casemark/drafting-investment-memos

Drafting Investment Memos

Investment memos are the core decision document for deploying capital. They synthesize diligence into a structured argument that enables an investment committee, board, or deal team to make a go/no-go decision with full awareness of the thesis, the risks, and the expected returns. The memo is not a summary — it is the decision artifact.

When To Use

• Preparing a deal for investment committee review (screening, LOI, or final IC)
• Writing a deal summary or recommendation for board presentation
• Documenting the investment rationale for a platform acquisition, add-on, growth investment, refinancing, IPO, or secondary transaction
• Creating a post-close retrospective memo evaluating realized vs. projected returns
• Supporting a fairness opinion or strategic alternatives analysis with structured deal analysis

Inputs To Gather

Confirm ALL of the following before drafting. Do not proceed with defaults — wrong audience framing invalidates the entire draft.

Deal Context (All Required)

| Field | Notes | |---|---| | Company/Asset Name | Legal name + common name if different | | Asset Class | Private equity, growth equity, credit, public equity, real assets, venture | | Transaction Type | Platform acquisition, add-on, growth investment, refinancing, IPO, secondary | | Deal Stage | Preliminary screening, LOI stage, final IC, post-close retrospective | | Deal Size / Check Size | Enterprise value, equity check, total capitalization | | Source of Deal | Proprietary, auction, banker-intermediated, inbound |

Audience & Format

| Audience | Primary Focus | Tone | Length | |---|---|---|---| | PE Investment Committee | Returns (IRR/MOIC), value creation levers, downside protection | Direct, conviction-driven | 15-25 pp | | IB Deal Team / Fairness Opinion | Execution feasibility, valuation support, market context | Analytical, balanced | 10-15 pp | | Credit Committee | Downside protection, coverage ratios, collateral, recovery analysis | Conservative, stress-test-oriented | 12-20 pp | | Board of Directors | Strategic rationale, competitive positioning, governance | Accessible, strategic | 8-12 pp | | Growth Equity / Venture | Market size, unit economics, founder quality, path to scale | Forward-looking, thesis-driven | 10-15 pp |

Source Materials Checklist

• [ ] CIM / Management Presentation
• [ ] Historical financials (3-5 years minimum)
• [ ] Management projections / budget
• [ ] Quality of Earnings report (if available)
• [ ] Industry research / market reports
• [ ] Comparable company data
• [ ] Precedent transaction data
• [ ] Legal/regulatory diligence findings
• [ ] Customer/commercial diligence findings
• [ ] ESG/compliance considerations

GATE: If asset class, audience, or deal stage is unconfirmed, STOP and clarify. Do not draft.

Workflow

Step 1: Thesis Construction

Articulate the investment thesis as three pillars — three independent reasons this investment should generate returns. Each pillar must be:

• Specific — not "strong market position" but "45% share in a $2B TAM with 10-year contracts covering 70% of revenue"
• Falsifiable — state the condition that would invalidate the pillar
• Supported — cite the diligence source or data point

Pillar [N]: [One-line statement]
Supporting evidence: [2-3 data points with sources]
Key assumption: [What must remain true]
Falsification trigger: [What would break this pillar]

Step 2: Pre-Mortem Exercise

Before writing the bull case, write the bear case. Describe in 3-5 sentences the scenario where this investment fails and capital is impaired. This is a narrative of how things go wrong — not a risk factor list. This forces intellectual honesty and informs the Risk Factors section.

Step 3: Financial Analysis Build

Construct the financial narrative in this order:

| Component | Content | Key Outputs | |---|---|---| | Historical Analysis | 3-5 year income statement, balance sheet, cash flow trends | Revenue CAGR, margin trajectory, capex intensity, FCF conversion | | Normalization | Adjustments for one-time items, owner compensation, related-party transactions | Adjusted EBITDA bridge | | Projections | Management case vs. sponsor/analyst case | Revenue build, margin assumptions, working capital, capex | | Key Assumptions Table | Line-item assumptions with justification | Explicit list: growth rate, margin, churn, capex, tax rate | | Sensitivity Analysis | 2-variable matrix on key value drivers | IRR/MOIC sensitivity to revenue growth × exit multiple (PE) or price target sensitivity (public) |

Step 4: Valuation

Apply methods appropriate to the asset class. Valuation must produce a range, not a point estimate — present base / bull / bear with the assumptions that differ across scenarios.

| Method | When to Use | Key Inputs | |---|---|---| | DCF | All situations; primary for growth assets | WACC, terminal growth, FCF projections | | Comparable Companies | Public equity, benchmarking private valuations | EV/EBITDA, EV/Revenue, P/E multiples from peer set | | Precedent Transactions | M&A, PE acquisitions | Transaction multiples, control premiums | | LBO Analysis | PE acquisitions, leveraged situations | Entry multiple, leverage, operating improvements, exit multiple, hold period | | Sum-of-Parts | Conglomerates, multi-segment businesses | Segment-level multiples applied independently | | Dividend Discount Model | Yield-oriented investments, REITs, infrastructure | Dividend growth rate, cost of equity |

Use at least two methods and reconcile the resulting range.

Step 5: Risk Framework

Structure risks into five categories. Each risk gets a probability assessment and a specific mitigant — not a generic disclaimer.

| Risk Category | Examples | Mitigant Type | |---|---|---| | Market Risk | Cyclicality, demand shift, commodity exposure | Hedging, contract structure, diversification | | Execution Risk | Integration failure, management capacity, operational complexity | Retention packages, playbook from prior deals, phased integration | | Management Risk | Key-person dependency, alignment, track record gaps | Incentive structure, board governance, succession planning | | Regulatory Risk | Antitrust, licensing, environmental, data privacy [VERIFY] | Legal diligence, compliance programs, regulatory pre-clearance | | Financial Risk | Leverage, liquidity, covenant compliance, FX exposure | Debt structure, cash reserves, hedging instruments |

Each risk entry must include: (1) specific risk description, (2) probability (High/Medium/Low), (3) impact (High/Medium/Low), (4) mitigant action or structure, (5) residual exposure after mitigant.

Step 6: Source of Edge

Every memo must answer: Why does this opportunity exist, and why are we the right capital to deploy?

• Proprietary access — relationship-sourced, not auctioned
• Information asymmetry — diligence has surfaced insight the market lacks
• Timing — cyclical dislocation, motivated seller, regulatory window
• Structural — complexity discount, carve-out, cross-border friction
• Operational — portfolio company synergies, sector expertise, management bench

If no clear edge exists, state so explicitly. "Market-clearing price in a competitive auction" is a valid statement — pretending otherwise is not.

Step 7: Draft Assembly

• Executive Summary first — written last, positioned first. One page maximum. Must contain: what, why, how much, expected return, key risk, recommendation.
• Thesis before data — lead with the argument, then support with evidence. Do not force the reader to assemble the thesis from scattered data points.
• Tables over paragraphs — financial data, comparables, and risk matrices belong in tables, not prose.
• Flag uncertainty — mark unverified figures with [VERIFY], assumptions with [ASSUMPTION], and management-provided projections with [MGMT].
• Recommendation must be unambiguous — "Invest at $X valuation with conditions Y and Z" or "Pass because [reason]" or "Requires additional diligence on [specific items] before decision."

Step 8: Post-Draft Alignment

Before delivering, confirm with the requesting party:

| Check | Question | |---|---| | Thesis Alignment | "Does the three-pillar thesis match your conviction? Any pillar you would reframe?" | | Return Expectations | "Are the return assumptions (entry multiple, growth, exit) consistent with your base case?" | | Risk Calibration | "Are there risks from diligence that are missing or under-weighted?" | | Audience Fit | "Is the depth and tone appropriate for the target audience?" | | Data Freshness | "Are the financials and market data current as of the intended IC date?" | | Recommendation Strength | "Is the recommendation correctly calibrated to your conviction level?" |

GATE: If thesis, return assumptions, or recommendation are misaligned, revise before delivery. Do not submit a memo the deal lead has not approved.

Output

The final investment memo should contain these sections in order:

1. Executive Summary — one page; thesis, deal terms, expected returns, key risk, recommendation
2. Investment Thesis — three pillars with falsification triggers
3. Company / Asset Overview — business description, history, market position
4. Industry & Market Analysis — TAM/SAM, competitive landscape, secular trends
5. Financial Analysis — historical performance, normalization, projections, assumptions table
6. Valuation — multi-method analysis with reconciled range (base/bull/bear)
7. Risk Factors — five-category framework with probability, impact, mitigant, residual exposure
8. Source of Edge — why this opportunity exists and our right to win
9. Recommendation — unambiguous invest/pass/conditional with specific terms

Tag conventions: [VERIFY] for unconfirmed data, [ASSUMPTION] for forward-looking estimates, [MGMT] for management-sourced projections. Use consistent units ($ in millions unless stated) throughout.

Quality Checks

Structural Completeness

• [ ] All nine sections present
• [ ] Executive summary fits on one page
• [ ] Investment thesis states exactly three pillars with falsification triggers
• [ ] Pre-mortem scenario included
• [ ] Source of edge explicitly stated

Financial Rigor

• [ ] Historical financials cover 3+ years
• [ ] Adjusted EBITDA bridge included with clear add-backs
• [ ] Projection assumptions listed individually with justification
• [ ] Sensitivity table covers at least two variables
• [ ] Valuation uses 2+ methods with reconciled range
• [ ] Returns analysis appropriate to asset class (IRR/MOIC for PE, price target for public)

Risk Integrity

• [ ] All five risk categories addressed
• [ ] Each risk has probability, impact, mitigant, and residual exposure
• [ ] Pre-mortem narrative is distinct from risk factor list
• [ ] No generic/boilerplate risk language — every risk is specific to this deal

Drafting Standards

• [ ] [VERIFY] / [ASSUMPTION] / [MGMT] tags applied where appropriate
• [ ] Consistent units, date formats, and decimal precision throughout
• [ ] No hedged or ambiguous recommendation
• [ ] EBITDA definition (adjusted vs. reported) stated once and used consistently
• [ ] Scope limitations noted — e.g., memo based on CIM without QofE should say so
• [ ] Appropriate disclaimers for compliance-sensitive outputs [VERIFY]

Reference Files

| File | Description | |---|---| | references/MEMO-TEMPLATE.md | Structural template for investment memoranda with all nine sections and appendices |