Insights Resources

Venture Capital Deal Memo

VC Lab’s free Deal Memo Template.

We welcome your feedback and suggestions in creating an evolving set of resources for VCs across the globe.

What is a Deal Memo?

Deal Memorandum documents are an important part of the investment process within venture capital firms. Deal Memos document the key facts of the company, deal, and at times make an investment suggestion to the investment committee

What is it used for?

i) Structure Thinking 

Deal Memos allow VCs to structure their thinking and find alignment between the company in question and the firm’s thesis. They enable you to capture your assumptions pertaining to the deal at genesis while systematically validating/invalidating said assumptions. Consequently, they allow VCs to map out their hypotheses while documenting and weighing the rationale to invest in a company. VCs are able to look at the Deal Memo and quickly find alignment or lack thereof and come to a decision. 

That decision can often be to engage further and meet the founders in the early stage. Later on, it can be to conduct further due diligence on the facts as stated in the companies pitch. Deal Memos alone seldom lead to investment and there is a process each firm takes to get to a decision to invest. 

ii) Collect Diligence

This also allows the firm to look at the various aspects of the business and collect diligence. As part of the VC’s fiduciary duties, fund managers should conduct diligence and take necessary steps to ensure all investments are in accordance with both the firm’s thesis and what was marketed to LPs when fundraising. 

Therefore, Deal Memos are central to the due diligence phase. Having this information readily available in a document allows decision-makers to make informed choices during the investment process and fulfill their fiduciary responsibilities.

iii) Share Facts

Importantly, Deal Memos are a medium on which venture capitalists share and document the facts of a deal. They are used to summarise the deal in a concise manner and enable others to quickly catch up on the key facts and evaluate the company.

These documents are circulated around the stakeholders and the key decision-makers both internally, as well as with vendors and venture partners to deliberate. Typically the partners who sit on the ‘Investment Committee’ are those who vote on deals that come into the firm. This is outlined in depth in our VC Roles Article.

iv)  Memorialize Assumptions

These documents also memorialize the thinking of the VC and allow the firm to evaluate and analyze the assumptions that are made at the time of making a ruling. This is very important as it enables the firm to go back and re-evaluate the reasons behind their decision. 

It is essential for a venture capital firm to continually reassess its thesis and assumptions from first principles. Consequently, revisiting your past hypotheses and deductive reasoning is crucial to refining your decision-making process. This enables you to isolate assumptions and determine whether they were accurate. Therefore it is advised that VCs revisit both successful investments as well as their anti-portfolio to take learnings from and adapt to the market.

Who writes them?

The author of the Deal Memo can depend on the situation. Though partners are the ones to vote on a deal and write checks, in large established VC firms this task can fall on more junior members such as Associates and Analysts

A pivotal point to take note of is the source of the deal. Typically, said junior members screen incoming deals into the fund and produce Deal Memos for the top percentile of incoming deals. On the other hand, a partner may also choose to write a Deal Memo for a deal they’ve sourced and are championing to the committee

What makes a good Deal Memo?

We believe that central to a good Deal Memo is information regarding the founder / team, market size, company growth metrics, and the deal momentum / dynamics.

Note that Deal Memos are not standardized across stage, firm, or geography. Each firm has its own set of preferences and there is an overall lack of transparency in the industry. The contents and complexity of the Deal Memo can therefore depend on a plethora of factors.

Typically, Deal Memos need to be concise and informative in the early stages of consideration and a simple one-pager will suffice in screening. In the later stages of consideration, they need to be more comprehensive and metric-driven and the analysis should be in-depth and backed by data.

Consequently, the venture capitalists can collect information over time and continue to evaluate the deal while providing guidance and assistance to the founders of the company

An example, you can refer to is Roelof Botha’s Seed Stage YouTube Deal Memo for Sequoia. Here you can see the increase in detail and analysis as the deal moves along the investment process. 

VC Lab’s Deal Memo Template

The venture capital industry lacks transparency /openness and VC firms typically tend not to share internal resources into their investment process.

At VC Lab we are committed to democratizing information and access to the venture capital industry. As such, we invite you to share your opinion and give feedback on our open resources

Find below our Deal Memo template and join us in creating an open and transparent set of resources for both venture capitalists and founders by sharing your feedback and suggestions in our live document below. 

Deal Memo V1.0

Additionally, we welcome your thoughts on what makes a good Deal Memo as well as this article. You can also share your insights by commenting below.

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