Final Investment Memorandum
Also written Final IM · Final investment memo
The memorandum a PE fund's deal team prepares once the investment committee gives final approval, proposing a specific valuation — which the start-up can still negotiate before final agreements are signed.
In plain language
A private equity deal passes through several documents before any money moves. Early on, everything is provisional: a letter of intent gives an investment range, a term sheet sets out principal terms, and due diligence tests whether the story holds up.
The Final Investment Memorandum comes at the end of that process. The fund's investment committee has given its final approval, and the deal team now proposes a specific valuation for the acquisition of the stake — one number, not a range.
It is final for the fund's internal process, but not for the deal: the start-up can still negotiate the valuation before the shareholder and share subscription agreements are signed.
How it works
The private equity deal pipeline (Chapter 9, section 9.1.3.2):
| Step | What happens |
|---|---|
| 1. Deal sourcing | Professionals build lists of potential start-ups; start-ups pitch |
| 2. NDA | Signed so the fund can examine the start-up's records |
| 3. Initial due diligence | How management is executing the plan it pitched |
| 4. Investment proposal and non-binding LOI | Proposed amount, valuation and stake — the amount usually a range, not a specific value |
| 5. Term sheet and SOPT | Signed if the LOI is accepted; the investment has not yet been made |
| 6. Final due diligence | Financial, business, technological and operational |
| 7. Final Investment Memorandum | After final investment committee approval; a specific valuation is proposed; the start-up can negotiate |
| 8. Shareholder Agreement and Share Subscription Agreement | Cheque handed over, shares allotted, investor's name on the capitalisation table |
The earlier memoranda (Chapter 10).
- After the management presentation, the investment team prepares a brief 2–3 page investment proposal for the Investment Committee — either to alert it to the deal or to seek a go-ahead to negotiate. The committee may also approve a cost-cover for out-of-pocket deal expenses.
- Before executing the term sheet, depending on the manager's protocols, a Preliminary Investment Memorandum (PIM) may be presented to the committee, detailing the proposed investment and deal structure, to get authorisation to sign the term sheet.
So the sequence of internal papers is: investment proposal → Preliminary Investment Memorandum → Final Investment Memorandum.
Who approves. Managers may constitute an Investment Committee to approve investment decisions, consisting of senior management of the investment management company and nominated external members and independent professionals.
Two inconsistencies to know. Chapter 9 treats the non-binding LOI and the term sheet as separate steps, and says the term sheet and SOPT lay down binding and non-binding clauses. Chapter 10 says the non-binding LOI is "also called the term sheet", and that a term sheet is non-binding on both parties and gives no contractual rights whatsoever. Chapter 9 also places initial due diligence before the LOI, while Chapter 10 says due diligence does not commence until the term sheet is executed. For a question on the pipeline, follow Chapter 9's order; for a question on the legal status of a term sheet, Chapter 10's "non-binding" is the textbook answer.
A worked example
Nimbus Capital Fund II (illustrative throughout), a Category II AIF, is investing in Kaveri Cloud, a SaaS company.
| Stage | Document | Valuation |
|---|---|---|
| After the management presentation | 3-page investment proposal to the IC; cost-cover of Rs 25 lakh approved for legal and diligence costs | — |
| Before the term sheet | Preliminary Investment Memorandum; IC authorises signing | — |
| LOI and term sheet | Investment of Rs 40–50 crore for 18–20% | Pre-money Rs 180–230 crore (a range) |
| After final due diligence and IC final approval | Final Investment Memorandum | Rs 45 crore for 20% — pre-money Rs 180 crore |
Check the proposal: 45 ÷ 20% = Rs 225 crore post-money, so pre-money = 225 − 45 = Rs 180 crore.
The negotiation. Kaveri's founders argue that a large customer signed during diligence justifies more. They settle at Rs 45 crore for 18%.
| Line | Figure |
|---|---|
| Post-money | 45 ÷ 18% = Rs 250 crore |
| Pre-money | 250 − 45 = Rs 205 crore |
The Final Investment Memorandum proposed Rs 180 crore; the signed agreements reflect Rs 205 crore. Both sit inside the term sheet's range — and both are consistent with the workbook's statement that the start-up can negotiate the final valuation before signing. Nimbus hands over the cheque on signing, is allotted shares, and appears on Kaveri's capitalisation table.
Why NISM asks about it
Chapter 9 (Investment Strategies), section 9.1.3.2 on the private equity deal structure lists the Final Investment Memorandum as the step after final due diligence; Chapter 10 (Investment Process and Governance of Funds), sections 10.1.2 to 10.1.4, cover the investment proposal, cost-cover, Preliminary Investment Memorandum and term sheet. Expect an ordering question on the deal pipeline and a question on what distinguishes the Final Investment Memorandum from the LOI (a specific valuation, not a range).
Common exam traps
- The Final Investment Memorandum follows final investment committee approval — it is not the document that seeks approval to sign the term sheet (that is the Preliminary Investment Memorandum).
- It proposes a specific valuation; the LOI gives a range.
- The start-up can still negotiate the final valuation before signing.
- Money moves only at signing of the Shareholder Agreement and Share Subscription Agreement, when shares are allotted.
- Term sheet status differs by chapter: binding and non-binding clauses (Chapter 9) versus wholly non-binding (Chapter 10).
- Final due diligence covers four areas: financial, business, technological and operational.
Where this is taught
Free preparation for NISM Series XIX-DRelated terms
- Investment CommitteeA committee the manager of a Category I or II AIF may constitute to approve the fund's investment decisions; its members are responsible for those decisions and bound by the Code of Conduct.
- Shareholders' AgreementAn inter se agreement between an AIF and all existing shareholders of the investee company, binding them to the rights and obligations of the deal — made enforceable by amending the articles.
- Term SheetThe non-binding document in which an AIF and an investee company set out the main terms of a proposed investment. Once signed, it leads to due diligence and then to the binding definitive agreements.
- Information MemorandumIn AIF due diligence, the investee company's own document of representations and forecasts; separately, the document an AIF scheme files with SEBI through a merchant banker to enter a dissolution period.
- Post-money valuationA start-up's pre-money valuation plus the new money going in — the number that fixes what percentage of the company the incoming investor owns after the round.
- Growth investingA common private equity strategy of taking a minority stake to help a company grow further — typically at the intersection of VC and PE, where the company is still growing but may already be profitable.
- Non-binding Letter of IntentThe document a private equity fund gives a target after initial due diligence, proposing an investment amount, a valuation and a stake — none of which it is yet obliged to honour.
- Capitalization TableThe record of who owns how much of a company — every class of shares, each investor's stake and the employee option pool. An AIF's name goes on it when the shares are allotted.
- Preliminary Investment MemorandumA memorandum a fund's investment team may present to its Investment Committee, detailing a proposed investment and deal structure, to get authorisation to sign the term sheet.