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

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

Direct Answer: An investment memorandum review is an independent, investor-side assessment of the financial projections, valuation basis, market claims and underlying assumptions set out in a company's investment memorandum (also called an information memorandum, or IM), carried out before capital is committed. It exists because an IM is written by the company raising money, or its advisers, to make the best possible case for investment, and 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 re-derives the revenue and margin assumptions from source data rather than accepting the summary tables, tests the valuation methodology and comparable set the company has chosen against what an independent valuer would select, and separates verified fact from optimistic narrative before a term sheet is signed rather than after.

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, because 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, and the job of whoever they engage to review the document on their behalf, 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. 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 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, its management team, 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, and 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
• Once terms are agreed, renegotiating on the basis of a flaw the investor should have caught earlier is far harder than catching it before signing, and materially weakens the investor's negotiating position on price and protective terms

What an IM Claims vs What an Independent Review Tests

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, and 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, usually because the process feels disproportionate to a smaller cheque size, which 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, and banks asked to lend against a business whose IM is being used to support the credit case, also routinely commission a review, typically as 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, and test whether the multiple and any premium applied are consistent with market evidence rather than 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

IM Review Scope by Investor Type

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 informal management accounts alone, and where a company claims Qualifying Free Zone Person status, the review should test whether that status holds across the full projection period rather than 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, the latest management accounts, and pay close attention to any R&D tax relief or EIS/SEIS advance assurance claims referenced in the memorandum, since 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, and the first step in a European IM review is confirming which national GAAP or IFRS basis the historic figures were prepared under, since this 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, particularly where the investment is being made ahead of a listing on the parallel market, and Zakat and tax-applicable income should 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, and 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, presenting three years of double-digit EBITDA growth and a forward projection extending that trend, priced at a multiple the fund's investment committee initially found reasonable against the sector average quoted in the document.

An independent review commissioned before a binding offer 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, including 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, despite that growth having 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, and 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.

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 and more capital chases 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 be the ones that treat the review as non-negotiable regardless of how compelling the headline story looks, on the basis that 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, and 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 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, typically covering its history, market position, financial performance and forecasts, management team, and 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?

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, depending on the complexity of the business and how quickly requested information is provided, though 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, and tax due diligence tests historic tax exposures, and 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, 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, since 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 and assessing 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: 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 from the opportunity entirely.

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

It depends on cheque size and the investor's own capacity to assess the claims independently, but a lighter-touch review focused on market sizing, cap table clarity and use of proceeds is increasingly common even at seed stage, particularly 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, working alongside the investor's legal counsel where the deal progresses to full due diligence.

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.

Frequently Asked Questions

Speak to Assetica about Business Valuation

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 free scoping call. Standard reports are issued in five to seven business days.

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