Does anyone have any tips/advice around how to write an investment thesis? - Searchfunder

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by an member from York University
in Toronto, ON, Canada

6yrs ago

Does anyone have any tips/advice around how to write an investment thesis?

I am looking to get into the habit of creating this as I assess companies and build an understanding of my search criteria. It'd be great to get your thoughts on an outline / resources that could point me in the right direction.

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reply by a searcher 6yrs ago
from University of Colorado at Boulder in New York, NY, USA

Here's how I did it.
1) Start with the 'why' of your search. For me, the companies I am looking to acquire are first and foremost geographically independent. My reason for pursuing acquisition entrepreneurship is freedom, so it's important for me to maintain the ability to work from anywhere. For you it may be revenue consistency, or growth potential, or to build new technologies, etc, but the 'why' informs the first layer of narrowing down the universe.
2) Next, consider the size of the company you are looking for. Consider the amount of capital you have available to invest, the amount of external capital you can call upon from investors, and the amount of debt you are able to and comfortable with taking on. Think about size from the perspectives of sales price, SDE, and profit margins to get a more holistic picture of what you're buying
3) Draw upon your personal experience. What is your professional background? What value can you and you alone add to the acquired company? Only consider companies where you will have the requisite skill set and passion to take it to the next level. This is a long term investment, not a quick flip. You have to enjoy the journey to succeed. Narrow down the verticals the company operates in, whether that's what type of product they sell, what kinds of customers they serve, or the sales channels they use.
4) Establish financial metrics of your dream acquisition. Do you have minimum profitability targets? What about a minimum number of customers or customer LTV? What about customer acquisition cost or MRR (in the SaaS space)? You'll likely refine this as you go through your search and see what real companies look like, but it will also allow you to quickly filter through the majority of bad leads before finding one you like.
5) Utilize a top down approach. What kinds of companies do you feel will do well in the coming years? Given where we are in the economic cycle, it's likely prudent to consider what will happen to your target companies if there is a deep recession. Are you buying a company that sells trendy items like fashion accessories or fidget spinners? Or are you buying a company that provides a good or service that is needed in good times and in bad? There's a time and place for each type of business and the ones you target will be dependent on the previous 4 steps, but do not miss the forest for the trees. Simply put, the macro will absolutely affect the micro.

In short, think about the kinds of companies you will feel comfortable with, confident growing, and proud to run. Build your investment thesis around that and you'll be golden. Good luck.

reply by a searcher 2yrs ago
from Concordia University in New York, NY, USA

Thanks for posting Ryan. Very valuable information.

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