How to Answer “What does a strong venture capital investment memo look like?” in Venture Capital Interviews
“What does a strong venture capital investment memo look like?” comes up often in venture capital interview prep because it tests whether you can evaluate a deal like an investor and communicate it like an internal Investment Committee document.
A strong venture capital investment memo is not a long company overview. It is a decision-focused narrative that makes a clear recommendation, explains a testable VC investment thesis, quantifies the drivers, and surfaces the key risks and diligence plan so the IC can quickly decide what matters most.
What VC Firms Test with Venture Capital Interview Questions
Interviewers are testing whether you understand what an investment memo is for at VC firms: supporting a decision under uncertainty with a clear view on “why this wins”, “what must be true”, and “what would break the thesis”. They want to see synthesis, not a checklist.
They also assess your investment memo structure and communication discipline. Associates are expected to prioritise signal, separate facts from assumptions, and present metrics that fit the company’s stage—so a partner can skim the first page and still know the recommendation, the underwriting logic, and the gating questions.
Finally, they are probing judgment around outcomes: how you connect market and traction to returns, how you think about ownership/valuation and terms, and whether you can anticipate counterarguments. Strong answers make the thesis falsifiable and propose diligence that targets the biggest unknowns rather than spreading effort evenly.
Investment Memo Structure: Step-by-Step Guide to Writing a VC Memo
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Step 1: Start with the recommendation, round context, and IC “ask”
Open with a one-page (or first-section) snapshot that answers the IC’s immediate questions: company, product, round size/instrument, price, and your recommendation (lead/follow/pass). Include the target cheque size, target ownership, and whether you expect board/observer rights.
Add a tight “why now” and “why us” to show you understand timing and fit: what inflection point is happening (GTM repeatability, new channel, regulatory shift, product expansion) and what your firm can uniquely contribute.
Close this section with 2–3 decision drivers (the few variables that actually determine the outcome) and a short list of open questions that diligence must answer. This instantly signals that the memo is meant to drive a decision, not document activity.
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Step 2: State a falsifiable VC investment thesis (not just a story)
Your VC investment thesis should be explicit and testable. Write 3–5 bullets that connect wedge → distribution → differentiation/defensibility → scale. Avoid generic claims (“huge market”, “great team”) unless tied to evidence.
Then make the thesis falsifiable by naming the 2–3 assumptions that must hold. Examples: retention/expansion stays above a threshold, sales cycle compresses, gross margin improves with scale, regulatory path is viable, or the product becomes a system-of-record.
Finally, define the underwriting question in plain language: “If this company is right, what will be true in 12–18 months?” This framing makes it easier for an interviewer (and an IC) to challenge you on specific assumptions—and for you to propose diligence that directly tests them.
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Step 3: Underwrite problem, market sizing, and competitive positioning
Cover problem and customer first: who feels the pain, what workflow/budget it sits in, and what triggers switching. One or two concrete customer examples (persona, use case, purchase motion) are more persuasive than broad claims.
For market sizing, pick a method that matches the stage and data quality. A bottoms-up approach (reachable accounts × ARPA × penetration over time) is often more credible than top-down TAM. State key assumptions and show a quick sensitivity so it’s clear what drives the range.
Then map positioning: the real alternatives (incumbent, in-house, adjacent tools), why customers choose this product, and what could erode the wedge. Keep competition focused on switching dynamics and moats (distribution, data advantage, workflow lock-in, ecosystem, regulatory/technical barriers), not long lists of logos.
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Step 4: Traction, unit economics, and a simple driver model by stage
Show you know what to include in a venture capital investment memo by matching metrics to stage. Seed/early: evidence of pull (activation, usage depth, retention in small cohorts, pilot-to-paid conversion, founder-led sales learning). Series A/B: repeatability (pipeline coverage, win rates, sales cycle, net retention, churn, expansion, and sales efficiency).
Summarise unit economics and what’s driving them: gross margin (and its components), CAC and payback (or leading indicators), LTV logic tied to retention/expansion and margin, plus constraints (implementation, support, infra costs). If data is limited, be explicit about what is measured vs inferred.
Include a lightweight driver tree (not an IB-style model): how adoption, ARPA, retention/NRR, and sales capacity translate into ARR and cash needs. The goal is to connect operating reality to the investment outcome and identify the few levers that matter.
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Step 5: Deal terms, valuation, return scenarios, and the diligence plan
Spell out the deal clearly: pre/post (or price per share), round size, instrument, option pool treatment, expected dilution, and your expected ownership at close plus follow-on reserves. Tie valuation to whether the company can be meaningful for the fund.
Add a simple down/base/up outcome table: plausible exit paths (strategic vs IPO), value ranges, dilution assumptions, and resulting MOIC. You do not need precision; you need to show sensitivity to entry price, ownership, and follow-on.
Finish with a structured risk pre-mortem (4–6 risks) and a targeted diligence plan: customer calls, reference checks, pipeline review, product/tech validation, security/compliance where relevant, and benchmarking. End with 6–12 month milestones that would confirm the thesis or trigger a pass/stop-loss.
Venture Capital Investment Memo: Model Answer for Interviews
A strong venture capital investment memo is a decision document: it leads with a recommendation, lays out a testable VC investment thesis, and makes it easy for an IC to see the few drivers and risks that determine whether the deal works.
I’d start with a concise snapshot: company and product, round and price, my recommendation (lead/follow/pass), the cheque size and target ownership, and a short “why now/why us”. Then I’d state the thesis in 3–5 bullets—what wedge gets adoption, why distribution scales, what creates defensibility, and what must be true for this to be a fund-returning outcome.
Next I’d underwrite the business fundamentals: the customer pain and buying process, a credible market sizing approach with explicit assumptions, and positioning versus the real alternatives, focusing on switching dynamics and potential moats. After that I’d cover traction and unit economics using stage-appropriate metrics—cohorts and usage depth if early, or retention/NRR, sales efficiency, CAC payback, and gross margin drivers if post-PMF—and I’d add a simple driver tree linking those metrics to ARR and cash needs.
Finally I’d address the deal: key terms, valuation, expected dilution, and a small downside/base/up scenario table to show how ownership and price impact outcomes. I’d end with a pre-mortem: the biggest risks, the specific diligence to confirm or kill the thesis, and clear milestones for the next 6–12 months so the memo is actionable after the investment.
- Make the first section skimmable: recommendation, round context, ownership, and “why now”.
- Use a falsifiable thesis (2–3 assumptions) so diligence is purposeful.
- Choose stage-appropriate KPIs; don’t default to vanity metrics.
- Connect valuation/terms to ownership and scenarios; price is part of underwriting.
- Close with risks, diligence, and milestones to show post-investment thinking.
Common Pitfalls in Venture Capital Memos
- Burying the recommendation and IC ask; partners should not have to hunt for cheque size, ownership, or the call.
- Writing a narrative company profile instead of a falsifiable VC investment thesis with clear assumptions and “what would change our mind” triggers.
- Using weak evidence on traction (vanity growth, no cohorts) and not linking metrics to unit economics or repeatability.
- Hand-waving market sizing and competition; not stating assumptions or explaining switching dynamics and defensibility.
- Ignoring deal terms, dilution, and ownership—making it impossible to judge fund impact or downside protection.
- Listing risks without a prioritised diligence plan and 6–12 month milestones that operationalise the thesis.
Follow-Up on VC Investment Thesis, Metrics, and Terms
What are the key components of a strong investment memo for an associate?
A clear recommendation and IC ask, a falsifiable thesis, market/problem and positioning, stage-appropriate traction and unit economics, terms/ownership with scenarios, plus risks, diligence, and milestones.
How do you tailor the investment memo structure for seed vs Series A/B?
Seed emphasises wedge, founder-market fit, early retention/usage and learning velocity; Series A/B emphasises repeatable GTM, cohorts/NRR, sales efficiency, CAC payback, and margin path.
How do you show valuation and returns without building a full model?
Show entry ownership, expected dilution, and 2–3 outcome scenarios with plausible exit ranges; highlight sensitivity to price and the milestones needed to reach the base/up case.
What does “falsifiable thesis” mean in practice?
It means stating 2–3 assumptions in testable terms (e.g., retention threshold, sales cycle, margin trajectory) so diligence can confirm them and post-investment KPIs can track them.
What are common pitfalls in venture capital memos that surface in IC?
Unclear switching/competition story, weak cohort evidence, inconsistent metric definitions, and no explicit “pass conditions” or diligence plan tied to the thesis.
Venture Capital Interview Prep: Practising Memos Under Time Pressure
- Practise a one-page version first: recommendation, thesis, 3 drivers, 3 risks, diligence plan; then expand into the full memo.
- Build a “metric map” by stage (seed vs A/B) so you can quickly choose the right KPIs under interview pressure.
- Time-box diligence thinking: for each top risk, write the fastest 1–2 checks that would confirm/kill the assumption.
- In AceTheRound, rehearse delivering the memo verbally in 2–3 minutes, then handle pushback: “What would make you pass?” and “Why will they win versus X?”
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