Thesis driven funds
Can someone who works at a thesis driven fund please explain to me how it works? We aren’t like this at all, but apparently some funds get a group of juniors to prepare a white paper on an industry and they commit to deploying X amount of dollars into a sector over Y years. Curious to see how people do it and whether you think it’s a successful way to invest.
My fund focuses in one industry, but doesn’t go to the extent of I must allocate x amount into each particular subsector we build a thesis in, but we are “thematic”.
For us, this involves choosing a sub-sector or theme per quarter, going deep in to pull together a white paper, map of the landscape, run industry calls, and reach out to 10-15 of the top players in each to assess how interesting this area is to invest in and if there are deals readily available. These themes half the time are decided by suggestions from our industry network, the other half are partner driven initiatives / interests where they just thumb in the air feel is where the $ opportunities are hidden.
Not every theme leads to an investment being made in the space, most of the time they do for us, but a lot of times we come to a conclusion that there isn’t anything for us there at the time. But we build some sort of “thesis”. Could be many things. “Xyz area of zyx is interesting, in high demand, but tough to scale business here past yxz in Rev due to yzx”. “ABC is super exciting space, but only 3 real elite players that are all already invested in at untenable valuations”.
The real value as an associate from a growth an knowledge perspective is 1) I build a respectable level of industry / subject matter expertise apart from associates who’s job is mostly excel analysis number crunching. It makes a difference. I feel more impressive in general casual conversation, depth of investment acumen, and ability to relate in all aspects to founders / operators I come across in those select industries (sourcing, portco work, etc.). 2) helps significantly with my actual analysis work I have to do. I just get the bigger picture. Modeling makes more sense. I’m not just randomly haircutting or dialing up Growth rates or drivers anymore. The assumptions are more tangible when I have a grasp of the subject matter expertise the business is operating in. Collectively saves me time tbh. 3) maybe a more hopeful point, is that being the one that pulls together this white paper and developing this industry expertise almost builds a form of moat at my current job. I’m now the “[Insert Sub-Sector] guy”. Ask yours truly about xyz if you need to know more about zyx. Hopefully that sector leads to an investment that’s a 5x’er for the fund, boom my name is associated with it.
I agree a lot with this - operating in MM - but sector team in Europe.
Having industry network / focus helps with:
Thank you both for the commentary. Any insights on the potential downsides/risks of thesis-focus at the junior level? I would imagine if you don't gain any transaction in your white papers or don't win any deals in your space, you may not get any deals done?
Also I imagine switching verticals/industries will be tough as you get very siloed?
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