An investment memo is the formal document a VC writes to analyze a potential investment and make the case for (or against) putting money in. It's the written record of why a firm said yes or no.
Imagine you want to give your friend $20 to start a lemonade stand. But first, you want to think it through.
So you write down: What's the idea? Is my friend good at making lemonade? Will people buy it? What could go wrong? Should I do it?
That's an investment memo — a note you write to help yourself (and others) decide if giving money to someone's business is a good idea.
VCs do this every time they think about investing millions of dollars in a company. They write it all down so they can think clearly and explain their decision to others.
The investment memo has its roots in banking and private equity, where formal credit committees have reviewed written proposals for over a century. As venture capital emerged in the 1960s and 70s, firms adopted similar practices.
Early VC was often done on reputation and relationships — a handshake deal after a partner meeting. But as funds grew larger and more institutional (pension funds, endowments), there was pressure to document decisions.
The memo became the artifact. It forces rigor: you can't just say "I like the founder" — you have to write down why, what you're betting on, and what the risks are.
Executive Summary — What's the company, what's the ask?
Team — Who are the founders? Why them?
Market — How big is the opportunity?
Product — What do they make? Is it working?
Business Model — How do they make money?
Deal Terms — Valuation, amount, ownership
Risks — What could go wrong?
Recommendation — Should we invest?
Today, the memo is both an internal decision tool and a historical record. Years later, partners can look back and see exactly what they believed (and whether they were right).
A professional investment memo typically runs 5-15 pages. The depth varies by stage: seed memos might be shorter (less data), growth memos longer (detailed financials).
Executive Summary (1 page)
The "if you read nothing else" section. Company name, what they do, key metrics, deal terms, and the recommendation. Senior partners often read only this.
Team Assessment
Background checks on founders: track record, domain expertise, founder-market fit. References from former colleagues. Why this team can win this market.
Market Analysis
TAM/SAM/SOM breakdown. Market growth rates. Competitive landscape. Timing thesis — why now?
Product & Traction
What does the product do? Product-market fit signals. Key metrics: revenue, growth rate, retention, NPS. Cohort analysis if available.
Business Model
Unit economics: CAC, LTV, margins. Revenue model (SaaS, transactional, etc.). Path to profitability or next milestone.
Deal Terms
Valuation, round size, ownership target. Pro-rata rights. Board seat. Governance terms.
Risk Section
Critical. Lists key risks and mitigants. Technical risk, market risk, execution risk, competitive risk, regulatory risk. Partners often flip here first.
Investment Recommendation
Clear yes/no with conviction level. Often includes scenarios: base case, upside case, downside case with expected returns.
At established firms, the memo is part of a multi-stage process:
The "pre-mortem" practice: Some firms include a section imagining the investment failed — what went wrong? This combats confirmation bias and surfaces risks the deal-excited author might downplay.
The deal champion problem: The partner who finds a deal often writes the memo. They're emotionally invested in a "yes." Better firms assign a devil's advocate or have junior team members stress-test assumptions.
Memo as performance record: Over time, memo accuracy becomes a track record. Did the risks you identified materialize? Were your market size estimates right? This creates accountability — you can't gaslight yourself years later about what you believed.
• "The team will figure it out" — Vague founder thesis
• TAM pulled from analyst reports without bottoms-up validation
• No customer references or win/loss analysis
• Risk section is superficial or defensive
• No discussion of what must be believed for the deal to work
Anti-portfolio analysis: The best firms also track deals they passed on and why. If a passed deal becomes huge, the original memo explains the miss. This institutional learning is rare but valuable.
The articulation trap: Memos favor investments that are easy to explain. Contrarian bets with non-obvious theses get killed in committee because they sound crazy on paper. Yet venture returns are driven by outliers that, by definition, most people didn't understand.
Peter Thiel's "secret" framework highlights this: the best investments require believing something most people don't. But memos are designed to build consensus among partners who may not share that belief. The format can filter out the very deals that would drive fund returns.
Pattern matching failure: Memos encode what worked before. "The founders are ex-Google like the Dropbox team." This works until the pattern breaks. The best founders often don't match existing templates — first-time founders, non-traditional backgrounds, weird markets.
The quantification problem: Memos force quantitative estimates (market size, projected returns) that create false precision. A TAM estimate is often a guess with a spreadsheet. Writing "$50B market" feels rigorous but may be meaningless.
Speed vs. rigor tradeoff: In competitive deals, extensive memo processes lose to faster-moving funds. Some top firms now do "conviction-based" investing where a single partner can commit without full committee approval. The memo becomes post-hoc documentation rather than decision input.
The AI memo question: As AI tools can generate plausible-sounding memos from company data, what's the actual value-add of human analysis? Some argue the memo process is more about forcing the investor to think than producing a document. If AI does the writing, does the thinking still happen?
Cultural variation: Different firm cultures weight memos differently:
The retrospective lie: After an investment succeeds or fails, memory shifts. "We always knew X." Memos anchor the actual belief state at decision time. But this only works if memos are honest — and deal champions are incentivized to write persuasive documents, not accurate ones. Some firms combat this by having memos reviewed by someone not on the deal.
Open questions in the field: