lev-os 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
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)
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
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]
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
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]
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
Identify key risks and mitigants
- Rank risks by likelihood and severity: customer concentration, technology obsolescence, regulatory, execution
- Map each material risk to a specific mitigant or diligence workstream
- Flag any risks that are binary and unmitigable (deal-breakers vs. pricing adjustments)
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