drafting-investment-memos

name	drafting-investment-memos
description	Creates structured investment memoranda with business description, financial analysis, valuation, and risk assessment for deal review. Use when writing investment memos, preparing deal summaries, or documenting investment recommendations.
tags	["drafting","investment-banking","risk","investment"]
metadata	{"author":"casemark","practice_areas":["Investment Banking","Mergers and Acquisitions","Corporate Finance"],"document_types":["Draft Document"],"skill_modes":["Drafting"]}

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