Writing an Investment Memo
for an early-stage biotech company or asset
The purpose of an investment memo is to record and evaluate the rationale for (or against) investing in a specific company or team. By the end of the IM process, you should have a depth of knowledge that makes you, at minimum, the Fund expert on the relevant biology and topic.
There is no set format for an IM. For biotechnology companies, the following sections may be helpful:
Tl;dr: summarize the main points of your IM here for the benefit of the very busy Partners at your fund!
Amount of capital needed and deal details
Critical biological assumptions for this to be successful
Investment thesis (why to invest, why this will work, why this will give your fund and LPs a massive return)
Outstanding questions, risks, and concerns
Go/no go suggestion
Potential size of the opportunity
List any non-obvious acronyms used here. This isn’t really necessary, but I like to include it.
Relevant pathways and structures
Equally, reference materials such as the structure of the antibody, the pathway you are inhibiting, etc, are helpful to isolate and highlight.
This is where I recommend going deep. Explain the context of the field, the biology as it is understood today, and why this drug/pathway/platform is relevant now. Tell a story!
Historical context of the field and major discoveries
Previous attempts to drug this pathway
The science the company is capitalizing on
Leaders of the field
Areas less well understood or of contention in the biology
Everything that is known about the candidate therapeutic (if applicable).
Biologic, gene therapy, small molecule, etc.
Structure, history of the compound if repurposed
How they identified the compound, risks and benefits of the screening platform they used
Indication(s) of interest
Teach us the biology of the diseases that the entrepreneurs want to target, and the logic behind why the pathway they want to modulate is not only molecularly relevant, but clinically relevant. Also, information on the technicalities surrounding the indication: market size, feasibility of clinical trials, regulatory incentives, etc.
Summary of biology and rationale for targeting
What is currently in clinical trials, best hopes in development
What has failed before, and why?
Clinical trials design, size, and non-biological risks for these indications
Structure of previous trials
Biomarkers and surrogate endpoints used
Eligibility for regulatory incentives
Revenue of existing therapeutics
Disease incidence and prevalence
Current standard of care
Patient characteristics and trends
Freedom to operate analysis
Find out if there are any patents that may block the company, or be interesting to license in, or both! Also discuss the strength (or lack thereof) of the company’s IP.
Patents held by the company
Potentially obtrusive patents held by others
Potentially interesting patents to license
Details on any licenses held, patent age and expiration
The company & financials
Who is the team and why are the best to push this forward? How much money do they need to do this? What is the deal structure? What kind of returns are possible here? The answer to the financial questions will inevitably be wrong when investing in an early stage co, but it’s good practice to think this through.
Team and background
Estimated capital needed to hit first one to two inflection points
Fund returns, modeled across a couple of different fundraising, scaling, and exit scenarios
Representative deals and acquisitions
IPOs of comparable companies
Partnerships and acquisition deal details