On VC Thesis Evolution

On VC Thesis Evolution

Since I started my VC career back in 2009, I worked for 3 VC firms and invested in 35 startups in the US, Europe and the Middle East. Over time, I learned a lot, specially from mistakes, and I kept evolving and changing themes and investment theses. This post is a snapshot of what I think of my investment thesis now (which of course could change in the future).

A year and a half ago, I decided to move to Silicon Valley (SV) and get some operational experience in a FinTech SV startup. I wanted to live the experience and see from within, what’s so special about SV startups that makes them succeed, and also what’s so special about SV VCs that makes them select the best companies and generate the highest returns.

Well, maybe in another post I can talk about those unique characteristics of SV startups and VCs, but the experiment helped me look at my past experience in another way!

My thesis journey

I realized that I went through several stages since I started my VC career:

1. Follow the trend:

• At the very beginning, I was just following whatever was trending at the time. I used to look at what kind of companies get acquired or get big funding!

I was interested in ad-based content startups for some reason! It was a trend at the time. The trend then changed from ad-based revenue, to subscription revenue models, and I just followed that and started to look for such startups! The trend changed to social media apps, where my attention has shifted as well

2. Predict the trend:

• Soon enough, after few failed portfolio companies, I realized that if the trend is obvious then I was too late as a VC to invest in it! So I wanted to do more research to “catch the wave” as it develops, and before it becomes an obvious trend.

That helped me to get out of the social media bubble and look at actual technologies. At that time, I started to learn about: Saas, big data and AI, IoT, VR/AR, and cryptocurrencies and blockchain.

3. Focus on an industry:

• The wider my research got, the more overwhelmed I got about all those new technologies. I realized that I can’t know it all.
• I also learned it’s not about the revenue mode or the target market, or about specific technologies per se, it’s about how new technologies are applied to specific industries to disrupt them.
• I realized that most big firms have several partners specialized in specific industries that they know well and are well-connected within its circles. Which means, although a person can’t know it all, but a firm can, through its partners.

4. Keep learning about new technologies:

• While focusing on a specific industry, I figured I should keep learning about new technologies in general.
• This will help in seeing the future of an industry if/when such new tech is applied to it. This also includes researching and studying all attempts of applying new tech to the selected industry.

How I think about VC investment thesis now

Because Tech keeps evolving, for every fund, or every few years, I believe the firm should build it’s thesis by following these 3 steps:

1. Bring in tech-savvy and well-connected partners (from entrepreneurial backgrounds) who can add value in specific industries (Fin:tech, Ad:tech, Ed:tech, HR:tech, Health:tech, …) where the selected technologies can be applied,
2. Pick a suite of new technologies (Software, VR/AR, IoT, AI, Blockchain, …), and keep educating their partners about new tech in general and the selected tech in specific,
3. Decide on themes for how to apply the selected technologies (enabling products/infrastructure, networks and marketplaces, human-computer interaction, consumer/enterprise, …).

My most recent investment thesis

Following that logic, I decided to focus on a specific industry not on a specific technology (while keep learning about new technologies in general), because again, tech keeps evolving, and making big money is more about how to apply a new tech to disrupt an industry.

• Industry: FinTech
• Technologies of interest (for now at least): AI and Blockchain
• Themes: products that enable people/companies to: make money (Numerai, RobinHood, Kraken, …) and move money or assets(Abra, eShares, Tilt, …).