Investment Memorandum Review: How Investors Spot the Numbers That Don't Hold Up Before They Commit Capital

Q: What red flags most often appear in an investment memorandum?

Unevidenced or recurring costs added back to EBITDA, a revenue growth forecast that simply extrapolates a short trading history rather than being built from testable drivers, an unsourced total addressable market figure, and a valuation comparable set that appears selected to justify the asking price.

Q: Is the review different for a fundraising IM compared with an M&A sale IM?

The core methodology is the same, but a fundraising IM review places more weight on testing forward growth assumptions and use of proceeds, while an M&A sale IM review places more weight on quality of earnings, net debt and working capital.

Q: What happens if the review uncovers a material issue?

Findings are typically translated into a renegotiated price, a restructured earn-out that shifts identified risk back to the seller, a protective warranty or indemnity, or in the most serious cases, a recommendation to walk away entirely.

By Bill Anderson, FCCA, Chief Executive Officer, Assetica · Published 2026-08-11

Investment Memorandum Review: How Investors Spot the Numbers That Don't Hold Up Before They Commit Capital (Assetica, independent business valuation, Dubai)

Direct Answer: An investment memorandum review is an independent, investor-side assessment of a company's investment memorandum, carried out before capital is committed. It tests the financial projections, the valuation basis, the market claims and the underlying assumptions. The document is also called an information memorandum, or IM. The review exists because an IM is written by the company raising money, or its advisers, to make the best possible case for investment. The document that best supports a fundraise is not always the document that best reflects the risk an investor is actually taking on. A proper review does three things. It re-derives the revenue and margin assumptions from source data rather than accepting the summary tables. It tests the valuation methodology and comparable set the company has chosen against what an independent valuer would select. And it separates verified fact from optimistic narrative before a term sheet is signed, rather than after.

Investor and advisor reviewing an investment memorandum and financial projections

Every investment memorandum tells the same story in outline. A large addressable market. A defensible position within it. A management team that has already proven it can execute. And a growth trajectory that makes today's asking valuation look conservative in hindsight. That is not evidence of dishonesty; it is what an IM is designed to do. The company or the sell-side adviser who wrote it is presenting the strongest defensible case for the capital being sought. The investor's job is to work out how much of that story survives contact with the underlying data, and how much is narrative built around a headline number. So is the job of whoever they engage to review the document on their behalf. This guide sets out how an investment memorandum review actually works, what it catches that a first read rarely does, and how expectations differ across the UAE, UK, Europe, Saudi Arabia and Australia.

What Is an Investment Memorandum?

An investment memorandum is a document prepared by a company, or its corporate finance adviser, to present the business to prospective investors. It is used ahead of a fundraise, a private placement, or a full or partial sale. It typically sets out the company's history, its market and competitive position, its financial performance and forecasts, and its management team. It also sets out the terms of the opportunity being offered and the valuation the company or its advisers believe the investment should be priced against. In an M&A or private equity context the same document is often called an information memorandum. There it plays an equivalent role for a company being sold rather than a company raising growth capital.

Why an Independent Investment Memorandum Review Matters

The document is inherently one-sided. It is commissioned and paid for by the party seeking capital, and even a well-intentioned management team tends to present the most favourable interpretation of ambiguous numbers
Projections in an IM are rarely built the way a lender-grade financial model is built. Growth rates are frequently extrapolated from a short trading history or a small number of large customers, rather than derived bottom-up from tested, repeatable drivers
The valuation basis is chosen by the party it benefits. A company selecting its own comparable set and multiple has every incentive to choose the highest defensible reference points, not the most representative ones
Market size claims are commonly sourced from the most generous available report. A total addressable market figure quoted without the underlying methodology is one of the most frequently inflated numbers in any IM
Catching a flaw before signing is far easier than renegotiating once terms are agreed. Raising it late also materially weakens the investor's negotiating position on price and protective terms

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What an IM Claims vs What an Independent Review Tests

IM Section	What the Document Typically Presents	What an Independent Review Tests
Financial projections	Summary revenue, EBITDA and cash flow tables	Whether the underlying drivers reconcile to management accounts and are genuinely repeatable
Historic performance	Adjusted or normalised EBITDA figures	What was added back, and whether every adjustment is genuinely one-off and defensible
Market size	A total addressable market figure, often cited without methodology	The source, the definition used, and how much of that market the company can plausibly reach
Customer base	Logos, testimonials and aggregate revenue figures	Customer concentration, contract terms, renewal history and churn
Valuation basis	A chosen multiple applied to forecast or normalised earnings	Whether the comparable set and multiple are representative, or selected to justify the asking price
Use of proceeds	A narrative allocation across growth initiatives	Whether the stated runway and milestones are consistent with the cash flow forecast

Who Commissions an Investment Memorandum Review

Private equity and venture capital funds routinely commission a review as a standard step between an indicative term sheet and a binding offer. Most funds will not proceed without one on any deal above a set size threshold. Family offices and high-net-worth angel investors making a direct investment are the group most likely to skip this step. The process usually feels disproportionate to a smaller cheque size. That is precisely the segment where an independent review most often earns back its cost, by catching an unsupported growth assumption or an inflated add-back. Corporate investors evaluating a strategic stake also routinely commission a review, as do banks asked to lend against a business whose IM is being used to support the credit case. For both, it is typically part of a wider financial due diligence scope.

The Investment Memorandum Review Process

Request the underlying data room, not just the IM. A reviewer needs management accounts, the trial balance, customer-level revenue data and board packs, not the summary tables in the memorandum itself
Reconcile every historic figure in the IM to source accounts. Any figure that does not tie out, or any add-back that cannot be evidenced, gets flagged immediately
Rebuild the revenue forecast from its stated drivers. Test whether the growth curve is supported by a genuine pipeline, contracted revenue or repeatable unit economics, or whether it is simply extrapolated from a short trading history
Stress-test customer concentration and contract quality. A small number of large, short-term or easily-cancelled contracts materially changes the risk profile behind a revenue number that otherwise looks strong
Independently assess the valuation methodology. Build or review a comparable company and precedent transaction set. Then test whether the multiple and any premium applied are consistent with market evidence, rather than with the company's own selection
Verify the market sizing claims. Trace the total addressable market figure back to its original source and assess whether the company's realistically serviceable share is consistent with its actual go-to-market capacity
Test the use-of-proceeds and runway claims against the cash flow forecast. Confirm the funding being raised is actually sufficient to reach the milestones the IM claims it will fund
Report findings mapped to specific investment consequences. Each material finding should translate into a recommended price adjustment, a protective term, a specific warranty, or a walk-away flag, not a general observation buried in a long report

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IM Review Scope by Investor Type

Investor Type	Typical Trigger	Primary Focus of the Review
Seed and angel investors	Above a set cheque size, or when several investors are syndicating	Founder-stated market size, cap table clarity, use of proceeds versus runway
Venture capital (Series A/B)	Standard step before a term sheet is finalised	Unit economics, cohort retention, revenue quality behind the growth curve
Private equity (growth/buyout)	Mandatory before a binding offer on any material deal	Quality of earnings, working capital, valuation multiple defensibility
Family offices	Increasingly standard on direct investments above a set threshold	Downside case resilience, alignment with the family's risk appetite and time horizon
Lenders financing an acquisition	Standard part of the credit approval process	Debt serviceability under a conservative, independently-tested downside case

Investment Memorandum Review Across the UAE, UK, Europe, Saudi Arabia and Australia

United Arab Emirates

UAE reviews increasingly need to reconcile IM projections against corporate tax filings, rather than against informal management accounts alone. Where a company claims Qualifying Free Zone Person status, the review should test whether that status holds across the full projection period, not just the current year. Where a target trades across free zone and mainland entities, related-party pricing embedded in the IM's revenue or cost base should be tested against an arm's-length benchmark.

United Kingdom

UK reviews typically reconcile the IM to statutory accounts filed at Companies House, or, for smaller companies, to the latest management accounts. They pay close attention to any R&D tax relief or EIS/SEIS advance assurance claims referenced in the memorandum. These need to align precisely with the qualifying activity actually being carried out. A going concern statement consistent with the projection period is expected wherever the IM is being used to support a formal investment decision.

Europe

Requirements vary by member state. The first step in a European IM review is confirming which national GAAP or IFRS basis the historic figures were prepared under. That basis affects how comparable the numbers are to the projection methodology used elsewhere in the document. Cross-border tax and currency assumptions embedded in the forecast should be explicitly tested rather than accepted as stated.

Saudi Arabia

Saudi reviews increasingly expect the valuation methodology behind the IM to meet Taqeem-accredited standards. That expectation is strongest where the investment is being made ahead of a listing on the parallel market. Zakat and tax-applicable income should also be separated correctly where ownership is mixed between GCC and non-GCC investors.

Australia

Australian reviews typically test whether GST has been handled consistently between the historic and forecast figures. Where an R&D tax incentive claim underpins part of the projected cash position, the review should confirm the claimed activities are genuinely eligible, rather than accepting the registration at face value.

Case Study: A London Private Equity Fund and a Manufacturing Buyout

A UK mid-market private equity fund received an information memorandum for a specialist manufacturing business. It presented three years of double-digit EBITDA growth, and a forward projection extending that trend. The asking price was a multiple the fund's investment committee initially found reasonable against the sector average quoted in the document.

An independent review was commissioned before a binding offer. It reconciled the historic EBITDA figures to statutory accounts and found that roughly a fifth of the most recent year's adjusted EBITDA came from add-backs for costs the review judged to be recurring rather than one-off. Those included a "non-recurring" consultancy fee that had, in fact, appeared in each of the prior three years. The review also found that the forward projection assumed the recent growth rate would continue unchanged. That growth had been driven substantially by two large contracts due to expire within the projection period, with no confirmed renewal. The fund used the findings to renegotiate the price down by an amount consistent with the corrected normalised EBITDA. It also restructured part of the consideration as a contingent earn-out tied to renewal of the two key contracts, shifting that specific risk back onto the seller rather than the fund.

This case study is an illustrative composite constructed to demonstrate how an information memorandum is tested before a bid. No real client or company is described.

Common Mistakes Investors Make When Reviewing an IM Themselves

Accepting adjusted or normalised EBITDA at face value. Every add-back should be individually evidenced and tested for whether it is genuinely one-off
Treating the company's chosen comparable set as neutral. A comparable set selected by the party seeking the highest defensible valuation is not the same as an independently-built one
Not tracing market size claims to their original source. A total addressable market figure repeated from a well-known report is often quoted out of context or with a broader definition than the company's actual product addresses
Confusing revenue growth with revenue quality. Strong top-line growth concentrated in a small number of contracts due for renewal within the projection period carries far more risk than the headline figure suggests
Skipping the review on smaller deals to save time or cost. Smaller, less formally prepared IMs are statistically more likely to contain unsupported figures, not less
Reviewing the document in isolation from the underlying data room. An IM review that does not reconcile to source accounts and customer-level data is a read-through, not a review

Investment Memorandum Review Checklist

Historic financials reconcile to statutory or management accounts
Every EBITDA add-back is individually evidenced and genuinely one-off
Revenue forecast is built bottom-up from testable drivers, not a blended growth rate
Customer concentration, contract terms and renewal dates have been assessed
Market size claims traced to source and tested against realistic serviceable reach
Valuation comparable set and multiple independently assessed against market evidence
Use of proceeds tested against the cash flow forecast and stated milestones
Tax, Zakat, VAT/GST and jurisdiction-specific compliance items correctly reflected
Findings mapped to specific price, term, warranty or walk-away recommendations

Expert Recommendations and Future Outlook

As deal volumes recover, more capital is chasing a similar pool of opportunities. The pressure to move quickly on an attractive IM has increased, and that pressure is exactly what makes a disciplined, independent review more valuable, not less. The funds and family offices with the strongest track records tend to treat the review as non-negotiable, regardless of how compelling the headline story looks. Their reasoning is simple: a document written to be persuasive is, by definition, the one most in need of independent testing. That discipline is increasingly extending down to smaller cheque sizes, as angel syndicates and family offices professionalise their own investment processes.

Conclusion

An investment memorandum is written to make the strongest possible case for the capital being sought. That is not a flaw in the document; it is its purpose. The investor's protection against that one-sidedness is not a more careful read of the same document. It is an independent review that reconciles the numbers to source data, rebuilds the projection from its real drivers, and tests the valuation basis against the market rather than against the company's own selection. If you are being asked to commit capital on the strength of an investment memorandum anywhere across the UAE, UK, Europe, Saudi Arabia or Australia, speak to our team before you sign.

Frequently Asked Questions

What is an investment memorandum (IM)?

An investment memorandum is a document prepared by a company, or its adviser, to present the business to prospective investors. It typically covers the company's history, market position, financial performance and forecasts, and management team. It also covers the terms and valuation of the opportunity on offer.

Why should an investor commission an independent review rather than rely on the company's own numbers?

Because the IM is prepared by the party seeking capital, who has every incentive to present the most favourable interpretation of ambiguous figures. An independent review reconciles those figures to source data and tests the assumptions before capital is committed rather than after.

What is the difference between an IM review and financial due diligence?

An IM review specifically tests the claims, projections and valuation basis presented in the memorandum itself. Financial due diligence is typically broader, covering the full data room, and often follows an IM review once an investor has decided to progress toward a binding offer.

Who typically commissions an investment memorandum review?

Private equity and venture capital funds, family offices, corporate investors and lenders financing an acquisition. Individual angel investors are the group most likely to skip this step, usually to their disadvantage on larger cheque sizes.

What red flags most often appear in an investment memorandum?

There are four common ones. Unevidenced or recurring costs added back to EBITDA. A revenue growth forecast that simply extrapolates a short trading history, rather than being built from testable drivers. An unsourced total addressable market figure. And a valuation comparable set that appears selected to justify the asking price rather than to represent the market.

How long does an investment memorandum review take?

A focused review typically takes two to four weeks from data room access. The time depends on the complexity of the business and how quickly requested information is provided. It can be compressed for a smaller, cleaner opportunity.

Does an IM review replace legal and tax due diligence?

No. An IM review focuses on the financial, valuation and market claims within the memorandum itself. Legal due diligence tests contracts and corporate structure. Tax due diligence tests historic tax exposures. Both are typically run alongside or after the IM review, as the deal progresses.

Is the review different for a fundraising IM compared with an M&A sale IM?

The core methodology is the same. A fundraising IM review places more weight on testing forward growth assumptions and use of proceeds. An M&A sale IM review places more weight on quality of earnings, net debt and working capital, because a sale price is typically set closer to completion.

How is the valuation in an IM typically tested?

By independently building or reviewing a comparable company and precedent transaction set. The review then assesses whether the multiple and any control or growth premium applied in the IM is consistent with that market evidence, rather than accepting the company's own selection of comparables.

What happens if the review uncovers a material issue?

Findings are typically translated into a specific, actionable response. That might be a renegotiated price, a restructured earn-out that shifts identified risk back to the seller, or a protective warranty or indemnity. In the most serious cases it is a recommendation to walk away from the opportunity entirely.

Should seed-stage or early angel investors commission a formal IM review?

It depends on cheque size, and on the investor's own capacity to assess the claims independently. A lighter-touch review focused on market sizing, cap table clarity and use of proceeds is increasingly common even at seed stage. That is particularly true where several investors are syndicating a round.

Who should carry out an investment memorandum review?

An independent valuation and financial advisory firm with no fee tied to whether the investment proceeds, so the findings are not influenced by the transaction closing. It should work alongside the investor's legal counsel where the deal progresses to full due diligence.

Been sent an investment memorandum you need tested before you commit?

Assetica independently reviews investment memoranda, financial projections and valuation claims for investors, family offices and lenders across the UAE, UK, Europe, Saudi Arabia and Australia. Scoping call.

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This article is general information about reviewing an investment memorandum, not financial, tax or investment advice. Review scope and requirements vary by transaction, investor type and jurisdiction. Always work with qualified advisers before committing capital.

Disclaimer. This article is general information about valuation practice in the UAE and is not a valuation, an opinion of value, or tax, legal or investment advice. Any figures or reference ranges are indicative and are not a quotation for any specific business. Rules, rates and the requirements of individual authorities change, so confirm the current position before relying on anything here. For your own circumstances, book a scoping call.

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Assetica is an independent business valuation firm in Dubai. We do not audit and we do not broker deals, so the number carries no conflict. Read more about business valuation, or book a scoping call. Standard reports are issued in five to seven business days.