Ic Memo Drafting

IC Memo Drafting

When to use

Use this skill after diligence is substantially complete and the deal team has formed a clear view on the opportunity. The IC memo is the written argument for (or against) the investment decision -- it must be complete, balanced, and defensible under cross-examination from senior investment professionals, LPs, and in some cases, internal risk committees. Use it to draft the memo, stress-test the argument, and ensure no material finding from diligence is omitted.

What it does

Produces a structured IC memo draft covering all standard sections: executive summary, business description, deal overview, market and competitive position, management assessment, diligence findings, financial analysis, returns, risk matrix, and recommendation. The draft is written in institutional investment prose -- direct, evidence-based, no marketing language.

Method

Step 1 -- Executive summary (write last, present first)

The executive summary is one page maximum. It states:

• The company (one sentence: name, sector, business model, LTM EBITDA)
• The deal (structure, entry multiple, implied EV, equity cheque size)
• The investment thesis in 3 bullet points (the three strongest reasons to invest)
• The primary risk in 1 bullet point (the risk that could most directly impair the return, and the mitigant)
• The recommendation (invest / pass / conditional approval)
• Target return (base-case MOIC and IRR over the stated hold period)

The executive summary is written last, after all other sections are drafted, because the thesis and risk statements must be accurate reflections of what the memo body demonstrates.

Step 2 -- Business description

A factual description of the business that a senior investment professional unfamiliar with the deal can read and immediately understand:

• What the company does (product or service, in plain language)
• Who buys it (customer segment, decision-maker, use case)
• How it is sold (direct, channel, platform, outbound, inbound)
• Revenue model (recurring subscription, usage-based, project, transaction)
• Scale: revenue, EBITDA, headcount, customer count
• History: founded, key milestones, ownership history

Avoid promotional language. Do not use the company's own marketing copy. Write as an analyst describing what they observed, not what the company says about itself.

Step 3 -- Market and competitive position

Summarise the commercial diligence findings in IC memo form:

• Market size (SAM, stated or estimated) and growth rate (validated)
• The company's approximate market share
• Key competitors and the company's differentiation from each
• Porter's Five Forces conclusion: how durable is the competitive position and pricing power?
• Customer concentration summary and quality of revenue

This section should be 2-3 paragraphs maximum. It references the commercial diligence workstream conclusions without reproducing the full analysis.

Step 4 -- Deal overview

A concise section covering the transaction mechanics:

• Process type and timeline
• Seller and their motivation
• Proposed transaction structure: EV, equity, debt, management rollover
• Capital structure: leverage ratio, debt tranches, key terms
• Key conditions: regulatory approvals, management retention, any required consents
• Use of proceeds: cash to seller, refinancing, transaction costs, closing adjustments

Step 5 -- Management assessment

The IC committee will ask hard questions about management. Address:

• Who are the key individuals and what are their roles?
• What is the track record of the CEO and CFO specifically?
• Have they operated inside a PE-backed business before? If not, what is the plan?
• What is the rollover plan? How much skin do they have in the game post-close?
• Key-man risk: which individuals are critical? What are the retention arrangements?
• Any reference check findings that bear on the investment decision (positive or negative)

State management assessment conclusions directly. If the team is strong, say why. If there are gaps, say what they are and how they will be addressed.

Step 6 -- Diligence findings

This is the core analytical section of the memo. Structure it by workstream:

Financial and QoE findings:

• QoE-adjusted EBITDA vs management-reported EBITDA (the "QoE haircut" in absolute and % terms)
• Key add-backs accepted and rejected, with reasoning
• Net debt at close (including normalised working capital adjustment)
• Capex profile: maintenance vs growth; any deferred capex obligations identified
• Any material accounting policies or revenue recognition concerns

Commercial findings:

• Validation or qualification of the market growth thesis
• Customer reference call summary: what did customers say about the product, the vendor relationship, and the likelihood of renewal?
• Win/loss analysis conclusions: does the competitive win rate support the growth plan?
• Any commercial risks identified that were not in the CIM

Legal findings:

• Any material issues: IP disputes, regulatory compliance gaps, pending litigation, unusual contract terms
• Data privacy and security: any known breaches or material gaps
• Employment: any key employment agreement issues, non-competes, or retention risks

Technology findings (if applicable):

• Technical debt assessment
• Architecture and scalability
• Security posture
• Any material remediation required

For each workstream: state the finding, its severity, and the resolution or accepted risk.

Step 7 -- Risk matrix

Produce a risk matrix with 5-8 risks, ranked by severity:

For each risk:

• Risk description (one sentence, specific and measurable where possible)
• Probability (high / medium / low)
• Severity if it materialises (high / medium / low, with impact description)
• Mitigant (what the fund can do to reduce probability or impact)
• Residual risk after mitigant (the risk that remains even after the mitigant is applied)

The risks in this section must come from the diligence findings -- they cannot be invented or generic. Each risk should trace back to a specific finding in a workstream.

Step 8 -- Returns analysis

Summarise the financial scenario modelling conclusions:

• Entry assumptions: EV, entry multiple, QoE EBITDA, leverage ratio
• Capital structure at close: debt by tranche, equity, net debt
• Bear / base / bull scenario returns: MOIC and IRR in each case
• Key assumptions that distinguish the three scenarios (which lever has the most impact: growth, margin, exit multiple?)
• Bid ceiling: the entry multiple at which the base-case IRR falls below the fund's target return

State clearly: at the proposed entry, what must go right for the investment to meet the fund's return threshold? What can go wrong without causing a below-target outcome?

Step 9 -- Recommendation

The recommendation is one of three:

1. Approve: The investment meets the fund's criteria on thesis, quality, risk, and return. State the conditions or actions required post-approval (management retention agreements, any outstanding diligence items that are not deal-stopping, and the closing checklist).
2. Conditional approval: The IC approves the investment subject to one or more specific conditions being resolved. State each condition precisely and the consequence if it is not resolved.
3. Pass: The investment does not meet the fund's criteria. State the primary reason(s) concisely and without equivocation.

The recommendation must be stated in the first sentence of this section. Do not bury it.

Inputs

• CIM teardown memo
• Commercial diligence conclusions
• QoE report summary or financial diligence conclusions
• Legal diligence summary (exceptions report)
• Returns model output (MOIC/IRR under three scenarios)
• Management assessment notes
• Issues log (current state)

Output format

A nine-section IC memo:

1. Executive summary (1 page equivalent)
2. Business description (2-3 paragraphs)
3. Market and competitive position (2-3 paragraphs)
4. Deal overview (bulleted financial terms plus narrative)
5. Management assessment (3-4 paragraphs)
6. Diligence findings (by workstream, structured paragraphs)
7. Risk matrix (5-8 risks, each with probability/severity/mitigant)
8. Returns analysis (bear/base/bull, key sensitivities)
9. Recommendation (first sentence states the decision)

Total length: 2,000-3,500 words. Written in institutional investment prose: direct, evidence-based, free of hedging or marketing language.

Example

Recommendation section (excerpt): The IC recommends approval. At the proposed entry of 11.5x QoE EBITDA, the base-case return is 2.8x MOIC and 22% IRR over a 5-year hold, which meets the fund's minimum return threshold. The bear case (revenue growth 8% below management plan, exit at 10.5x) returns 1.9x MOIC and 14% IRR -- below target but not a loss scenario. The primary condition for close is finalisation of the CFO retention package, which is in negotiation and expected to complete within 2 weeks. All other diligence workstreams have closed with no material open items.