What is an Investment Memo?

An investment memo (or investor memo or deal memo) is a written report typically generated by a venture capitalist or private equity firm outlining whether to invest in a particular business venture or not. The memo describes the company, the industry, the terms of the deal, the risks involved, and whether the venture is worth investing in or not.

Who writes investment memos and why?

An investment memo can be written by:

• VC/PE associates/analysts post due diligence of a deal for the benefit of their investment committee or partners.
• Deal leads/partners, in order to summarize the diligence process prior to voting on an investment decision.
• Angels or syndicate leads who write shorter versions of the memo to explain a particular deal to their co-investors.

Traits of a good investment memo

• It makes a clear thesis argument. It does not simply pile up information; rather, it explains why a particular company and a particular market are worth investing in.
• It understands risk. A memo that does not consider negative scenarios of a deal is not doing its work; the investment committee wants an analysis of the worst-case scenario.
• It clearly defines the return case. What must happen to make this deal profitable (for example, “this product must achieve $50M ARR and 10x multiple to satisfy our return on investment target”).
• It explains the diligence process. Good memos provide information that supports arguments and conclusions (how did you talk to customers, how did you get the numbers for cohorts, how did you size the market).
• It admits a lack of certainty. Early-stage investments imply significant uncertainty, and a memo that admits uncertainty is more credible than a memo full of confidence.

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