How we read a deal memo

The IRR table is the last thing we look at. By the time we get to it, the memo has already either earned the read or lost it. Here is the order we actually use, and what each section tells us.

One. The executive summary

If a one-page summary cannot tell us what the asset is, who is running it, where the return comes from, and what the price is, we slow down. A memo whose summary leans on adjectives rather than facts is signalling. We have seen 80-page memos with summaries that say nothing, and 14-page memos with summaries that say everything. The length is not the tell. The discipline is.

Two. The sponsor section

Whose deal is this. Who is on the team. What have they done before. We want names, prior vintages, and at least one realised outcome we can verify. If the sponsor section is short on detail, the rest of the memo will work harder to compensate, and usually fails.

Three. The thesis

Why this asset, in this geography, at this price. The thesis is where most memos are weakest. They confuse the asset with the trade. A good thesis tells you what the operator believes the market does not yet see, and what would have to be true for that view to be wrong.

Four. The risks

We read this section before we read the financials. A risk section that is short, generic, or copy-pasted from a template is the single best predictor we have for a deal that will surprise members later. A risk section that is honest about the worst case, with mitigants attached and a clear answer to “what would you do if X”, tells us this is a sponsor we can work with.

Five. The financials

By the time we are here, we are looking for two things: do the assumptions tie to the thesis, and is the sensitivity table believable. If the base case requires three things to go right, all of them outside the sponsor’s control, we are looking at a different deal than the one the summary described.

Members can apply this checklist to any memo, ours included. It is not a substitute for due diligence. It is a way to decide quickly whether the rest of the work is worth doing.