Key takeaways
- The IC memo, not the management presentation, is the document that actually gets your deal approved or killed at a PE firm. The presentation feeds the memo; the memo drives the vote.
- Deal teams advocate for the deals they bring; IC members are skeptics hired to find reasons not to invest. Understanding that dynamic changes how to frame risk in your presentation.
- The five questions every IC asks: Is the business defensible? Can it grow? Who runs it after the founder leaves? What are we paying and how do we get out? What is the downside case?
- Deals die at IC most often because of owner dependency, lack of a clear growth thesis, or a valuation expectation gap, not because the business is bad.
- Founders who prepare a concise "pre-IC package", a one-page business summary, a financial bridge, and a clear answer to the owner dependency question, give the deal team the building blocks they need to write a strong memo.
In this article
How to use this before a process
Financing Certainty Checklist
- Prepare the cash flow, collateral, customer, and capex evidence a lender will underwrite.
- Show how adjusted EBITDA converts to debt-serviceable cash flow.
- Document concentration, seasonality, and working capital swings before lender review.
- Ask whether the buyer has debt support at the price shown in the LOI.
- Keep seller notes, earnouts, and rollover equity separate from cash-at-close when comparing bids.
PE firms reject more than 95% of deals they initially evaluate; the average deal team reviews 50–100 opportunities for every one that reaches IC
IC approval rates for deals that reach formal committee are roughly 70–80%; the 20–30% that fail at IC most commonly fail on owner dependency, growth thesis clarity, or valuation
Deal teams spend 4–8 weeks preparing an IC memo before presenting to committee; the memo is typically 20–60 pages covering business quality, growth thesis, management assessment, valuation, and downside case
Founders spend months preparing for management presentations. The presentation itself typically lasts two to three hours. What happens next is invisible to the seller, yet it determines whether the deal advances to a <a href="/insights/letter-of-intent-ma-founder-guide" class="subtle-link">letter of intent</a> or goes quiet. Inside the PE firm, the deal team returns and begins writing an investment committee memo, the document that will be presented to senior partners and fund principals who were not in the room with you.
Readiness Snapshot
What buyers will ask
Can a lender underwrite the cash flow at the proposed price?; What leverage, covenant, and equity assumptions support the bid?; Which financing conditions could still change seller economics?
What to prepare
Monthly cash flow and debt service bridge.; Capex, working capital, and customer concentration support.; Evidence package for lender EBITDA and collateral review.
95%+
Deals screened out before reaching IC
70–80%
IC approval rate for deals that reach committee
4–8 weeks
Typical time to write an IC memo after management presentation
20–30%
Deals that fail at IC after reaching the memo stage
PE Investment Committee Process
What the deal team does after your presentation
After the management presentation, the deal team's job shifts from evaluation to advocacy. They have decided they want to pursue the deal and they are now building the case for their investment committee to approve it. This is an important dynamic: the person who ran the management meeting and asked you hard questions is now your internal champion.
Their first task is a preliminary investment memo, sometimes called an initial investment memo or a deal summary, which they circulate internally to get informal feedback from senior partners before committing resources to full diligence. This preliminary memo typically covers the business overview, their thesis for why the investment makes sense, the proposed deal structure and valuation range, key risks they have identified, and their recommended next steps.
What the preliminary IC memo typically covers
Business overview
Who the company is, what it does, key financial metrics, customer profile, and competitive position
Investment thesis
Why this business, why now, what the deal team believes the PE firm can do to create value
Valuation and structure
Preliminary enterprise value range, proposed deal structure (equity/debt split), expected multiple at entry
Key risks
The two or three largest risks the deal team has identified and their proposed mitigation for each
Preliminary diligence plan
What they want to confirm before writing the full IC memo, and which advisors will be engaged
Recommended next steps
Whether to submit an IOI, request an exclusivity period, or proceed to LOI
Founders never see this memo, but the quality of their presentation and diligence room materials directly determines how strong it is. A deal team that walks out of a management meeting with clear answers to the key questions can write a stronger preliminary memo faster. A deal team that walked out with unanswered questions about management depth, revenue quality, or <a href="/insights/customer-concentration-problem-transaction-risk" class="subtle-link">customer concentration</a> will write a weaker memo with more risk flags. Understanding how PE firms model your business helps founders anticipate the financial questions the deal team needs to answer in the memo.
The full IC memo: what gets submitted to committee
After diligence is substantially complete, the deal team writes the full investment committee memo. This is the document that the IC members will read before the formal IC meeting, and it is the most important artifact in the entire process from the PE firm's perspective. For a $20M–$100M transaction, full IC memos typically run 30–60 pages including supporting exhibits.
Standard IC Memo Structure (Lower Middle Market)
Section 1: Executive Summary
2–3 page summary of the investment thesis, entry valuation, financial returns, and key risks; must stand alone
Section 2: Company Overview
Business description, products/services, go-to-market, geographic footprint, employee base
Section 3: Market Analysis
TAM/SAM sizing, market growth rate, competitive landscape, company's competitive positioning and moat
Section 4: Financial Analysis
3-year historical P&L, normalized EBITDA bridge, revenue quality analysis (recurring vs. project, customer concentration), margin profile, cash conversion
Section 5: Management Assessment
Evaluation of the leadership team's depth, experience, and ability to operate independently of the founder; specific analysis of the owner dependency question
Section 6: Investment Thesis and Value Creation Plan
How the firm plans to create value: organic growth, add-on acquisitions, operational improvements, and multiple expansion
Section 7: Deal Structure and Valuation
Entry multiple, proposed capital structure (equity/debt), transaction fees, projected ownership at close
Section 8: Returns Analysis
Base, upside, and downside case financial models; IRR and MOIC at various exit multiples and hold periods
Section 9: Risk Factors and Mitigants
Detailed analysis of key risks: market, operational, financial, and deal-specific; proposed mitigants
Section 10: Diligence Findings
Summary of QoE, legal, commercial, technology, and management diligence findings; open items
Section 11: Recommendation
Deal team's recommendation to invest or pass, and the proposed terms
The section that most influences the IC outcome is Section 5: Management Assessment. PE firms are not buying a business, they are buying a management team with a business attached to it. An IC memo that concludes "the business cannot operate without the founder" is structurally difficult to approve regardless of business quality, because the PE firm cannot underwrite the investment without a credible plan for founder transition. See owner dependency for how buyers quantify this risk and price it into valuation.
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Run an AI readiness scan →The five questions every IC asks
IC members are professional skeptics. They have seen hundreds of deals and their job is to find the flaws that the deal team, in their enthusiasm to do a transaction, may have overlooked. IC members ask a consistent set of questions across deals, and founders who understand these questions can prepare their materials to answer them preemptively.
The 5 Core IC Questions
1. Is the business defensible?
What stops a competitor from replicating this in 18 months? Is the moat contractual, switching-cost-based, brand-based, or operational? Does the financial history reflect a business with pricing power, or one that competes on price?
2. Can it grow?
Is there a credible plan to expand revenue 15–25% per year during the hold period? Is that growth organic, add-on driven, or both? What has to be true for the growth thesis to work?
3. Who runs it after the founder leaves?
Is there a CFO, a VP of sales, and an operations leader who can operate independently? Have they been tested? What happens on day 91 when the founder is gone?
4. What are we paying and how do we get out?
Is the entry multiple defensible relative to comparable transactions and public comparables? What exit multiple are we assuming and is it realistic given market conditions? How long is the hold period and what does the IRR look like in the base, upside, and downside case?
5. What is the downside?
If revenue grows 0% instead of 15%, what happens to equity value? Can the business service its debt in a flat scenario? What is the floor if we need to sell in an unfavorable market?
6–8x
Typical EBITDA entry multiple range in lower middle market PE
3–5 years
Typical PE hold period before exit
20%+
Target IRR that most lower-middle-market PE funds use as a hurdle rate
15–25%
Typical annual revenue growth assumption in the base case for LMM platform investments
Why deals fail at IC
Deals that reach a full IC memo fail less frequently than founders assume, but when they do fail, the reasons are consistent. Understanding the failure modes helps founders prepare materials that address them preemptively rather than discovering the gap after the deal team goes quiet.
A founder of a $4.2M EBITDA healthcare services business received strong interest from three PE firms after his management presentation.
One firm went quiet two weeks later.
Six months after that, a banker contact at the firm told the founder that the IC had voted to pass because the deal team's memo could not answer the owner dependency question, the founder's long-term customer relationships had no documented succession plan, and the IC did not believe the VP of operations could retain those relationships after the founder's transition. The business eventually sold to a strategic buyer at a lower multiple.
What founders can do to support the IC process
Founders cannot write the IC memo. But they can give the deal team the raw materials that make a strong memo easier to write. The deal team is your advocate inside the firm, making their job easier directly improves your probability of getting an IC approval.
What to Prepare to Support the IC Process
A one-page business summary
A concise narrative of the business, competitive position, and what you would tell a new investor in 5 minutes; deal teams lift language directly from well-prepared materials
A normalized EBITDA bridge
A clear, line-by-line reconciliation from reported EBITDA to normalized EBITDA with each add-back explained and documented; IC members scrutinize these heavily
A management team biography document
One page per leader covering background, tenure, key responsibilities, and what they own day-to-day; helps the IC visualize the team without the founder
A customer concentration analysis
Revenue breakdown by top 10 customers with contract status, relationship tenure, and renewal risk; deal teams need this to write the revenue quality section
A growth initiative list
A short list (5–7 items) of specific, actionable growth opportunities with estimated revenue impact; gives the deal team material to build the value creation plan
A bottom-up financial model
A driver-based revenue model that builds from unit counts, customer counts, or contract values rather than a top-down growth rate; IC members trust models that show the mechanics
One of the most effective things a founder can do after a management presentation is send a one-page follow-up summary within 48 hours: a brief restatement of the investment thesis in their own words, the key strengths of the management team, and a direct answer to the owner dependency question. Deal teams frequently incorporate this language into their preliminary memo because it is precisely what they need.
Frequently asked questions
What should a founder do first?
Identify the specific buyer concern this topic creates and assemble the documents that prove the answer. The goal is to make the diligence response evidence-based before a buyer asks the question.
Why does this matter in a sale process?
Because buyers convert uncertainty into price, structure, or diligence friction. A documented answer reduces the perceived risk and keeps the discussion focused on value rather than cleanup.
What is the most common mistake?
Waiting until after LOI exclusivity to fix the issue. At that point the buyer has leverage, the timeline is compressed, and every gap is interpreted through a risk-adjustment lens.
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Disclaimer: Financial figures and case-study details in this article are anonymized, composite, or representative examples based on middle market operating situations, and are not guarantees of outcome. Statistical references are drawn from cited third-party research; individual transaction and operational results vary based on business characteristics, market conditions, and deal structure. This content is for informational purposes only and does not constitute legal, financial, or investment advice. Consult qualified advisors for guidance specific to your situation.
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