Private Equity

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Learning to invest in startups: how to define your investment thesis when you're just starting out?

Smart startup investing starts with a solid investment thesis. Here is how to build one, step by step.

Thibaut GIMENEZ

/ Sommaire

Investing can seem intimidating, especially when you're just starting out. With technical terms to understand, risks to assess, and strategies to put in place, it can be hard to know where to begin.

To succeed, one of the most important steps is to establish a solid investment thesis. How do you build one? We’ll explain everything!

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What is an investment thesis?

Before we dive in, a quick definition is in order. An investment thesis is a strategy that will guide your investment decisions. A good investment thesis should be clear, concise, and easy to understand, while also being flexible and adaptable to economic changes.

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Step 1: Diversify your investments

The number one rule, which applies to all types of investments, is DI-VER-SI-FI-CA-TION. Never put your entire portfolio into a single start-up, or even a single type of investment. Instead, balance between:

Real estate
Publicly traded companies
Various funds
Private equity and start-ups

To give you an idea—setting aside my job as a VC investor—personally, I have roughly 70% of my investments in real estate, 20% in bonds, and 10% in private equity (start-ups).

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Diversifying your liquidity

The advantage is that by diversifying your investments, you also diversify your liquidity. Because, yes, liquidity varies between physical real estate, paper real estate, bonds, and publicly traded or private stocks.

In some cases, you are tied up for 5 to 10 years, sometimes 12 to 18 months, and in others, you can get your cash back in 5 minutes.

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For example, even if my real estate is tied up for 15 to 20 years, I still have the option to sell easily (because the properties are located in cities with fluid markets) and recover cash within 6 months.

As for the bonds I subscribe to, they have maturities of 6 to 24 months, providing liquidity within that timeframe.

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When it comes to start-ups, it’s a different story since we have almost no leverage over liquidity. So what do we do? We wait! At best, it can take 2 years, but in most cases, it’s more like 7 or 8 years. :)

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Step 2: Define your thesis

Now that we’ve cleared the air, it’s time to explain everything. If you’ve decided to invest in private companies (generally start-ups), you need to define your thesis. To do that, we recommend answering the following questions:

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How much can you invest each year?

This is the first step. If, for example, you want to invest €10,000 per year, you will need to invest €1,000 or €2,000 across 5 to 10 projects. The challenge: startup founders don't like tickets that are too small—it's too much effort for them and too many shareholders to manage in the end. You will therefore need to go through club deals or crowdfunding platforms that group small tickets into vehicles (Special Purpose Vehicles).

On the other hand, if we are talking about €200,000 per year, you can place 10 or 20 tickets of €10k to €20k into 10 to 20 startups directly. No need to go through club deals anymore!

For my part, last year I placed about thirty tickets in startups, each ranging from €1,000 to €10,000.

And withSuper Capital VC, we invest in about sixty tickets per year. All between €50,000 and €100,000 for the first ticket, and between €50,000 and €400,000 for the second ticket, once we know the company better ;)

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In which country do you want to invest?

Do you prefer to limit your investments to France, Europe, or think even bigger? This can also be a way to diversify! A quick tip: if you want to invest in the United States, for example,Angel.comakes it very easy to do so.

Personally, I have chosen to invest about 50/50 between France and the rest of the world (notably in the United States).

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Which themes do you want to invest in?

Likewise, is there a business sector you know well or a sector that you feel is gaining momentum?

What do I do? I invest in sectors that I like, that I know at least a little bit, and, above all, where the product resonates with me.

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Do you prefer to be a "passive" or active investor in the company you invest in?

Do you want to bring value to the CEO, open doors, or advise on strategy? All of this depends, of course, on your credibility in the subject but also on your relationship with the CEO.

For my part, I am passive in 90% of the companies in which I am a shareholder. And I am active, notably atL’atelier Genevieve,Cigoireand a little bit atMy Beez BoxagainstYMO!

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At what stage of company maturity do you want to invest?

At the very beginning, when there is no revenue yet? This is what we call pre-seed.

Or would you prefer that the "Product-Market Fit" be proven, with €10k to €20k in MRR (Monthly Recurring Revenue) already secured?

In the latter case, ask yourself if you want to see that €10k to €20k in revenue generated by a single client, or if you prefer it to be spread across several clients.

You might also prefer companies that have already surpassed €1M in annual revenue. Let’s be honest, that’s harder to find. Even harder? Finding a company that is already profitable!

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Personally, I only invest in pre-seed when it involves serial entrepreneurs—or when I have a very strong conviction. The rest of the time, I wait for the start of healthy monetization (meaning the company already has several clients and a solid, recurring business model with monthly growth).

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When do you want to exit?

As soon as possible? Or, on the contrary, do you prefer to stay in for as long as you can?

Here again, strategies vary widely (and there are no right or wrong answers!). Some prefer to exit as soon as they can—when there is a large funding round like a Series B, for example—to realize their capital gains and get their cash back to potentially reinvest elsewhere or spend it. Others want to achieve the highest possible multiple and stay until the very end—until the sale or IPO.

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What I like to do is exit partially (at 50%) when I have the opportunity, to secure a nice multiple (2x, 3x, or more) and keep the remaining 50% to try and reach the highest possible multiple on that portion.

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