A good investment thesis for investing in startups is the distinction between scattershot wagers and a robust, successful portfolio. 
 
It’s the operating template that gets your team aligned, speaks to LPs, and maintains you focused through the inevitable hype cycles. 
 
But here’s the bad news: Lots of investors, even veteran ones, make old-school mistakes when constructing or refining their investment thesis. These errors don’t only result in a few poor deals—they can torpedo an entire fund. 
 
If you’re an emerging VC, angel investor, or even a founder seeking to understand how investors think, here are some of the most common mistakes in building an investment thesis for startup portfolios—and how to avoid them. 
 

1. Misjudging Market Timing 
This is perhaps the most common error even seasoned investors make. Yes, “big markets” are desirable. But timing is key. Being too early can be worse than being too late. 
 
Investors were burned supporting AR/VR in 2016, pre-consumer readiness. 
Cleantech 1.0 didn’t succeed partly due to early adoption curves. 
Crypto cycles have erased poorly timed capital. 
 
How to Avoid It: 

• Research market readiness carefully. 

• Consider customer behavior trends, not TAM slides. 

• Leverage “market pull” tests—early revenues, waitlists, even social media traction. 

A good investment thesis for startup investing must answer why now, not merely why ever. 
 

2. Dependence on Hype Cycles 
AI, Web3, climate tech, and other hot spaces attract billions in weeks once they enter a hype phase. Funds feel pressured to “have exposure” regardless of whether they have a strong conviction or not. This results in: 

• Overpaying for marginal teams. 

• Investing outside of your core strength. 

• Creating a portfolio of crowded bets with low differentiation. 

How to Avoid It: 

• Establish your edge. Why are you going to win here? 

• Say no—yes, even if everyone else is piling in. 

• Test your thesis with tough questions. 

A good investment thesis for startup investing articulates why this industry, why this team, and why this approach, regardless of hype. 
 

3. Founder-Market Fit Ignoring 
A billion-dollar market and great technology are worthless if the right founding team isn’t there to solve it. But many investors get swayed by glossy slides and overlook the human side. Founder-market fit means: 

• The founder knows the customer intimately. 

• They have special insight or experience in the category. 

• They’re obsessed enough to ride out the tough years. 

Too many investment theses don’t factor this in. They write about industries or technologies without specifying the kind of founder they wish to support. 
 
How to Avoid It: 

• Make a founder-market fit an express requirement in your thesis. 

• Create systematic frameworks for evaluating founders. 

• Ask hard, personal questions regarding why them. 

4. Not Defining Stage and Verifying Size Clearly 
Another timeless startup mistake investment thesis is being too ambiguous about stage focus. Most funds claim to be “early-stage” without specifying if that equates to pre-seed, seed, or Series A. 
 
Likewise, unless you specify check size, you end up being too diluted to make a difference or over-committing with no reserves. 
 
How to Avoid It: 

• Define stage, check size range, and reserve strategy clearly in your thesis. 

• Consistently communicate this to LPs and founders. 

• Align your diligence and sourcing accordingly. 

5. Ignoring Portfolio Construction Strategy 
Your thesis shouldn’t merely describe what you invest in. It must specify how much, how many, and how you will follow up. Examples of common mistakes are: 

• Overweighting a few “pet” bets. 

• Running out of capital for winners. 

• Ignoring portfolio company correlation. 

How to Avoid It: 

• Model your target portfolio ahead of time. 

• Stress-test with alternate outcomes and failure rates. 

• Go over your construction quarterly to remain grounded. 

Final Thoughts 

A good investment thesis for startup investing isn’t a static document. It’s a living strategy you come back to, revising, and discussing regularly. 
 
Steep yourself in these common pitfalls, and your thesis is no longer a fundraising deck bullet point. It’s your competitive advantage. Because ultimately, venture capital is not about wagering trends—it’s about thoughtful, controlled wagers on the best founders, at the right moment, working on the right problems. 
 
If you’re an operator, founder, or investor, share in comments: What’s in your investment thesis? And how are you steering clear of these pitfalls?