evaluating-investment-opportunities

name	evaluating-investment-opportunities
description	Structures PE/VC investment evaluation with business model assessment, market analysis, and return potential. Use when evaluating deals, screening investment opportunities, or assessing company fit.
tags	["analysis","private-equity","investment","valuation"]
metadata	{"author":"casemark","practice_areas":["Private Equity","Venture Capital","Growth Equity"],"document_types":["Evaluation Report"],"skill_modes":["Analysis","Assessment"]}

Evaluating Investment Opportunities

When To Use

• Screening a new deal from an inbound teaser, CIM, or pitch deck
• Conducting preliminary diligence before issuing an LOI or term sheet
• Comparing multiple opportunities in a pipeline review
• Preparing an investment committee memo or deal screening summary
• Reassessing a portfolio company for follow-on investment or exit readiness

Inputs To Gather

• Company materials: CIM, pitch deck, financial model, or data room access
• Financials: At minimum 3 years of historical P&L, balance sheet, and cash flow; projections if available
• Deal parameters: Proposed valuation, investment size, instrument type (equity, convertible, preferred), ownership target
• Market data: Industry reports, comparable transactions, public comps where relevant
• Management information: Org chart, founder/CEO background, key person dependencies
• Fund context: Fund strategy, thesis fit, sector/stage mandate, portfolio overlap risk

Workflow

1. Frame the opportunity

   • Confirm investment stage (seed, growth, buyout, recap) and applicable evaluation lens
   • Identify the core investment thesis — what must be true for this to be a strong return
   • Flag any immediate disqualifiers (sector exclusion, size mismatch, geographic restriction)

2. Assess the business model

   • Revenue model: recurring vs. transactional, unit economics, customer concentration
   • Gross margin profile and trajectory; path to operating leverage
   • Customer acquisition cost (CAC), lifetime value (LTV), and LTV/CAC ratio for SaaS/consumer
   • Capital intensity and working capital dynamics
   • Defensibility: IP, network effects, switching costs, regulatory moats

3. Analyze the market

   • TAM/SAM/SOM sizing with bottom-up validation where possible
   • Growth rate and secular tailwinds or headwinds
   • Competitive landscape: direct competitors, substitutes, and new entrant risk
   • Regulatory environment and pending policy changes [VERIFY — jurisdiction-specific]

4. Evaluate financial performance and projections

   • Revenue CAGR, gross margin trend, EBITDA margin progression
   • Cash conversion and free cash flow generation
   • Quality of earnings: one-time items, add-backs, normalization adjustments
   • Reasonableness of management projections vs. historical performance and market benchmarks
   • Working capital seasonality or volatility

5. Model return potential

   • Entry valuation relative to comps (EV/Revenue, EV/EBITDA, P/E as appropriate)
   • Base, upside, and downside return scenarios
   • Target IRR and MOIC under each scenario; sensitivity to exit multiple and hold period
   • Capital structure impact: leverage, dilution from future rounds, liquidation preferences
   • Exit path assumptions: strategic sale, IPO, secondary, sponsor-to-sponsor [VERIFY — exit market conditions]

6. Assess management and governance

   • Track record of founders/CEO in scaling businesses
   • Key person risk and depth of management bench
   • Board composition and investor governance rights
   • Alignment of incentives: vesting, co-invest, earnout structures

7. Identify key risks and mitigants

   • Rank risks by likelihood and severity: customer concentration, technology obsolescence, regulatory, execution

Output

Structure the evaluation report with these sections:

• Executive Summary: One-paragraph investment thesis, proposed terms, and recommendation (proceed / pass / conditional proceed)
• Company & Market Overview: Business description, market sizing, competitive positioning
• Financial Analysis: Historical performance, projection assessment, quality-of-earnings highlights
• Return Analysis: Entry valuation, scenario-based IRR/MOIC, sensitivity tables
• Risk Matrix: Top 5–8 risks with severity rating, likelihood, and mitigant for each
• Diligence Priorities: Ordered list of open items to resolve before final decision
• Recommendation: Clear proceed/pass/conditional with specific conditions or next steps

Quality Checks

• Entry valuation benchmarked against at least 3 comparable transactions or public comps
• Revenue and EBITDA projections stress-tested under downside assumptions, not just management case
• All add-backs and normalization adjustments individually identified and justified
• Customer concentration quantified (top 1, top 5, top 10 as % of revenue)
• Exit assumptions grounded in recent market data, not aspirational multiples [VERIFY — current exit environment]
• Every [VERIFY] tag resolved or explicitly flagged as an open diligence item
• No forward-looking statements presented as facts; all projections labeled as estimates
• Fund mandate and portfolio construction fit explicitly addressed