Many investors believe in thesis-based investing, but I personally find it tough because most successful companies are not built on the back of the original business model that founders started with. Others focus on founder-first investing. For teams that meet the basic bar, I struggle to judge which founders to back in absence of a long drawn business model discussion with them.
Without claiming to be a good (certainly not great) investor, here’s how I’d describe my investment approach.
I don’t believe in building a business model level ‘thesis’ on a sector. Instead, I believe that as an investor, one needs to know enough about
-how the space works
-what drives customers to spend their time and money
-where are the profit pools
-what are potential pain points & how are customer habits changing
-how can technology change the future etc. etc.
When I meet founders, I spend time trying to understand why they are building, what they are building, and any customer insights they may have, among other things. This is not with an intention to see if their business model will work or not, but more to validate if their solution makes logical sense based on what I know about the sector.
Irrespective of the initial business models, founders who iterate, learn, evolve and survive generally come out to be the winners in the end. In that context, I neither have a thesis based nor a founder first investing style.
That said, there are scars from failure of certain business models in the past. Those memories can sometimes influence how I evaluate similar ideas. But I’ve been lucky to be part of a team that often challenges these biases and pushes me to ask what’s different this time.
Finally, there’s no one right way to invest. Others at our firm, and in the ecosystem at large, have very different (and successful) styles. This is just what works for me.
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