My angel investment thesis
I'm often asked what makes someone a "real" angel investor, because there is such a wide spectrum in what it means. It could mean anything from being an active investor with a structured deployment timeline, to having made one investment 5 years ago.
I think a lot of people start their angel investing career as the latter, and slowly over time move towards the more structured route. One of the key markers of being a more "professional" angel investor, is having a strong investment thesis. Not just investing in random things as you see them coming, but having a specific goal of what you're looking for and why.
I've been investing in startups now for over 6 years, and it's been a journey. While I have developed a thesis over time, my recent MBA helped me put more structure to it in a really meaningful way.
What is a thesis?
An investment thesis is the "why" that guides every investment decision. It explains what sort of investment you focus on, and typically includes things like:
- Geography - where companies should be based
- Industry - what the company should do
- Stage - if it's just an idea, there's a working product, or it's an established business
- Founder profile - who builds the company
- Anything else
This is different from your investment strategy, which explains how you will go about deploying capital aligned with your thesis. This includes things like:
- How much you'll invest in each company and at what price range
- Expected horizon - how long before you expect a return on the investment
- Expected returns - how much return you expect across the portfolio
- Portfolio management - what you as the investor bring towards helping the company achieve its goals
Why you need a thesis
In simple terms, you need a thesis because, without one, you have to assess every investment decision in complete isolation. It would be like applying for jobs without first deciding - where you want to live, what industry you want to work in, what stage of company you want to work for, etc.
Your thesis should be backed up by actual research and analysis of what you think makes a good investment. So the development of your thesis actually forces you to articulate why these factors make an attractive investment. You pick, for example, a certain geography because you believe it has potential to provide good returns over your defined horizon.
When you've developed a thesis, you can then use it to filter incoming deals. Checking if a potential investment aligns with your thesis is typically the first step in assessing a deal. If it doesn't fit the thesis, there's no need to dive deeper.
It's essentially the idea of looking at your entire portfolio before adding an investment. Not just looking at something one-off.
Developing my thesis
I've been investing for over 6 years, and my thesis has slowly developed and narrowed over the years. One question that has helped me refine it is:
What am I trying to achieve with angel investing, beyond the financial return?
For me, the additional "why" has been about supporting and nurturing entrepreneurs and businesses in Nigeria and Africa. The next question is how do I achieve this in a way that will generate the desired financial return.
Based on this, here's a (very) rough outline of my thesis.
- Geography - Africa, with a slight focus on Nigeria. Besides my additional "why", we all know the stats on how Africa's population is expected to double over the next ~25 years, which makes it an important market to have exposure to.
- Industry - relatively agnostic to balance out the geography focus. However, I'm interested in businesses using technology in new and unique ways. This is because I believe this gives a meaningful edge, but also because, from a portfolio management perspective, this is where I can provide additional support.
- Stage - relatively early, an MVP exists and there is some proof that this is something people want. Finding product-market fit is hard and the primary reason startups fail is not being able to find a market in the first place.
- Founder profile - a lived experience of the problem trying to be solved, and a unique capability/skill to craft the solution to solve it.
Now I of course have not been absolutely perfect in applying this, but it has been a great framework to refer to as I have progressed.
If you're also an angel investor, would love to hear about how you have developed your thesis.
If you think you're a founder and fit this thesis, let me know what you're building. Disclaimer that I am just one person right now, I don't have a team (besides Ade), so no guarantees of a meaningful response. But as I continue to develop my next projects I'll be sure to reach out.