may include analysis of current financial performance, valuation multiples, and overall market trends. Publicly traded companies have more historical data and financial performance information available, allowing investors to make more informed decisions based on these factors.

How does an investment thesis guide decision-making in private equity?

In private equity, the investment thesis helps guide the selection of companies to invest in, as well as the structuring of deals to acquire those companies. It provides a blueprint for how the private equity firm aims to create value, including plans for operational improvements, financial engineering, or growth strategies. This thesis serves as a basis for monitoring the progress of an investment and helps make decisions on the timing of potential exits.

How can real estate investment theses differ from other sectors?

Real estate investment theses may focus on factors such as location, property type, market dynamics, and demographic trends to identify attractive investment opportunities. The analysis may also take into account macroeconomic factors, such as interest rates and economic growth, which can influence real estate markets. Additionally, real estate investments may be structured as either direct property investments or through financial instruments like Real Estate Investment Trusts (REITs), affecting the underlying investment thesis.

What considerations should a first-time fund manager have when developing a fund's investment thesis?

For a first-time fund manager, crafting a compelling and robust fund's investment thesis is paramount for attracting investors. Given their lack of a track record, these managers need to lean heavily on the research, clarity, and vision articulated in their investment thesis. The thesis should detail how the fund aims to identify ideal investments, especially those in industries with high margins. It should also benchmark the strategies against industry standards to highlight the manager's acumen and awareness of market norms.

How is a stock pitch related to an investment thesis and what role does a target price play in it?

A stock pitch is essentially a condensed, persuasive form of an investment thesis, often presented to stakeholders to advocate for investing in a particular publicly-traded company. A key element of any stock pitch is the target price, which is an estimation of what the stock is worth based on projections and valuation models. This target price serves as a quantitative anchor for the investment thesis, giving stakeholders a specific metric against which to measure potential returns and risks.

Palo Alto Networks: Saying Goodbye To The Rule Of 40 (Rating Downgrade)

• PANW topped revenue and EPS estimates in 4Q FY2024, but its growth trajectory significantly slowed, driven by weak bookings and billings growth.
• The company failed to achieve the Rule of 40 for the first time since FY2022, despite a slight improvement in operating margin, as it faces increasing competition.
• Management forecasts a continued deceleration in revenue growth but a slight improvement in operating margin in FY2025, leading to a low single-digit EPS growth outlook.
• The stock's valuation multiples are significantly higher than its historical averages and peers with stronger growth outlooks, as it continues to trade at 12.3x EV/Sales forward and 56x non-GAAP P/E forward, justifying a sell rating.

Investment Thesis

Palo Alto Networks, Inc. ( NASDAQ: PANW ) topped both revenue and non-GAAP EPS estimates in 4Q FY2024, which initially triggered a nearly 7% post-earnings rally. However, the stock quickly reversed course in the following trading days, nearly erasing all the gains. Despite a better-than-expected quarter, I believe the stock has limited upside as its top-line growth continues to decelerate. In my previous analysis , I initiated a hold rating on the stock due to the company's billings facing a significant slowdown, with the potential risk of falling below the Rule of 40 in the coming quarters. My concerns have been validated, as PANW's total revenue growth plus non-GAAP EBIT margin is now 39%, and total billing growth has dropped significantly on a sequential basis. Given that the stock is still trading at a premium valuation of 56x forward non-GAAP P/E, I have downgraded my neutral rating to a sell.

The End of 40 Rule Amid Growth Slowdown

The company model

The 40-Rule is a well-known metric for gauging the resilience of a software company's fundamentals and justifying its valuation. In 4Q FY2024, PANW experienced a significant slowdown in top-line growth, with revenue increasing by only 12.1% YoY, overshadowing a 130-bps sequential improvement in its non-GAAP EBIT margin. This low double-digit growth is a sharp contrast to the company's previous +20% YoY trajectory. As a result, PANW failed to achieve the 40-Rule for the first time since the pandemic disruption in FY2020.

The company's subscription revenue growth remains robust, maintaining a +20% YoY momentum. However, this growth has been gradually decelerating, which is not surprising given the increasing competition in the cybersecurity industry. In terms of total contract backlog, the overall remaining performance obligation (RPO) grew by 19.8% YoY in 4Q, falling below the 20% threshold for the first time in the company's history. As management indicated that RPO is also a key metric for gauging long-term revenue growth. This ongoing deceleration highlights the urgency for PANW to focus on improving quality, such as operational efficiency and FCF profile, to return value to shareholders

In terms of outlook, the company forecasts 1Q FY2025 revenue growth to be in the range of 12% to 13%, implying a significant slowdown compared to the 20% year-over-year growth in 1Q FY2024. For FY2025, revenue growth is expected to be between 13% and 14%, indicating continued deceleration. While the company's non-GAAP operating margin guidance suggests a modest 45 basis point improvement, with a midpoint of 27.75%, it remains possible for PANW to achieve the lower bound of Rule of 40 in FY2025.

Sluggish Current Billings Reflects Near-Term Revenue Pressure

PANW recently experienced a sharp slowdown in current billings (normally on a 12-month basis) with the YoY growth rate dropping to single digits since 3Q FY2024. During the 4Q earnings call , the management indicated that their platformization strategy provides customers with more flexibility in payment terms. We also note that the QoQ change in short-term deferred revenue in the Current Assets account remains at the same level as seen in 4Q FY2023. Adjusting for billing seasonality, this suggests that the slowdown in revenue growth in 4Q FY2024 was largely attributed to a 9.5% YoY growth in current billings.

Contracts Demand Is Significantly Weakening

The management encouraged investors to focus on RPO growth, which represents the total contract backlog the company currently holds. As they said, "Revenue gives you the near-term view of our growth. Our RPO helps you understand the longer-term trend and the scale of our book of business that will drive revenue."

While the 19.8% YoY growth in RPO last quarter may seem impressive, it remains resilient compared to the 22.8% in 3Q FY2024. However, the devil is in the details. We can observe that company demand started to significantly weaken last quarter, as total bookings, reflected by the QoQ change in RPO plus total revenue, decelerated to 7% YoY in 4Q, down from 17.2% YoY in the previous quarter. Moreover, the current bookings only grew 1.9% YoY, indicating a significant slowdown in demand for short-term contracts.

Margins Are Still Resilient

Despite a demand slowdown impacting its top-line growth, PANW's margins have been healthy. While the management did not elaborate gross margin during the call, we can see that its non-GAAP gross margin has experienced some sequential contraction over the past two quarters. It's possible that the contraction was due to increasing competition.

Instead, they focused more on operating margin. The non-GAAP EBIT margin showed a sequential improvement to 26.9%, largely due to a YoY decline in G&A expenses. This helped the EPS in 4Q FY2024 beating the high end of previous guidance. However, the company guides for an FCF margin of 37% to 38% in FY2025, implying a contraction from 38.6% in FY2024.

The Stock Is Not Attractive on Both Growth and Quality Factor

Seeking Alpha

I'll be discussing why PANW appears overvalued from both revenue growth and quality perspectives. Currently, the stock is trading at 14x EV/Sales TTM, which is nearly 45% above its 5-year average, despite a significant decline in revenue growth from +20% YoY to a low single-digit trajectory. This suggests a sign of overvaluation. Furthermore, I believe that trading above 10x EV/Sales typically indicates a high-growth company, such as CrowdStrike ( CRWD ), which trades at 16x EV/Sales fwd with 30% YoY revenue growth fwd, and SentinelOne ( S ), which trades at 8.8x EV/Sales fwd with 35% YoY revenue growth fwd. Yet PANW is still trading at 12.3x on a forward 12-month basis. However, the recent slowdown in revenue growth to 12.1% YoY does not support this narrative. We can see Salesforce ( CRM ), with forward revenue growth of 9.7% YoY, is only trading at 6.6x EV/sales fwd. This indicates that, assuming no rebound in its top-line growth, I will remain bearish on PANW until the stock drops at least 18.7% to bring its EV/Sales multiple below 10x.

From a quality standpoint, PANW's P/CF TTM sits at 36x, which is also expensive. Both the TTM and forward basis are nearly 40% above the 5-year average. Additionally, the non-GAAP P/E forward is 56x, which is not only higher than many of the 'magnificent 7' companies, excluding Tesla ( TSLA ), but also more than twice the sector average. Although the company is prioritizing margin expansion and earnings growth, its PEG non-GAAP fwd is 2.6x, significantly above its previous trend. These extremely expensive multiples have convinced me to take a step back and downgraded the stock to sell based on the fundamentals, even if its technical momentum remains intact for now.

In sum, PANW faces slowdown in revenue growth despite its a better-than-expected 4Q earnings. The stock's post-earnings rally was short-lived, with growth decelerating sharply and falling below the 40 Rule for the first time over the past 4 years. The current bookings growth has slowed to a low single digit, while current billing growth has maintained a high single digit, indicating demand for short-term contracts and payments has weakened considerably. PANW’s current valuation appears very excessive given the decelerating growth compared to other peers. Although the company maintains resilient operating margin, I believe that the premium valuation coupled with a sharp slowdown in revenue growth and declining demand suggests that the stock is overvalued. Given these factors, I downgraded to a sell rating, anticipating that the stock will need to drop at least 18.7% first before approaching its fair value.

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Writing a Credible Investment Thesis

by David Harding and Sam Rovit

Every deal your company proposes to do—big or small, strategic or tactical—should start with a clear statement how that particular deal would create value for your company. We call this the investment thesis . The investment thesis is no more or less than a definitive statement, based on a clear understanding of how money is made in your business, that outlines how adding this particular business to your portfolio will make your company more valuable. Many of the best acquirers write out their investment theses in black and white. Joe Trustey, managing partner of private equity and venture capital firm Summit Partners, describes the tool in one short sentence: "It tells me why I would want to own this business." 10

Perhaps you're rolling your eyes and saying to yourself, "Well, of course our company uses an investment thesis!" But unless you're in the private equity business—which in our experience is more disciplined in crafting investment theses than are corporate buyers—the odds aren't with you. For example, our survey of 250 senior executives across all industries revealed that only 29 percent of acquiring executives started out with an investment thesis (defined in that survey as a "sound reason for buying a company") that stood the test of time. More than 40 percent had no investment thesis whatsoever (!). Of those who did, fully half discovered within three years of closing the deal that their thesis was wrong.

Studies conducted by other firms support the conclusion that most companies are terrifyingly unclear about why they spend their shareholders' capital on acquisitions. A 2002 Accenture study, for example, found that 83 percent of executives surveyed admitted they were unable to distinguish between the value levers of M&A deals. 11 In Booz Allen Hamilton's 1999 review of thirty-four frequent acquirers, which focused chiefly on integration, unsuccessful acquirers admitted that they fished in uncharted waters. 12 They ranked "learning about new (and potentially related) business areas" as a top reason for making an acquisition. (Surely companies should know whether a business area is related to their core before they decide to buy into it!) Successful acquirers, by contrast, were more likely to cite "leading or responding to industry restructuring" as a reason for making an acquisition, suggesting that these companies had at least thought through the strategic implications of their moves.

Not that tipping one's hat to strategy is a cure-all. In our work with companies that are thinking about doing a deal, we often hear that the acquisition is intended for "strategic" reasons. That's simply not good enough. A credible investment thesis should describe a concrete benefit, rather than a vaguely stated strategic value.

This point needs underscoring. Justifying a deal as being "strategic" ex post facto is, in most cases, an invitation to inferior returns. Given how frequently we have heard weak "strategic" justifications after a deal has closed, it's worth passing along a warning from Craig Tall, vice chair of corporate development and strategic planning at Washington Mutual. In recent years, Tall's bank has made acquisitions a key part of a stunningly successful growth record. "When I see an expensive deal," Tall told us, "and they say it was a 'strategic' deal, it's a code for me that somebody paid too much." 13

And although sometimes the best offense is a good defense, this axiom does not really stand in for a valid investment thesis. On more than a few occasions, we have been witness to deals that were initiated because an investment banker uttered the Eight Magic Words: If you don't buy it, your competitors will.

Well, so be it. If a potential acquisition is not compelling to you on its own merits, let it go. Let your competitors put their good money down, and prove that their investment theses are strong.

Let's look at a case in point: [Clear Channel Communications' leaders Lowry, Mark, and Randall] Mayses' decision to move from radios into outdoor advertising (billboards, to most of us). Based on our conversations with Randall Mays, we summarize their investment thesis for buying into the billboard business as follows:

Clear Channel's expansion into outdoor advertising leverages the company's core competencies in two ways: First, the local market sales force that is already in place to sell radio ads can now sell outdoor ads to many of the same buyers, and Clear Channel is uniquely positioned to sell both local and national advertisements. Second, similar to the radio industry twenty years ago, the outdoor advertising industry is fragmented and undercapitalized. Clear Channel has the capital needed to "roll up" a significant fraction of this industry, as well as the cash flow and management systems needed to reduce operating expenses across a consolidated business.

Note that in Clear Channel's investment thesis (at least as we've stated it), the benefits would be derived from three sources:

• Leveraging an existing sales force more extensively
• Using the balance sheet to roll up and fund an undercapitalized business
• Applying operating skills learned in the radio trade

Note also the emphasis on tangible and quantifiable results, which can be easily communicated and tested. All stakeholders, including investors, employees, debtors, and vendors, should understand why a deal will make their company stronger. Does the investment thesis make sense only to those who know the company best? If so, that's probably a bad sign. Is senior management arguing that a deal's inherent genius is too complex to be understood by all stakeholders, or simply asserting that the deal is "strategic"? These, too, are probably bad signs.

Most of the best acquirers we've studied try to get the thesis down on paper as soon as possible. Getting it down in black and white—wrapping specific words around the ideas—allows them to circulate the thesis internally and to generate reactions early and often.

The perils of the "transformational" deal . Some readers may be wondering whether there isn't a less tangible, but equally credible, rationale for an investment thesis: the transformational deal. Such transactions, which became popular in the exuberant '90s, aim to turn companies (and sometimes even whole industries) on their head and "transform" them. In effect, they change a company's basis of competition through a dramatic redeployment of assets.

The roster of companies that have favored transformational deals includes Vivendi Universal, AOL Time Warner (which changed its name back to Time Warner in October 2003), Enron, Williams, and others. Perhaps that list alone is enough to turn our readers off the concept of the transformational deal. (We admit it: We keep wanting to put that word transformational in quotes.) But let's dig a little deeper.

Sometimes what looks like a successful transformational deal is really a case of mistaken identity. In search of effective transformations, people sometimes cite the examples of DuPont—which after World War I used M&A to transform itself from a maker of explosives into a broad-based leader in the chemicals industry—and General Motors, which, through the consolidation of several car companies, transformed the auto industry. But when you actually dissect the moves of such industry winners, you find that they worked their way down the same learning curve as the best-practice companies in our global study. GM never attempted the transformational deal; instead, it rolled up smaller car companies until it had the scale to take on a Ford—and win. DuPont was similarly patient; it broadened its product scope into a range of chemistry-based industries, acquisition by acquisition.

In a more recent example, Rexam PLC has transformed itself from a broad-based conglomerate into a global leader in packaging by actively managing its portfolio and growing its core business. Beginning in the late '90s, Rexam shed diverse businesses in cyclical industries and grew scale in cans. First it acquired Europe's largest beverage-can manufacturer, Sweden's PLM, in 1999. Then it bought U.S.–based packager American National Can in 2000, making itself the largest beverage-can maker in the world. In other words, Rexam acquired with a clear investment thesis in mind: to grow scale in can making or broaden geographic scope. The collective impact of these many small steps was transformation. 14

But what of the literal transformational deal? You saw the preceding list of companies. Our advice is unequivocal: Stay out of this high-stakes game. Recent efforts to transform companies via the megadeal have failed or faltered. The glamour is blinding, which only makes the route more treacherous and the destination less clear. If you go this route, you are very likely to destroy value for your shareholders.

By definition, the transformational deal can't have a clear investment thesis, and evidence from the movement of stock prices immediately following deal announcements suggests that the market prefers deals that have a clear investment thesis. In "Deals That Create Value," for example, McKinsey scrutinized stock price movements before and after 231 corporate transactions over a five-year period. 15 The study concluded that the market prefers "expansionist" deals, in which a company "seeks to boost its market share by consolidating, by moving into new geographic regions, or by adding new distribution channels for existing products and services."

On average, McKinsey reported, deals of the "expansionist" variety earned a stock market premium in the days following their announcement. By contrast, "transformative" deals—whereby companies threw themselves bodily into a new line of business—destroyed an average of 5.3 percent of market value immediately after the deal's announcement. Translating these findings into our own terminology:

• Expansionist deals are more likely to have a clear investment thesis, while "transformative" deals often have no credible rationale.
• The market is likely to reward the former and punish the latter.

The dilution/accretion debate . One more side discussion that comes to bear on the investment thesis: Deal making is often driven by what we'll call the dilution/accretion debate . We will argue that this debate must be taken into account as you develop your investment thesis, but your thesis making should not be driven by this debate.

Simply put, a deal is dilutive if it causes the acquiring company to have lower earnings per share (EPS) than it had before the transaction. As they teach in Finance 101, this happens when the asset return on the purchased business is less than the cost of the debt or equity (e.g., through the issuance of new shares) needed to pay for the deal. Dilution can also occur when an asset is sold, because the earnings power of the business being sold is greater than the return on the alternative use of the proceeds (e.g., paying down debt, redeeming shares, or buying something else). An accretive deal, of course, has the opposite outcomes.

But that's only the first of two shoes that may drop. The second shoe is, How will Wall Street respond? Will investors punish the company (or reward it) for its dilutive ways?

Aware of this two-shoes-dropping phenomenon, many CEOs and CFOs use the litmus test of earnings accretion/dilution as the first hurdle that should be put in front of every proposed deal. One of these skilled acquirers is Citigroup's [former] CFO Todd Thomson, who told us:

It's an incredibly powerful discipline to put in place a rule of thumb that deals have to be accretive within some [specific] period of time. At Citigroup, my rule of thumb is it has to be accretive within the first twelve months, in terms of EPS, and it has to reach our capital rate of return, which is over 20 percent return within three to four years. And it has to make sense both financially and strategically, which means it has to have at least as fast a growth rate as we expect from our businesses in general, which is 10 to 15 percent a year. Now, not all of our deals meet that hurdle. But if I set that up to begin with, then if [a deal is] not going to meet that hurdle, people know they better make a heck of a compelling argument about why it doesn't have to be accretive in year one, or why it may take year four or five or six to be able to hit that return level. 16

Unfortunately, dilution is a problem that has to be wrestled with on a regular basis. As Mike Bertasso, the head of H. J. Heinz's Asia-Pacific businesses, told us, "If a business is accretive, it is probably low-growth and cheap for a reason. If it is dilutive, it's probably high-growth and attractive, and we can't afford it." 17 Even if you can't afford them, steering clear of dilutive deals seems sensible enough, on the face of it. Why would a company's leaders ever knowingly take steps that would decrease their EPS?

The answer, of course, is to invest for the future. As part of the research leading up to this book, Bain looked at a hundred deals that involved EPS accretion and dilution. All the deals were large enough and public enough to have had an effect on the buyer's stock price. The result was surprising: First-year accretion and dilution did not matter to shareholders. In other words, there was no statistical correlation between future stock performance and whether the company did an accretive or dilutive deal. If anything, the dilutive deals slightly outperformed. Why? Because dilutive deals are almost always involved in buying higher-growth assets, and therefore by their nature pass Thomson's test of a "heck of a compelling argument."

Reprinted with permission of Harvard Business School Press. Mastering the Merger: Four Critical Decisions That Make or Break the Deal , by David Harding and Sam Rovit. Copyright 2004 Bain & Company; All Rights Reserved.

[ Buy this book ]

David Harding (HBS MBA '84) is a director in Bain & Company's Boston office and is an expert in corporate strategy and organizational effectiveness.

Sam Rovit (HBS MBA '89) is a director in the Chicago office and leader of Bain & Company's Global Mergers and Acquisitions Practice.

10. Joe Trustey, telephone interview by David Harding, Bain & Company. Boston: 13 May 2003. Subsequent comments by Trustey are also from this interview.

11. Accenture, "Accenture Survey Shows Executives Are Cautiously Optimistic Regarding Future Mergers and Acquisitions," Accenture Press Release, 30 May 2002.

12. John R. Harbison, Albert J. Viscio, and Amy T. Asin, "Making Acquisitions Work: Capturing Value After the Deal," Booz Allen & Hamilton Series of View-points on Alliances, 1999.

13. Craig Tall, telephone interview by Catherine Lemire, Bain & Company. Toronto: 1 October 2002.

14. Rolf Börjesson, interview by Tom Shannon, Bain & Company. London: 2001.

15. Hans Bieshaar, Jeremy Knight, and Alexander van Wassenaer, "Deals That Create Value," McKinsey Quarterly 1 (2001).

16. Todd Thomson, speaking on "Strategic M&A in an Opportunistic Environment." (Presentation at Bain & Company's Getting Back to Offense conference, New York City, 20 June 2002.)

17. Mike Bertasso, correspondence with David Harding, 15 December 2003.

An Investment Thesis: The Key To Making More Money Long Term

In general, the longer you stay invested, the greater your chance of making money. To help you maintain a long-term investment approach, it's imperative to develop an investment thesis.

Drawing from my experience in investing since 1995, it's sometimes easy to get shaken out of a particular investment. Or it’s easier for some people to just keep their money sitting in cash out of fear of financial loss. I get it. I’ve lost plenty of money before because there are no guarantees when you take risk.

I observed panic selling during the 2000 dot bomb and 2008 global financial crisis, affecting both stock and real estate sellers. More recently, I witnessed panic selling at the beginning of the global pandemic in 2020. The events lead me to try and allay fears with the post, “ How to Predict the Stock Market Bottom like Nostradamus .”

Having a solid investment thesis, as long as it remains intact, will provide you with the courage and confidence to hold on for the long term.

The Importance Of Developing An Investment Thesis When Investing

Let me go through some examples of how having an investment thesis has helped me hold long-term and make more money overtime. Coming up with an investment thesis also helped me make a significant decision on a recent dilemma. At the end of this post, I'll also share what makes a good investment thesis.

If you are just starting out and are fearful of investing your hard-earned money, developing an investment thesis will help you take action. To beat inflation , you must continuously invest over the long term. If you don’t overcome your fear of investing, then you will likely fall way behind over time.

Please know that you don't have to be a great investor to make money. You just need to be a good-enough investor to significantly outperform a large part of the population that does not save and invest aggressively.

1) Heartland Real Estate Investment Thesis

In 2016, I published my post titled “ Focus on Trends: Why I'm Investing in the Heartland of America .” My investment thesis was based on the anticipation that more people would relocate to lower-cost areas of the country due to advancements in technology and the increasing ability to work from home. Additionally, I believed that Trump's victory would contribute to increased interest, funding, and expansion in red states.

Given the uncertainty of which specific real estate investment deal to pursue, I opted to invest in a couple of funds that focused on acquiring real estate in the heartland of America. Now, eight years and $954,000 later, I have generally witnessed positive returns on my investments. Texas properties, in particular, have performed quite well since 2016. However, as I shared in my post on private real estate investing after eight years , there have also been some duds as well.

Investing for such an extended period has been relatively straightforward. In the realm of private funds , the expected distributions typically span between 5-10 years.

Based on my investment thesis of a demographic shift to the heartland, I logically looked for real estate investment firms that had the same investment thesis. And I found one in 2016 in Fundrise. Fundrise predominantly invests in the Sunbelt region where valuations tend to be lower and rental yields tend to be higher.

2) San Francisco Real Estate Investment Thesis

When I arrived in San Francisco in 2001, I was amazed by the affordability of real estate compared to New York City. Properties were priced 20 to 30% lower, offering more space for the same cost or a similar property for less.

At that time, compensation in the finance industry was comparable between the two cities at my level. My investment thesis was that prices in SF would catch up to prices in Manhattan due to a better quality of life and the growth of technology.

Didn’t Want To Miss Out On The Tech Boom

My firm played a role in taking Facebook and Google public in the early 2000s. As a result, I anticipated a resurgence in Web 2.0. Lacking the skills or connections to enter the tech industry, I opted to invest in tech stocks and acquire rental properties instead.

Overall, San Francisco property prices have shown positive performance. The excitement of living in a big city attracts billions of people. However, the city's reputation suffered post-pandemic due to hesitancy by officials to address criminal activities and remove drug dealers downtown.

Thankfully, to stay in power, politicians must address corruption, tackle crime, clean up the city, and provide tax incentives for businesses to thrive. Citizens discontented with criminal activities are likely to vote out ideological politicians and judges who harm the community. Consequently, there is potential for the city's image to be restored post 2024 election, leading to a recovery in real estate prices.

Deja Vu With Artificial Intelligence

Since 2023 there has been an extraordinary surge in tech stock prices. Fueled by substantial bonuses and robust portfolios, I anticipate that a portion of this wealth will flow back into San Francisco Bay Area real estate. Redfin reports that luxury home prices are reaching all-time highs , attracting a significant number of all-cash buyers .

The rise of artificial intelligence (AI) is evoking a sense of déjà vu, reminiscent of 25 years ago when the internet promised to revolutionize the world. Today, it is equally apparent that AI will shape the world in the next two decades.

Despite the likelihood that most of us won't secure lucrative AI jobs due to intense competition, there's an opportunity for ordinary individuals to invest in AI companies. Beyond public companies like Nvidia, Microsoft, Google, and Facebook, private investments can be made through open-ended venture capital funds like the one offered by Fundrise.

Fundrise launched its venture capital product at the end of 2022, which was great timing given private company valuations had corrected. The investment minimum is only $10, so everybody can participate. You can see the holdings, and the fees are much lower than closed-end venture capital funds.

I am personally adopting this approach by investing in both public and private AI-related companies. My goal is to allocate $500,000 to these companies over the next five years. This strategy not only positions me for potential gains but also serves as a hedge against the challenges AI might pose for our children in terms of job opportunities.

AI Facilitated My Property Decision

In my previous post, “ Rent out, sell, or create a wellness center, ” I detailed my dilemma regarding what to do with my old house. At 46 years old, with two young children and already managing four rental properties, the prospect of overseeing another rental didn't appeal to me.

Being a landlord can be burdensome, particularly when dealing with challenging tenants or constant maintenance issues. Such responsibilities take away time that could be better spent on more enjoyable activities, like playing tennis or spending quality moments with my kids.

After reading through the comments on my post, which provided diverse opinions on the course of action, I weighed the options and arrived at a decision to rent out the house and hold it for the long term. The deciding factor was the formulation of an investment thesis.

Why Renting Out Is Better For Now

My investment thesis revolves around the belief that owning a single-family home on the west side of San Francisco is a sound decision. Local economic catalysts, including the opening of a large school in the fall of 2024 and the $4 billion renovation of the UCSF Parnassus Hospital by 2030 (expected to create 1400 new jobs), indicate a positive trajectory for real estate on the west side.

Remote work is here to stay. In addition, there is a demographic transition from downtown on the east side to the west side. The final catalyst for my decision to rent out is the anticipated wealth generated by Artificial Intelligence (AI) for employees and investors. As a result, I will suck it up as a landlord for the next 3-5 years and then reevaluate. The earliest I'd relocate to Honolulu, Hawaii is in 2030.

I spoke to Ben Miller, CEO of Fundrise , and he believes we're past the real estate market as do I. As a result, holding onto my property and renting it out makes even more sense.

3) The Vision Pro Investment Thesis For Apple

I've owned Apple stock since 2012 and it has done well. With the S&P 500 surpassing 4,900, I've faced increasing challenges in finding compelling stock investments. However, when the Vision Pro was unveiled on February 2, 2024, my interest was piqued.

At that time, Apple had just reported somewhat soft quarterly results, causing a dip in the stock. I contemplated whether this could be the opportunity to further invest in the company. After dedicating several hours to researching the Vision Pro, I concluded that the answer was affirmative.

Apple's new Vision Pro is a significant accessibility tool for the visually impaired . Approximately 2.2 billion people worldwide experience some form of visual impairment. While an estimated 237 million face moderate to severe impairment. Among them, 40 million are considered legally blind or completely blind. This figure is expected to rise to 115 million by 2050.

Consequently, I believe the Vision Pro holds the promise of greatly assisting a substantial portion of the global population in enhancing their vision and interaction capabilities. Considering the critical importance of sight, the demand for this product should be relatively inelastic for the visually impaired. Furthermore, Apple is likely to enhance the product over time and reduce its retail cost. I can’t wait for version 2 and 3.

An Example Of How The Vision Pro Can Help The Visually Impaired

If you have regular sight or can correct your myopia or hyperopia with glasses or contact lenses, then you might take for granted your vision. Seeing a small screen on your phone or the 10-point font size on a menu is usually not a problem. For for those with visual impairments, it can be.

This Vision Pro commercial succinctly captures one of its many benefits for the visually impaired.

Apple is already an outstanding company with intelligent employees and an impressive product line. Further, it is cash flow positive with substantial cash reserves and a dividend payout. My confidence in investing in Apple stock aligns with my confidence in the S&P 500. However, I anticipate additional upside potential, particularly with the introduction of the Vision Pro and how Apple with integrate artificial intelligence with all its products.

Note: The definition of legally blind means the inability to correct your visual accuity to at least 20/200 with corrective lenses. Most people can correct their visual acuity to 20/20 to 20/40 with glasses or contacts. Legally blind usually does not mean complete blindness, as many people who are legally blind still have some vision.

America The Great: The Ultimate Investment Thesis

I harbor a home country bias as an American patriot. I've resided in this country since 1991 and have payed six figures in taxes annually since 2003. My children were born on American soil. In addition, I've crafted over 2300 personal finance posts aimed primarily at aiding Americans in achieving financial freedom sooner. These experiences have fostered my deep connection and commitment to this nation.

I envision my final days in America, leaving behind a positive legacy . Consequently, my long-term outlook is bullish and biased on owning American assets.

The greatness of America, in my belief, stems from:

• Entrepreneurial spirit
• Strong work ethic
• A stable democratic government
• A robust legal system safeguarding intellectual property and individual rights
• A formidable defense industry ensuring citizens' protection
• A stable world currency
• Generally thoughtful and kind people aspiring to assist others globally in attaining freedom
• A history of unity during times of crisis, exemplified by events like 9/11 and the pandemic

While acknowledging America's challenges—crime, poverty, socioeconomic injustices—I consider it unwise to bet against its long-term excellence. The collective willpower of our nation, I believe, will drive ongoing positive improvements.

I advocate that everyone, globally, should find a way to own a piece of America . You can do so by buying the S&P 500 or U.S. physical real estate or private real estate.

In 50 years, when our grandchildren become adults, they will appreciate our foresight in investing in America today. Despite inevitable economic fluctuations, with a well-defined investment thesis, we stand to accumulate wealth beyond our current imagination.

What Makes A Good Investment Thesis

A good investment thesis is a well-researched and articulated rationale behind an investment decision. It serves as a comprehensive guide that outlines the reasons and expectations for choosing a particular investment. Here are key characteristics of a good investment thesis:

• Clear and Concise: The thesis should be easily understandable and to the point.
• Supported by Research: Ground your thesis in thorough research, including fundamental analysis, technical analysis, and an understanding of relevant economic and market trends.
• Alignment with Goals: Clearly state how the investment aligns with your overall financial goals and objectives. Whether it's capital appreciation, passive income generation , or risk mitigation, the thesis should reflect your goals.
• Identifies Investment Opportunity: Specify the investment opportunity or opportunities you have identified. This could involve a specific asset class, industry, sector, or individual securities.
• Analysis of Risks: Acknowledge and assess the risks, challenges, and uncertainties associated with the investment.
• Time Horizon: Clearly define your time horizon for the investment. Specify whether it's a short-term trade, a long-term hold, or something in between.
• Competitive Advantage: Understand what sets it apart from competitors and how it plans to sustain or enhance that advantage.
• Financial Metrics: Include relevant financial metrics supporting your investment decision. This may include valuation ratios, growth rates, profitability, and other key financial indicators.
• Scenario Analysis: Consider different scenarios and outcomes. A well-thought-out thesis anticipates how the investment might perform under various circumstances.
• Adaptable and Dynamic: Recognize that market conditions can change. A good investment thesis is adaptable and allows for adjustments based on new information or changing circumstances.
• Exit Strategy: Clearly outline your exit strategy. Know under what conditions you would sell or reduce your position.
• Communication: Share your thesis with others to find any blind spots, like I am with this post. Others should be able to understand your rationale and analysis.

Keeping updating your investment thesis over time

Having a good investment thesis won't guarantee success, but it's like a roadmap for your investments. Keep updating it based on what's happening in the market, and make sure you invest for the long term.

For example, after the failed assassination attempt on July 15, 2024, Trump will likely become the 47th president of the United States. As a result, there may be further upside with your investments in 2025 and beyond. Here's a detailed article on what Trump's presidency means for your money .

Investment theses can vary in quality, and sometimes you might get the investment right with the wrong thesis. The main thing is to have a good reason why you're investing, so you stick with it over time.

In 10 years, you'll probably end up with more money who keeps investing for the long haul, compared to someone who doesn't invest or tries to time the market. Decide which situation you want to have in the future.

Invest In Private Growth Companies

If you believe artificial intelligence will be an important economic driver, check out Fundrise . Fundrise invests in the following five sectors:

• Artificial Intelligence & Machine Learning
• Modern Data Infrastructure
• Development Operations (DevOps)
• Financial Technology (FinTech)
• Real Estate & Property Technology (PropTech)

Roughly 90% of Fundrise's venture capital product has exposure to artificial intelligence. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI.

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what Fundrise is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

Fundrise is a long-term sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise.

About The Author

Financial Samurai

35 thoughts on “an investment thesis: the key to making more money long term”.

Folks investing should have an Investment Policy Statement (IPS).

Scope & Purpose: “The investment policy statement (IPS) will govern how the financial assets of ____________ are to be invested.”

RESPONSIBILITIES:

“__________ is responsible for coordinating updates to the IPS and responsible for monitoring the application of the IPS and shall notify ETFguide of the need for updates to the IPS and/or violations of the IPS implementation. _________ shall be responsible for approving the IPS and all subsequent revisions of it.

Changes in life circumstances including the birth of a child, retirement, disability, divorce, or family death will impact all future adjustments and responsibilities to this document.”

Research the subject and find a Financial Advisor (RIA) firm that prepares such IPS reports and go over your situation with them. Ron Delegge at ETFguide can prepare an IPS for you for a reasonable fee. You can find his firm online.

your quote sums up our last 40+ years of heavy real estate investing vs investing in equities.

“Since 1996, I’ve discovered that having a well-defined investment thesis increases the likelihood of consistently investing and holding onto investments during challenging periods. As the old saying goes, ‘time in the market is more important than timing the market.’ This lesson came to me the hard way during the first 10 years of my investing career.”

We were told many times that we would lose it all, go bankrupt, have to grovel to return to work & suffer the never ending torment of bad tenants & damages. We could write a book on it all, as it definitely was not easy, but since 1998 (& retired) we have been free & clear on every property since, have no debt since & live comfortably between three homes during the year after selling our 4th, a FL home of 31 years, just before H. Ian hit. love your articles & financial insight.

My California real estate thesis is this:

Despite numerous rent control efforts and the State’s (and most coastal counties’) hostility towards landlords, I think California residential real estate will be very lucrative for landlords assuming they have sufficient cash on hand to withstand vacancies, evictions, cash for keys, etc.

This is because rent control decreases landlord and developer participation in providing housing and thus leads to fewer units on the market. Fewer units on the market will increase rental prices.

Hi, like you I own and manage a few rental properties in the city, which is our primary income. Although the rental market here isn’t great, at least it’s stabilized. It’s like survive until 2025 and hopefully things will turn around in SF. These upcoming city elections, with a swell of moderate candidates will hopefully make a tangible difference in quality of life issues, which of course have hurt SF’s reputation worldwide.

I’m also bullish on the potential for the AI industry. But work from home is pervasive and I think downtown and soma are going to be challenged for several years. Also tech firms are less concentrated in the Bay Area now and getting more distributed in 2nd tier cities. The saving grace for SF is that many local neighborhoods are now more cleaned up and also have thriving foot traffic, if it’s the mission, inner sunset, etc. So I feel good about the future of good and established SF neighborhoods, which is where I own properties.

SF has roughly doubled in value every 10years, which is amazing. The first chart in this report is a good visual, https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-and-a-baby The main thing I need to wrap my head around is that I think the next 5-10 years will not have the amazing appreciation that we’ve had since the mid-late 90’s when I started investing. I honestly got used to that phenomenal rate growth, but I’m trying to set more modest expectations going forward.

How bullish are you on future SF appreciation? Do you think it will be anything like the last 30 years?

The market may simmer this year. But I think it’ll eventually go up again by a rate of 3.5 to 5% a year. If you look at the historical cycles, there’s generally about 4 to 5 years of flat lining.

Given we’re already at a high base, the growth rate of appreciation won’t be as high as in the past. That said, I think there’s gonna be another renaissance of Wealth being created over the next 10 to 20 years with new tech / AI.

What the cost of building materials, labor, and restrictive building should help push real estate prices higher.

Yeah 3.5-4.5% SF real estate returns over the next 5-10 years is probably realistic. 7% is unlikely, which is what we’ve gotten used to :) Without that outsized 7% equity return, and holding my properties debt free (no leverage), keeping them long term vs selling and going into the stock market becomes a much closer call.

My cash on cash on my RE is 3.5-4%, plus 3.5-4.5% expected appreciation totals 7-8.5% total returns, which is roughly in line with s&p 500 long term returns. Tax treatment favors RE, but then again with stocks you don’t need to deal with tenants and repairs. But of course the main issue is transferring my RE equity into stocks is bloody expensive, with sales expenses and capital gains of about 37%. So I’m still better off holding the RE. My only issue is that I’m heavily RE weighed, with only a small stocks portfolio. My plan has been to dollar cost average excess RE profits into stocks to better balance my portfolio.

I’ll just have to see what transpires over the next 2-3 years to our fair city, plus evaluate the macro economic picture. I guess this “sell RE, buy stocks” dilemma isn’t such a bad problem to have. But nevertheless it’s nice to have a “safe space” (sic) such as this blog where wealthy people can freely cry about their problems…IRW anytime I bring this up to people it’s like, “wait, let me get the worlds smallest violin to play for you” :)

Innovation Fund vs going after AI public companies like the following that are already established and surging YTD. Thinking the latter might be more attractive and with less risk.

Nividia TSMC Arm SoundHound

I don’t have thesis, only several points: -Only buy S&P 500 index with lowest fee. -No trading, hold for LONG time. – Maximize all tax deferred accounts. – No investment in a single company since I have no control over management. I bought and didn’t look at my account for years . I just recently checked and saw that it has 13% compounding interest making me millionaire.

Well done. Don’t forget to capitalize on your investments by selling on occasion to buy things you want and improve the quality of your life. Otherwise, there’s really no point to investing in stocks.

Is there a fundrise equivalent for non-US citizens? Thanks in advance. Dave

Hi Dave, I’m not aware of one. You can just invest in a public real estate ETF like VNQ or one of the publicly-traded REITs like O. Just know they are more volatile.

Just to clarify, Innovation Fund is not currently open to new investors but has a “waitlist.”

Also what is happening with publically traded companies in the AI thesis seems to me to mean that not really necessary to take on added risk of start-ups. just look at recent performance of ARM SMCi and NVDA. and that is just a few. i will continue inverting in a broad 10-12 public stocks and sure to gain solid and not massive returns. i look at it this way, if a start up here or there will do 10x and some will bust, leaving you with overall 3-4 times return, then i am likely to better with the established companies in a sector where the revolution has just begun. smci is up 3x in just a month.

That’s weird. I just checked with Fundrise and the Innovation Fund is open to investors.

“The Innovation Fund is OPEN to new investors. It is possible this person is unable to make a direct investment into the fund if they are an existing investor who is not a Pro member. This is something we’re working on.

But to reiterate the fund is open to new investors.

If you select the Venture Capital investment plan during signup you can invest in the Innovation Fund.”

I’m an existing investor and don’t believe I’m a pro member. I’m able to invest in the Innovation Fund.

i’m an existing investor but not a pro member and i am not able to invest in Innovation fund so must fall into that segment. it is not provided as an option when i select “browse investments” in my account. i then read a review of the fund from late 2023, i will try to post, and it did say that it wasn’t open to all yet. it did said all you needed was $10 to start.

You should reach out to them and let them know.

ASH01 – What are the 10-12 AI public companies you are targeting besides Nividia, smci and ARM? Thoughts on TSMC & SoundHound? I tend to agree with your thesis. Why take on the private risk when the public companies should still be in their infancy in terms of AI growth.

As discussed earlier, here is my investment thesis which could be quite controversial:

1. A portfolio of 50/50 real estate vs. stock. The stock portion should not be lower but could be much higher. Holding real estate is mostly for pleasure/need and rent. Rental properties are all places i would want to live. Once pleasure part of real estate is no longer needed, should graduate to stocks or to rental units.

2. Stocks is a mix of SP500 and Tech i.e. Nasdaq 100, XLK, VOOG and also exposure to single high performing stock. No international stock. No bonds. Mostly automated invested to cost average. Real estate rental income is the security in case stock market crashes.

3. Flexible and nimble approach. Whenever the market is down, try investing more and don’t withdraw funds.

4. No investment in private funds, real estate funds, bitcoin and other cryptos which i dont understand and have no transparency. No need to complicate.

Sounds good. What’s your investment thesis though for your tech stocks?

It’s a good mantra to not invest in what you don’t understand.

I really enjoy investing private funds (VC, VD, real estate) as it forces me to invest for the long term ~10 years. The capital calls also keep me investing even when I might not want to.

I am excited about building out, my artificial intelligence exposure, and I have one from the invested in Ripple, which has turned out to be maybe a 20-40X return. Maybe I can cash out just in time to buy a new car in 2027, when my current car is 12 years old.

Here’s an example of an AI company one of my private funds (Kleiner) is investing in. I’m pumped! https://techcrunch.com/2024/02/06/ambience-healthcare-raises-70m-for-its-ai-assistant-led-by-openai-and-kleiner-perkins/

I’m also excited about the AI investments in the Fundrise Innovation Fund , like Databricks.

Sounds good. As for tech, i have a single stock exposure due to my employment which is doing better than market and is a great company that does good work. So thesis for that is don’t fix what is working. As for the rest, my strategy is similar to most here – i Invest in 15-20% of stock portfolio in QQQ and lesser to XLK and VOOG which are Apple, Microsoft heavy – i believe i get enough AI and other exposure through these since i dont know what the next big thing will be.

One last point. I am very bullish about US Stocks for the following reasons:

1. European markets are not performing. On surface, it appears cheap to buy however not a single tech company in the top 100 European companies. 2. China stock market is not performing. Significant decline and volatility. Could be the beginning of a Japan like deflation and decline. 3. US is the center of AI and innovation. 4. Stock ownership, although at historical highs is still low among Americans being at approx 56%.

In couple years, i think everyone will want a piece of the US companies. Already evidenced by the fact that Shiller CAPE after 80s is much higher than historically has been. Could this lead to a bubble? Definitely – but it could well last 10-20 years and the fundamentals could also catch up in the meanwhile either due to AI generated earnings or something else and optimism pays when investing!

My best thesis was investing in semiconductor stocks. Roughly 5 years ago I noticed how almost everything needed a chip. My thesis proved itself out during the pandemic. You couldn’t get a car, dishwasher or any smart device because chips weren’t available. I bought AMD, NVDA, and Intel. 2 of them worked out pretty good. I was banking on the cloud and data centers to boom. That part worked out okay. I didn’t see any of the AI craze coming which has been hugely beneficial. Decent thesis and a ton of luck!

Nice! But what about the future?

Take a little profit and hold the rest for another 5 years. I realize we’re right in the middle of AI mania but everything I read and watch tells me we’re still in the early days of AI.

No matter what happens we’re still going to need more chips to power all our future ambitions

so interesting how almost nobody but nvda saw the AI craze coming. that one earnings report by them set this whole thing off about a year ago. such an interesting phenomenon. AI has been talked about for many years but then suddenly companies decide to try to make a product of it in a massive scale. nvda explosion in earning was because companies suddenly ordered their chips.

Yup, I spend hours a day watching cnbc, reading blogs and doing research and I truly didn’t know what AI could do or how much money companies could make off it. Luck is definitely a factor.

VTI + VXUS + long haul = chill

Agree, but it’s hard to retire earlier by just investing in the total stock market. There are two levels of wealth , the top-tier wealth did not get there by investing in ETFs or index funds.

100% agree with you on that front! BUT I do personally believe that 95% of people will accumulate more wealth through regular and automated index investing over time vs. active investment strategies such as picking 1:1 stocks. I would guess you also have a sizable audience base that loves the content but also leans toward simple investing strategies over the long haul and not constantly stressing about achieving the top tier of wealth. The content here can sometimes make you feel behind, overly stressed that you’ll never have enough, and stuck stressing about the future. I personally have to step back and remember it’s really about regular investing (in your strategies of choice) + time in the market and not timing the market. Which I personally think is a sound investment thesis! Love the content though to be clear. It’s really helped me think about allocation percentages and mortgage payoff strategies.

Yes, good points. For most people, buying a primary residence and regularly investing in an S&P 500 index fund is a great long-term strategy.

Personally, I like to always be challenged bc it’s fun. Even if I fail, I will likely have accumulated more than if I hadn’t pushed myself.

From my coaching days, the players who advance the most are pushed the hardest.

But good reminder to press the easy button once in a while for readers who may be burning out or feeling behind.

I love your clear and specific convictions in your investment thesis. That’s something I need to work on. Very cool on the Apple Vision Pro. I don’t have anything specific in my own investments. Although I do believe in long term real estate, stock, and tech exposure. Thanks for the list of steps on creating an investment thesis.

I’ve been investing since the mid-1980s. Every time I’ve evaluated my portfolio against a portfolio of index funds using backtesting of 5 years and more, the index funds (with expenses deducted) have beaten my portfolio’s performance over a 5+ year time horizon. I’ve finally realized that I have a lot more money today if I’d purchase a mix of three low-cost, passively managed index funds. My latest lesson occurred during the latest 5 year period in which my portfolio performed well. It did what it was designed to do (mitigate losses during down markets like 2022). I was only down 2% that year. Unfortunately, if I had invested in a mix of SCHD (50%), SCHG (25%), and SWPPX (25%), that portfolio would have crushed my performance by a wide margin. Yes, it lost more money in 2022 (around 14.75%) but dramatically exceeded its performance in the other four years. I’m done trying to be smart. I’m buying a mix of passive ETFs and accepting the market risk.

Thanks for posting that. You basically stated my “investment thesis”:

1. My assets must grow in order for me to keep up with long term inflation 2. Over the long haul it’s very difficult for me to outperform the market 3. Figuring out my my risk tolerance and indexing accordingly is probably my best bet

No different than you, it’s taken since the mid 1980’s for this reality to really set in…

Those are great points Vaughn. Keep the focus and stay invested for the long term!

Active funds underperform their benchmark passive index >95% of the time after 10 years. With retail investors its over 99% with average underperformance by 4% *annually*. The 1% that crush due to lucky pick with concentration are the reason people still do it, but I’d rather have a 99x higher chance to have a +4% CAGR *and* barely think about it.

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VC Decision Making (Online): Developing an Investment Thesis

Navigate the changing trends in venture capital

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Create Your Own Venture Capital Strategy

Venture capital funding has experienced exponential growth in recent years. While the peak for venture capital in terms of dollar value has passed in the face of the global economic slowdown, the field continues to be one of tremendous opportunity — if you know where to find it.

In order to thrive in this fast-paced, volatile environment, venture capital professionals must stay abreast of trends and develop a solid investment thesis to help them navigate uncertainty and pinpoint viable opportunities.

Lead faculty Angela Lee is the founder of 37 Angels, an investing network that has evaluated 20,000 startups, invested in 90+ startups, and currently activates new investors through a startup investment boot camp. Join us to learn how to create a successful investment strategy and decision-making framework to improve venture fund performance and intelligently diversify your portfolio.

Global venture capital funding surged to $621B in 2021, two times more than in 2020, and around 10 times the level of 10 years ago.

Source: CB Insights

$132B invested in financial services in 2021, which is 169 percent year-over-year growth and 21 percent of total venture funding.

62 percent of all venture capital deals are early-stage deals.

Key Takeaways

By the end of the program, you will be able to:

• Determine the best investment strategy for your portfolio
• Establish your criteria for industries and business models to invest in
• Understand the risk/return trade-offs between investing in different stages
• Recognize and navigate trends that are transforming the venture capital market and uncover upcoming opportunities

Who Should Attend?

This advanced-level program is designed specifically for mid-career venture capital professionals interested in exploring the evolution of the venture capital landscape and identifying emerging startup trends and technologies in which to invest.

Program Modules

Get a refresher on the venture capital industry and self-assess your current knowledge. Identify the venture capital players, risks, rewards, and funding stages, and navigate the venture capital deal flow process.

Compare existing startup investment strategies and determine the investment strategy that works best for your portfolio.

Identify components of an investment thesis, evaluate real-world investment thesis examples, and build your own criteria for industries and business models in which you want to invest.

Understand the best stages in which to invest and how they benefits your portfolio. Compare methods used to mark up a portfolio.

Explore technology trends that have transformed the market and how to spot upcoming opportunities. Apply a framework to plan for uncertainties and decide on the trends that can add value.

Learn how to get — and stay — ahead of the curve with your investment strategies. Learn the differences between structural and cyclical changes, which help you make informed investment decisions.

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World-Renowned Faculty

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Accomplished academics and experts offer unique perspectives and the opportunity to put learning into practice

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Hone business acumen and executive skills with try-it activities that help you redefine your potential

Program Faculty

Professor of Professional Practice in Finance, Faculty Director, the Eugene Lang Entrepreneurship Center, Columbia Business School

Angela Lee Professor of Professional Practice in Finance, Faculty Director, the Eugene Lang Entrepreneurship Center, Columbia Business School Angela Lee is an award-winning professor and former Chief Innovation Officer at Columbia Business School, where she teaches venture capital and leadership programs. She started her career in product management and then moved to consulting at McKinsey. She founded 4 startups and is also the founder of 37 Angels, an investing network that has evaluated over 20,000 companies and invested in over 90+ companies. She also serves as a venture partner at Fresco Capital, an early-stage venture fund that focuses on the future of work, digital health, and sustainability. She was awarded the Dean's Award for Teaching Excellence at Columbia Business School in 2020 and won the Singhvi Prize for Scholarship in the Classroom in 2022. Angela has spoken at the White House and NASA and is an expert in teaching online and making learning scalable. She is a sought-after expert on CNBC, Bloomberg TV, MSNBC, and Fox Business. She was recognized by Inc . as one of 17 Inspiring Women to Watch, by Entrepreneur Magazine as one of 6 Innovative Women to Watch, and by Crain’s as a Notable Women in Tech.

Elliott Robinson Partner, Growth Equity, Bessemer Venture Partners Elliott Robinson is a partner and co-founder of the growth investment practice at Bessemer, where he focuses primarily on cloud software investments, and is a board member of a number of organizations. Prior to Bessemer, he was a partner with M12, a vice president at Georgian Partners, and an associate with Syncom Venture Partners (where he led investments in organizations such as Canva, Forter, and Statespace). He earned his MBA from Columbia Business School and his BS from Morehouse College.

Hilary Gosher Managing Director, Insight Partners Since joining Insight Partners two decades ago, Hilary has played a role in some of the most exciting growth journeys in SaaS history. She founded and leads Insight Onsite, a team that accelerates growth at Insight's portfolio organizations. In addition, she is an adjunct associate professor at Columbia Business School. She holds an MBA from INSEAD in France along with a BA and LLB from the University of Kwa-Zulu Natal, South Africa.

Certificate

Upon completion of the VC Decision Making (Online): Developing an Investment Thesis program, you will receive a certificate of participation from Columbia Business School Executive Education — a powerful testament to your management capabilities — and add two days toward a Certificate in Business Excellence .

Your verified digital certificate will be issued in your legal name and emailed to you, at no additional cost, upon completion of the program as per the stipulated requirements. All certificate images are for illustrative purposes only and may be subject to change at the discretion of Columbia Business School Executive Education.

Other Recommended Programs

• Foundations of Venture Capital (Online) 6 weeks, online Learn the sources for deal flow and select the best organizations to invest in and identify key elements to consider when developing and managing a VC portfolio. Learn more

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Some programs do have prerequisites, particularly the more technical ones. This information will be noted on the program landing page, as well as in the program brochure. If you are uncertain about program prerequisites and your capabilities, please email us at the ID mentioned above.

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Upon successful completion of the program, you will receive a smart digital certificate. The smart digital certificate can be shared with friends, family, schools, or potential employers. You can use it on your cover letter, resume, and/or display it on your LinkedIn profile. The digital certificate will be sent approximately two weeks after the program, once grading is complete.

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No, there is no alumni status granted for this program. In some cases, there are credits that count toward a higher level of certification. This information will be clearly noted in the program brochure.

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You will have access to the online learning platform and all the videos and program materials for 12 months following the program start date . Access to the learning platform is restricted to registered participants per the terms of agreement.

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Participants will need the latest version of their preferred browser to access the learning platform. In addition, Microsoft Office and a PDF viewer are required to access documents, spreadsheets, presentations, PDF files, and transcripts.

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Program fees for Emeritus programs with Columbia Business School Executive Education may not be paid for with Title IV financial aid funds. Participants may be able to pay the program fee with funds from the GI Bill, the Post-9/11 Educational Assistance Act of 2008, or similar types of military education funding benefits. Participants must contact the Columbia University’s Office of Military and Veterans Affairs to determine benefit eligibility.

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Early registrations are encouraged. Seats fill up quickly!

How to Write an Investment Thesis in Private Equity

Get looped in.

Recent years have posed significant challenges for M&A activity, with private equity deal volume experiencing a stark 46% decline compared to the previous year in 2022. Similarly, venture capital deals globally saw a notable 42% decrease in the first 11 months. Moreover, the mounting dry powder, surpassing $1 trillion USD in the US alone, underscores the urgency for firms to adapt their business strategies to thrive in 2023 and beyond.

Amidst this landscape, transitioning to a direct sourcing model alongside intermediary deals is imperative. However, economic uncertainties compel firms to further refine their outbound strategies to capitalize on opportunities efficiently. Dealmakers face the crucial task of optimizing their time and focusing on strategic investments that align with their objectives. Crafting a compelling investment thesis becomes paramount, guiding direct deal sourcing efforts and enabling firms to differentiate themselves in a competitive market.

Read on to discover how a meticulously crafted investment thesis can drive success in direct deal sourcing strategies.

What Is an Investment Thesis in Private Equity?

An investment thesis is, quite literally, a thesis statement. It's succinct, yet comprehensive enough to serve as your firm's guiding principle to both source and secure ideal investments. 

Imagine you're back in school and writing a term paper. Remember how a thesis was treated as a single defining statement that guided the development of your entire paper? The same is true of an investment thesis for your private equity firm. Unlike your term paper, however, firms often have more than one thesis because they often focus on multiple types of deals at once. 

Dealmakers' theses can also be broken down into two specific types: top-down and bottom-up. A top-down investment thesis is something that helps your team understand and seek out ideal investment targets when sourcing.

Top-Down Investment Thesis for Venture Capital Example:

‍ "This $10MM seed fund focuses on US-based cannabis startups that are furthering the industry through technology and infrastructure research and development that can leverage our partners' vast experience in the logistics and supply chain sectors."

Once your firm has identified an ideal company that fits its top-down thesis, it's time to create a bottom-up version. Far more direct and specific in nature, a bottom-up investment thesis includes everything from particular information about the target company including financial statements and forecasting, future business plans, funding strategy reasoning, industry trends, etc. as well as why your firm is the best choice.

‍ Bottom-Up Investment Thesis for Private Equity Example:

‍ "Smith Partners is seeking to invest a $20MM Series A round in Asclepius, Inc. to aid in their rapid growth and contributions to the advancement of the healthcare industry. Their dedication to modernization combined with SP's vast network of cutting-edge automation manufacturers and forward-thinking healthcare providers make this partnership particularly exciting."

A bottom-up thesis would then continue into specifics about the company, detailing financial and employee records, proprietary knowledge or advantages such as patents, and more about what your firm brings to the transaction. A final bottom-up thesis can take many different forms: e.g., a comprehensive document, presentation, or video.

The key to both a top-down and bottom-up investment thesis is specificity. Every thesis your firm creates should be valid only for your firm . The combination of geographic location, sector or industry, company stage or type, fund size, reasons behind the investment or focus, and your firm's specific differentiators should make each of your theses unique.

Steps for Building an Investment Thesis Framework

Creating an investment thesis framework will help your firm draft theses more quickly and make sure all of the necessary information is included. Answering the following series of questions is a good place to start building a framework for both top-down and bottom-up theses:

• What is the goal of this thesis? This answer takes one of two forms: to find new target investment opportunities or to secure a potential deal. But before you can detail the rest of the thesis, you must know your end goal. ‍
• What are the basic parameters of your ideal deal? Once you have your overall goal, sort out the basics first: overall available capital, company demographics (e.g., location, size, industry), etc. ‍
• What are the influencing internal factors? What is your firm hoping to get from a deal that would fit this thesis? Do you need to bridge a valuation gap in your portfolio, for example? ‍
• What are the influencing external factors? If you've ever gone through a thematic sourcing exercise, this will feel similar. While your thesis should not be nearly as large in scope as a thematic investing strategy, socioeconomic or industry trends can be a driving factor for why your firm is looking at this type of investment and should be called out in your thesis. ‍
• Why your firm? While this is the simplest question, it's not only the most difficult to answer but also the most important. Your differentiator "what only your firm can offer to the industry or target company" and why you are particularly suited to this segment of the market (in a top-down thesis) or specific deal (in a bottom-up thesis) is the key to crafting a successful investment thesis in private equity. ‍
• Why this deal? For a bottom-up thesis, you must detail why this deal should be transacted: - Why this company? Is it the founder that instills confidence? Do they have intellectual property that makes the deal worthwhile? How are their financials impacting this decision? - Why now? - What does the future look like and what are your plans post-transaction? - What is the eventual exit strategy? When would you plan for that to happen? - How does this deal impact your portfolio?

The framework you build from answering these questions can then be refined into a single statement or document that serves as your thesis. But be prepared to make iterations. You must continually refine your theses as you gather more data, learn more about your ideal investment, and the world continues to evolve and change.

Putting Your Investment Thesis to Work

Once your firm establishes a thesis, it's time to leverage it effectively. Remember, a well-crafted thesis serves as a guide for qualifying opportunities and determining their potential value. Integrating your top-down criteria into a robust deal sourcing platform facilitates market mapping, identifies relevant conferences, enables direct sourcing, and offers comprehensive insights into target companies and their competitive landscape.

With over 190,000 sources and millions of data points, Sourcescrub's deal sourcing platform has consistently enhanced research productivity by 42.8% and expanded deal sourcing pipelines by 36%. Let's chat to explore how we can assist you in developing and executing your investment theses in any industry landscape.

Originally posted on “January 10, 2023”

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An Investor's Look at Toast and Shopify

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We also talk about how to write an investment thesis and how a journal can help when markets get choppy.

In this podcast, Motley Fool host Ricky Mulvey and analyst Tim Beyers discuss:

• Toast 's quarter and its move into convenience stores.
• Shopify 's impressive profitability and what could put a damper on the e-commerce platform's growth story.

Then, Motley Fool host Mary Long and analyst Asit Sharma discuss how to write an investment thesis.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center . To get started investing, check out our quick-start guide to investing in stocks . A full transcript follows the video.

This video was recorded on August 08, 2024.

Ricky Mulvey: Toast isn't playing ball, but you're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Tim Beyers. Tim. How you doing?

Tim Beyers: Doing well, fully caffeinated, ready to go.

Ricky Mulvey: I'm going to ask you that question a second time because, the market's been a little nuts this week, and Mary and Asit are going to talk about mindset later in the show. How are you right now as an investor? How's this past week been for you?

Tim Beyers: This is the market that is great for me. I know it's not good for a lot of people, and I will not dismiss that, Ricky. But for me, this is when I am at my absolute best as an investor. I get nervous and anxious when the market is going up into the right for reasons that I cannot explain. When we have irrational sell offs, I'm great, man. I've bought two stocks, new positions this week, which I can't talk about because of our disclosure rules. You can ask me about that another time, maybe next week. This is when I am at my absolute best. I love it when the market decides to do full Kermit and run around with its hands in the air and just cannot figure out which way is up.

Ricky Mulvey: Have also been buying. I talked about it with Gillies a couple of days ago. Let's dive into some individual companies you can talk about. One of them your favorites, I should say. I don't know if it's your favorite.

Tim Beyers: That's still my favorite.

Ricky Mulvey: That is the payment software that asks you a question after you check out and get your cup of coffee. Tim, before I get into the numbers, there was a moment in the Q&A, where an analyst asked the CEO, basically, about the international and retail expansion. I was hoping you could touch on that and maybe use a baseball analogy. What inning are we in in terms of building out the platform for these new verticals? I think that's a fair question. I'm not going to use a baseball analogy. Yep. Then described what was happening. Let me throw that at you, Tim. When you look at Toasts quarter, how would you describe it using a baseball analogy?

Tim Beyers: I would say it's very early innings. I'd say, you know, first or second inning. I think to Aman Narang's credit, he's one of the co founders, said, I'm not going to use a baseball analogy, but I will say that, our core business is 11-12 years old, we're one, not even really two years in, so you could draw a similar conclusion here. We've barely talked about the first 10% of the opportunity here, and we may be even earlier than that. I think in terms of their expansion opportunity outside their core business, we've barely scratched the surface. Overall, remember, this is a company that originally targeted 800,000 US restaurant locations as its core market. That's an immediately serviceable market. Now they have said, and I know we're going to get to this a little bit later. There are some other areas they can expand into that open up another 220,000 locations to them. Now we're talking over one million. Right now they're at 120,000 locations. Are we in the earliest of early innings? Yes, we are. Absolutely.

Ricky Mulvey: Let's look at some of the highlights from the quarter, adding 8,000 new locations, so the total now stands at $120,000 positive gap operating income by a SMIG, $5 million, but that's enough to make it positive Tim, and annualized recurring revenue at $1.5 billion. That is a 30% increase from last year. Sounds like good numbers to me, but what from the quarter really stands out to you?

Tim Beyers: Toast has said that one of the ways you want to measure them is on their core profitability metric. Their core profitability metric. I'm going to say this twice so you can do this math for yourself because they report all of these numbers. They take adjusted EBITDA. That is the numerator. Adjusted earnings before interest, taxes, depreciation, and amortization, they report that on every press release. This quarter, it was $92 million. You take that and divide it by the sum of their subscription gross profit. That's a core piece of their business. They sell subscriptions to the core Toast software, the platform that restaurants subscribe to, and then the FinTech gross profit, which is their share of the business that they help process at all of their restaurant customers. They believe they can get that margin, Ricky up to somewhere between 30 and 35%. They said they can get that stable at that level over the long term. In the latest quarter that is now up to 27.88%. That was a year ago at 5.79%. This is one of those businesses where Toast is saying, here's our target, here's where we think we can get to, and they have unrelentingly marched toward that goal. They haven't slowed down. It's interesting to me that the market says, we don't care about that.

Ricky Mulvey: What is that I heard the formula for it? What is that profitability metric? What's the story behind it?

Tim Beyers: The story behind that profitability metric is, let me put it this way. When Toast goes into a new restaurant group, They will essentially add a loss. They'll do this as a loss leader. They will deploy a bunch of people to help you install their software, and they'll put hardware in your hands, those little tablets that you have seen, if you've gone to a restaurant and you've checked out with Toast, and a server has come up and had a little tablet in their hand, and it says Toast on it. That's all stuff they sell at a loss. Then on the back end, they believe that they will make a significant long term profit, by doing right by you and getting their software and hardware into your hands and helping you do more business at your restaurant group over time. The subscription gross profit and the FinTech gross profit reflect that belief. That the more that you use our products, the more subscription gross profit, the more you will make inside your restaurant group, FinTech gross profit, and for us, once you strip out all of the things that we spend in order to put all this stuff in your hands, the core profits, the adjusted EBITDA, we're going to make a lot of money and so are you. Everybody's going to win here. It's a metric that's designed to reflect what that win, win, win dynamic of the Toast business actually looks like financially.

Ricky Mulvey: One of the stories we got in the earnings call was Taziki's, and they explained how they're able to help them, essentially with the Toast Point of Sale system. They upsell different food items that go well with different drinks. Tim sounds like you're pretty happy with Toast right now, but it doesn't seem like the market is happy with Toast after this earnings release. You said they were unrelentingly going toward this profitability goal. That's usually a good sign for a company. What's the market so unhappy with?

Tim Beyers: I have no idea. The market seems like a teenager that you cannot say anything right like, we're going to get pizza tonight. I'm a vegetarian, and all you ever do is order pepperoni pizza. It's that sort of thing. It feels ridiculous. I do not understand it. I think the guidance was reasonable. It was in line. They didn't beat guidance by any means, Ricky. But the last two quarters, when they have issued guidance on adjusted EBITDA, they've smashed it. They have absolutely smashed their guidance numbers. I don't get it. I don't know why there's so much angst here, but I will say this. I do think this is a good sign for anybody who has not yet opened a Toast position because the market has not yet chosen to believe that what Toast says defines value inside the business. The market is not valuing the company according to those metrics. They're just ignoring it. What I told you about, that core profitability metric, the market doesn't care. They're not paying attention to it. That is not how the market is valuing this business. They're using something else. I don't know exactly what else they're using, Ricky, but they are using that core profitability metric. The institutional investors, do not believe that Toast can scale up its free cash flow margins to much higher than they are today. They just don't believe it. If it does happen, which I believe it will, then I'm going to get paid, and other Toast investors are going to get paid quite well.

Ricky Mulvey: I hope so as a Toast investor. Let's talk about the new verticals. Toast is trying to move into grocery convenience stores, bottle shops. So far, they've got 1,000 new customers in this space. I think of Toast as a restaurant company, but what do you think about this move, and does it affect your thesis for the company?

Tim Beyers: It doesn't affect my thesis yet. It's way too early. I like the idea, especially the idea of putting Toast into liquor stores, because liquor stores have something in common with small restaurant groups that have dedicated owners, because that's really where Toast sweet spot is. It's not in the one, like, somebody who has a bakery shop in one location. That's not Toast score market, nor is it like RBs? It's not that, either. It's in the middle, sit down restaurant, Bistro restaurant group of, 5-20 locations. Liquor stores are like this. Liquor stores, like in a regional area, you might have a group that owns, 5-8 liquor stores. That's actually a great market for Toast, and they tend to use really old Point of Sale technology, and they could benefit. They have to manage a lot of logistics inside those liquor stores because that's a high turnover business. People come in, and they're buying wine, beer, hard liquor, they're buying it all the time. You have lots of supply chain logistics. You have payroll and inventory, just like anything else. You have the other common things that are, areas of interest and or pain for a retail business. I think it's a very smart idea. Regional grocery stores, small markets, local liquor store groups, I think that's an excellent place for Toast to strategically expand.

Ricky Mulvey: Let's move on to Shopify where we are getting a free cash flow story. Yesterday was some welcome relief for Shopify Investors. Last quarter, shop told investors to expect some margin pressure, and this quarter it beat expectations handedly. Free cash flow is up about 250% from the prior year. Tim, I know you like talking about unit economics. That's a unit economic story. What's going on at Shopify?

Tim Beyers: We hope so. It does seem like it. I think it's more a cost management story. I think they've done a really good job of getting on the other side of selling the logistics business and getting back to core principles, so in that sense, sure, it absolutely is a unit economic story here. But what we're seeing is that Shopify is expanding its influence and it's doing good things to capture a larger market. There's just more business being done on Shopify. As they scale up, they do get the benefit of it. As long as they keep their unit economics relatively steady, they are going to get that benefit of rising cash flows, rising margins, as their customers take them up on, just give more responsibility to Shopify overall. You could certainly see that. The gross merchandise volume was up substantially to $67.2 billion, I believe. Now you are at, what is that? $252 billion in annualized gross merchandise volume. That is that's serious business, Ricky.

Ricky Mulvey: Shopify crossed 1 trillion total in gross merchandise volume. President Harley Finkelstein would like us to reflect on that. I think there's another number you want to reflect on. You're giving me a shrug of emoji right now, Tim.

Tim Beyers: Harley Finkelstein is a terrific salesperson, and he he is a brilliant hype man for Shopify. I think you need to know that that he's a brilliant hype man and not take him exactly at his word. He's very good, though. He's a really good servant for Shopify. I don't think that one trillion metric matters all that much. What I will say is that the value that, Shopify can compound value for investors is when that gross merchandise volume number grows, and with it, the attach rate. As really the way that Shopify goes up into the right and gets real hockey stick growth for investors is if there's more business being done on the platform, more sales, more payments processed. Then more of that activity accrues to Shopify. It's roughly stayed stable, though, Ricky. The attach rate isn't going up. It's going down, but I would say it's largely flat. In the latest quarter, that attach rate was 2.98%. The way you get that is two billion in revenue. Divided by 67.2 billion in gross merchandise volume. It's about 2.98%. A year ago, it was at 3.09%. Down a little bit. I would call that roughly flat. The way that Shopify from here at its valuation. If you want today's valuation to look cheap, get that attached rate up to 3.5%, get it up to 4%. If you have vendors, shoppers, the entire ecosystem of people that are participating in the Shopify experience. If they are giving more dollars to Shopify, look out. Today's valuation will look very cheap. If the attached rate doesn't move that much, Ricky, then I think you could make an argument that Shopify is maybe not outrageously priced, but probably at least fairly priced. You need that attached rate to go up.

Ricky Mulvey: You're saying you need them to flex their pricing power a little bit for some hockey stick growth?

Tim Beyers: Yes, I need them to be involved in more parts of the transaction. Yes.

Ricky Mulvey: Any yellow or warning flags in Shopify's quarter. You said Harley Finkelstein is a great salesperson, but, this is also a company where less so to do with the company, more to do with the valuation. It's gotten ahead of its snowboard before. Any signs of caution stand out to you.

Tim Beyers: I don't know that this is a cautionary note, but it is something to be aware of. Payments are now 61% of gross merchandise volume. The business that's being done on the Shopify platform, all of those dollars, a lot of it that, Shopify gets credit for is there, not because there's a lot more commerce being done on the platform. Although there is, there is more commerce being done on the platform. The growth is coming from Shopify being involved in more of the payments, more of the transactions. That's not necessarily a bad thing, but it is at least a risk because it puts Shopify at conflict with payments processors. They do need to not forget their roots. Shopify needs more commerce to happen on its platform, not just more involvement in payments on its platform. I think that'll happen. They are talking about, greasing the skids for things like international sales. That would be good. You need that. You need more commerce on the Shopify platform, and you need Shopify getting involved in more of those payments transactions. If those things happen, and they don't need to happen overnight, Ricky. This can be slow and steady wins the race here. A little bit at a time. We're expanding the reach of the commerce platform. We're seeing more commerce from more regions on the Shopify. That's a good thing. Then if there's more payments, and there's more Shopify involvement in those payments, that is also a good thing. You don't need much. Like, little incremental improvements will generate big leaps in cash flows. I am cautiously optimistic about the way that Shopify is going about its business. Let's not pretend that this is, smooth sailing from here. There's work still to do.

Ricky Mulvey: Good place to end it. Tim Beyers. Appreciate coming on, and thank you for your time and your insight.

Tim Beyers: Thanks for Ricky.

Ricky Mulvey: As we wrap up, just wanted to note our latest premium podcast launched this week. It's called Epic Opportunities. This is available to members of Epic and the Motley Fools advanced investing services. You can catch the show on Spotify by linking your Motley Fool account or through the Motley Fool App. We'll put links to all of those in the show notes for today's episode.

Ricky Mulvey: All right, up next. We've got a volatile market, and Motley Fool Senior Analyst Asit Sharma joined my colleague, Mary Long to discuss how to write an investment thesis and how a journal can help when markets get choppy.

Mary Long: Asit, it won't come as any surprise to you when I say that this week opened with a whole lot of market turbulence. For today, we're going to focus less on what happened, why that happened, and more talk about what do you do when this stuff happens? Because whether the market stays in correction territory, reverts, re corrects, goes up, goes down, what have you. The fact of the matter is that when you're investing, there will be times when the stock market gets spooked. There will also be times when it gets unspooked, and then spooked again. With all that in mind, what do you do when volatility and uncertainty seem to be everywhere you turn.

Asit Sharma: Mary, there are a few things that I do. One is just totally related to the investing side of it. I try to double down on businesses that I like. Few reasons for this. One is the obvious. If volatility is in full swing, prices are all over the map, then maybe you get some buying opportunities for companies that you already have conviction in. It pays to go back to your watch lists or businesses that you've studied. The second is more of a mindset thing. The market's going crazy. Where do you want to focus your attention on like the flashy news sites that are trying to draw you into more angst? Or do you want to go to a safe place, which is like let me go back to that transcript where Satya Nadella talked about how Microsoft was going to destroy its competition. He didn't use those exact words, but he talked about all that great CapEx investment. That's a place where my mind should be, I think, in times of volatility, focusing on what's going to make money. It's the business results, not the share price.

Mary Long: Fair point, but I have to hone in on something. Is Satya Nadella really your happy place? The Microsoft Earnings call transcript is your happy place?

Asit Sharma: Not really, but this is an investment focus podcast. People don't want to hear about the mundane ways that I get to my happy place. Which is this zig zagy route. Sometimes it starts with just cleaning the inside of my grill. I think I'm starting to resonate here with some people. It may end in a paperback novel, I don't know. This is off topic for us. This is not what folks want to talk about. The market is so volatile You want to hear about that investing happy place. [laughs] That's why I went first.

Mary Long: The investing happy place. We can bring it back to the investing happy place. Here, I'll make a smooth segue. You mentioned Paperback Novels. The other day, on our Members only Live Stream, right in the midst of this Monday, market, mania, whatever we want to call it. You talked a bit about keeping an investment journal and the importance of that and how the idea was that, when times are tough, you've got this written record of why you believe in a company that you can return to. Talk to us a little bit about your investment journal and what goes into it. How do you write an investment thesis right off the bat?

Asit Sharma: So many great questions. First of all, an investing journal it means different things to different people. For some of us, it's a place to deal with our emotions when the markets are really coasting and we see our wealth expanding. It could be a way to just keep ourselves grounded. Just jot down those emotions. I feel really great, but I'm scared at how well this is going, or it could be the opposite. It could be a time like this where you see so much volatility in the markets, and you just want to document that it's unsettling. Maybe just write down what those long term goals are, the ones that got you into your whole investing journey, that's always helpful. For other people, these aren't exclusive sets. It could be more about trying to document why you like a company, what you think its characteristics are that are going to advance it past other competitors in the business world and that's the share price should follow why the share price will rise versus other companies or the market in general. That's always fun to return to, which gets us to your third question here, which is, how do you write a business thesis? What is it? I will tell you when I started in this game, I thought it was about a lot of facts and figures. In fact, if you'd asked me to write a business thesis or an investment thesis about a company, I don't know 10, 15 years ago, I probably would have returned you three pages to prove a point. What's that point? I'm Smart.

Mary Long: I'm smart. Look at your numbers.

Asit Sharma: Exactly. You should listen to me. Look at all this stuff. Look at these reams of data. I'm supporting my points. Sharma, what are your points? I don't know. [laughs] Stocks are going to go up. I learned over time that an investment thesis is really simple. There was a great investor who used to work at the Motley Fool. Some of you may know him if you are in the gaming world. His name is Aaron Bush. At one time he posted on Twitter now X, really succinct bullet pointed list of things you should do as investor. One of the main tenets of that list is like, just narrow it down, dial it down, make it more succinct. Don't overthink this. That is very true as I've come across other investors and learned from so many great investors here at the Motley Fool. An investment thesis should be simple, easy to grasp. You and I should be able to explain in this conversation, Mary, before people stop listening, two or three investment theses to each other, because what you're trying to identify is the crux of why a company should succeed, and that usually is pointing to two or three advantages in the marketplace, how that company is going to capitalize on them. If there are a gazillion advantages that a company has, I will tell you that's too good to be true. There's something on the other side of that coin you may not have looked at. In my mind, it is something very simple.

Mary Long: In preparation for this conversation, I had asked you if there was a company or a stock that maybe you were revisiting in light of all the ups and downs over the past few days. If you wouldn't mind sharing the thesis of that company with us, you took what should have been maybe a simple request, and you challenge yourself because you picked a company that's hard to explain. Let's see if you can do it. Could you share that thesis with us that you drafted up before this?

Asit Sharma: Sure. I want to talk about Lam Research . This company is a leader in the semiconductor industry. It makes machines that make silicon. You need complex machines to build integrated circuits. Lam sells these machines to companies that manufacture integrated circuits. I like this company because it's yes, somewhat cyclical. Mary most of its equipment is used to make electronics. Computers, memory, etc. It's cyclical, but it has a tailwind and an advantage in this economy, which is shifting toward Gen AI products. There are really a few things behind that. One is that Generative AI is increasing demand for a type of storage called N-A-N-D flash storage. That's a type of memory that Lam's tools specialize in. Also, Generative AI is pushing up demand for something called high bandwidth memory. This is really stacking memory on a chip that often surrounds the compute functions of the chip. It's something that NVIDIA is requesting more of and AMD is requesting more of. Companies that make this type of memory or the tools to make this type of memory are going to benefit. Lam is going to benefit from that. It's trading at really attractive forward multiples. The stock is down due to this volatility and a few other factors. I don't know, Macro economic acceleration, more angst in the market, and some slacking off of Generative AI demand, which is going to happen at some point could push shares down further. Maybe they're not such a bargain here. Also, I should note this geopolitical picture we have with China and the semiconductor back and forth between our two countries is going to catch some companies, perhaps like Lam in the middle, Lam has about 39% of its latest revenue [laughs] out of the greater China region. With that, I think my initial thought right now for Lam Research is actually to buy a few shares to dollar-cost average in. I don't own any shares right now.

Mary Long: My next question was going to be, has your mind changed on this, but it sounds like maybe it's a newer idea that's been on your watch list for a minute that now makes sense to jump into.

Asit Sharma: Yeah I think my mind is changing because I've had it on a watch list for a long time. I've studied this company. It is a recommendation in Stock Advisor. There's some free IP for those of you who aren't members of Stock Advisor. We like this company very much. I've looked at it for other services. For me personally, I'm warming to it. The thesis is changing somewhat. Probably the price falling a bit is pushing that. Also, the more I learn about the trends within the Gen AI industry, the more I see that Lam is an essential player. It's not that it doesn't have competition, it does. I wouldn't put it quite on the level of companies like ASML . Another specialized company which has literally no competition right now, but not a bad one to look at.

Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about. The Motley Fool may have formal recommendations for or against buyer sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.

Asit Sharma has positions in Advanced Micro Devices and Microsoft. Mary Long has positions in Shopify. Ricky Mulvey has positions in ASML, Shopify, and Toast. Tim Beyers has positions in Shopify and Toast. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Lam Research, Microsoft, Shopify, and Toast. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .

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Prior to becoming a Founder for Curiocity, Hassan worked for Houlihan Lokey as an Investment Banking Analyst focusing on sellside and buyside  M&A , restructurings, financings and strategic advisory engagements across industry groups.

Hassan holds a  BS  from the University of Pennsylvania in Economics.

Currently, Adin is an associate at Berkshire Partners, an $16B middle-market private equity fund. Prior to joining Berkshire Partners, Adin worked for just over three years at The  Boston Consulting Group as  an associate and consultant and previously interned for the Federal Reserve Board and the U.S. Senate.

Adin graduated from Yale University, Magna Cum Claude, with a Bachelor of Arts Degree in Economics.

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