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:

Executive Summary

The opportunity

Tl;dr: summarize the main points of your IM here for the benefit of the very busy Partners at your fund!

  • The science

  • The therapeutic

  • 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

Relevant acronyms

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.

The science

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

The therapeutic

Everything that is known about the candidate therapeutic (if applicable).

  • Therapeutic rationale

  • 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

  • Dosing strategy

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

  • Competitive analysis

  • 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

  • Market analysis

  • 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 analysis

  • 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

  • Cap table

  • 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