How to Create Your Own Early-Stage Investment Strategy

When working in an investment team, there are a number of questions that commonly pop up: what is a good startup? What should we be investing in? What trends, topics and industries should we focus on? Which ones are good venture cases, which ones not? The answers are not the same for everyone. But, hopefully, by keeping in mind some of these tips and tricks, you’ll find your way to the best answers for you.

Use your passion, interests and strengths

Follow your passion and interests. Why? Because that natural curiosity is what will make you a good partner. A good investor shares the excitement in an industry and product with their founders. 

That passion also means that you probably also have prior experience and skills that you can bring to the table. You had an enterprise software company in the past? Good starting point. You were on the board of a marketplace for years? You’re going to have lots of insights that will help the founders.

Look at the deal flow and portfolio

We know for a fact that all the relevant trends can be seen in our deal flow. Start by looking at your portfolio for companies or business models that worked well in the past (e.g. lending, marketplaces, etc.). 

Looking forward, at any given moment in time, there are typically a number of similar startups (think tax return solutions for B2C, B2B, accountants, etc.) in your deal flow. That's a good opportunity to do more research into different - but comparable - business models in the current market. Even companies that you don’t want to invest in can offer insights. You might find parts in their value chain that you like. 

These insights combined can go a long way in helping you to build your own investment thesis.

Think about the future

Will people buy cars in 20 years? Or "subscribe" to mobility? Will banks be the prime source for lending in the future or will there be an alternative market for it? Making informed predictions about the future is part of our job. But while Series A investors invest in Seed companies that have a history of two or three years, in Seed, the signals are blurry at best. Looking at what other investors have done is not really an option. 

So take your team (again, it's about people) and imagine what might be.  What layer of the business do you believe makes the most sense longterm (i.e. do we invest in cryptocurrencies or wallets or blockchain technology, etc.)? Pick some areas and do the research. Is there already deal flow there? Are you seeing the beginning of any trends? Where is the most upside, the biggest market potential? Where will small companies be able to prevail?

Looking upwards you will only see clouds

Speedinvest believes in "conviction-driven" investing. In other words: don't look at investors one or two levels up. Instead, make up your own mind. 

It might be possible in commodities trading or on the stock market to "predict" some behavior by watching other investors, but it is certainly hard in venture. Yes, sometimes a Series A investor will send you a really good deal where they have already done the homework and looked at some fundamentals. The deal is just "too early" for them. 

This doesn’t mean they will invest in the next round, though. By that time, maybe the market dynamics will have changed, competitors will have emerged, or the business might have moved sideways. Point being, it's a cloudy sky that lets through very little light, so better to focus on what is in front of you.

Uncapped upside is what drives venture

No matter your strategy, look for companies that can become really, really big. You don't have to believe that every company can become a unicorn (that's something no one knows in the first place), but we have to stay open to the possibility. Investing in companies or markets with capped upside isn't compatible with the business model of venture.

Don't overthink it

Picking a strategy is an art, not a science. Don't spend too much time on it. Pick a hypothesis and run with it. The best deals in venture have been done by pure luck just because investors were active in the market and willing to take bold bets. Some even say you can only win with contrarian decisions. Anyway, it's much more about training your intuition than doing the math.

Embrace the anti-portfolio

An inconvenient truth of our job is saying No... and being wrong. A lot. So live with the fact that the anti-portfolio will always grow. It's the same for everyone in this industry.

Speedinvest is a leading pan-European, early-stage venture capital firm. Our portfolio includes Wefox, Bitpanda, TIER Mobility, GoStudent, Curve, CoachHub, Schüttflix, TourRadar, Adverity, and Twaice. Sign up for our newsletters to get our exclusive content delivered straight to your inbox.