Private Equity Case Interviews: How to Decide Invest vs Don't Invest
Master the PE case interview format. Learn the framework for making investment decisions, structuring your analysis, and presenting a compelling IC-style recommendation—plus a full mini-case walkthrough.
Note
Module Reading: This article accompanies the Invest / Don't Invest – Final Cases module in our Private Equity interview prep track.
Private equity case interviews are simple on the surface and brutal in practice: you get limited information, limited time, and you still have to make a real recommendation with a defensible IC-style rationale.
This guide gives you a repeatable framework to decide Invest vs Don't Invest—and to communicate it like someone who's sat in an investment committee before.
What PE Case Interviews Are Actually Testing
Most candidates think the goal is to "build the perfect LBO model." In reality, interviewers care more about whether you can form an investment thesis,identify the true drivers, and pressure-test riskthan whether your model has 200 rows.
The Real Test
PE interviews test whether you think like an investor, not an analyst. Can you synthesize information into a decision? Can you defend that decision under pressure? Can you identify what would make you wrong?
Depending on the firm and stage, you might face:
PE Case Interview Formats
| Term | Definition | Note |
|---|---|---|
| Timed Modeling Test | 60–120 minutes to build a clean LBO and answer targeted questions | Focus on speed and accuracy |
| Take-Home Case | 2–7 days to review a CIM, build an LBO, and present an investment memo | Tests depth and polish |
| Live Case Discussion | 30–60 minutes to discuss a company/deal and give a recommendation | Tests thinking on your feet |
| Mock IC Presentation | Present your recommendation and get grilled on assumptions and risks | Final round format |
In many processes, the final discussion feels like a mock investment committee: you present, then get grilled on assumptions, risks, and "what would make you walk away?"
The Decision Framework: 3 Questions That Drive Invest vs Don't Invest
Every PE investment decision boils down to three fundamental questions. Master this framework and you'll never be lost in a case interview.
1. Is This a Good Business? (Quality + Durability)
You're underwriting cash flows and the ability to improve them—so start with business fundamentals:
- What really drives revenue (price vs volume, churn, contract length)?
- How resilient are margins (input costs, pricing power, labor intensity)?
- Where is the moat (switching costs, differentiation, distribution, regulation)?
- What breaks in a downturn (cyclicality, customer concentration)?
Red Flags
Watch for: customer concentration >20% with any single customer, secular decline in core market, no clear moat, or management that can't articulate their competitive advantage.
2. Is This a Good Deal? (Price + Structure)
A great business can still be a bad deal if:
- You're paying too much—entry multiple leaves no room for error
- Leverage is too aggressive—no covenant headroom, refinancing risk
- The equity story depends on heroic assumptions—market timing, multiple expansion
Your LBO model is a tool to translate "story" into returns and risk. The model should answer: "What has to be true for this deal to work?"
Entry Equity = Purchase EV − Debt RaisedYour equity check determines MOIC denominator—lower entry = higher potential returns
EV=Enterprise Value (Entry Multiple × EBITDA)Debt=Total debt in Sources & Uses3. Is There a Credible Value-Creation Path? (What You Will Do)
PE returns rarely come from "hoping." They come from a practical plan:
- Operational improvements—cost reduction, procurement, productivity
- Commercial upside—pricing, product mix, cross-sell, new markets
- Strategic actions—add-on acquisitions, carve-outs, platform builds
- Capital structure optimization—refinancing, dividend recaps
The Thesis Test
If you can't explain how value is created (and who executes it), you don't have a thesis—you have vibes. Every thesis bullet should connect to a specific lever with a quantifiable impact.
The IC-Style Output: Your 1-Page "Invest / Don't Invest" Memo
In interviews, this structure is gold because it's what decision-makers actually want: a clear recommendation + the 4–6 reasons why.
Investment Memo Structure
| Term | Definition | Note |
|---|---|---|
| A) Recommendation | INVEST or DON'T INVEST with one-sentence rationale | Lead with the answer |
| B) Deal Snapshot | Purchase price, entry multiple, debt/equity split, hold period | Key deal terms |
| C) Investment Thesis | 2–3 specific reasons this deal wins (or fails) | Tied to model numbers |
| D) Returns Analysis | Base case MOIC/IRR with key sensitivities | Include break-even view |
| E) Key Risks + Mitigants | 3 deal-killer risks with what mitigates each | The real differentiator |
| F) Priority Diligence | 5 highest-value diligence asks | What you'd do Monday |
Sample Recommendation Language
INVEST Recommendation
INVEST. We recommend proceeding at 10.5x entry. The business has (1) sticky recurring revenue with 95% retention, (2) clear pricing power demonstrated by 3% annual price increases, and (3) a 200bps margin expansion opportunity via procurement consolidation. At base case assumptions, we achieve 2.5x / 22% IRR.
DON'T INVEST Recommendation
DON'T INVEST (as priced). At 12x entry, returns depend on aggressive margin expansion that diligence doesn't support. We'd reconsider at 10.5x or with contractual evidence of pricing power.
The Fastest Way to Work a PE Case (Timed or Take-Home)
Step 1: Clarify the Rules (2 Minutes)
Before touching your model, ask:
- Target return / hurdle (if not given, state what you'll assume—usually 20% IRR)
- Allowed leverage / constraints (typical LBO: 5-6x Debt/EBITDA)
- Holding period expectation (usually 5 years)
- Any "must win" diligence questions or specific areas to focus on
Step 2: Build the 80/20 Model (20–45 Minutes)
You need only the essentials:
Minimum Viable LBO Model
| Term | Definition |
|---|---|
| Revenue Build | Growth rate × prior year, or price × volume |
| EBITDA | Margin % × Revenue, with margin expansion/compression |
| Free Cash Flow | EBITDA − Interest − Taxes − CapEx − ΔWorking Capital |
| Sources & Uses | Debt + Equity = Purchase Price + Fees |
| Debt Schedule | Beginning balance, mandatory amort, optional prepay, interest |
| Exit Returns | Exit EV − Net Debt = Exit Equity; MOIC + IRR |
Speed Tip
Keep it clean. You'll be judged on logic and defensibility more than spreadsheet artistry. A simple model you can explain is worth more than a complex model you can't defend.
Step 3: Pressure-Test (10–20 Minutes)
Do 3 quick checks before forming your recommendation:
- Downside case: Revenue down 5-10%, margin compression, slower deleveraging—does the deal still survive?
- Liquidity / covenants: If mentioned, can it survive a bad year? What's the cushion?
- Multiple risk: What if exit multiple is -1.0x or -2.0x vs entry? At what multiple do you break even on IRR hurdle?
Break-Even Exit Multiple = (Entry Equity × (1 + Hurdle IRR)^n + Exit Debt) ÷ Exit EBITDACalculate the minimum exit multiple needed to hit your target IRR
Step 4: Write the Memo Narrative (10–30 Minutes)
Lock in the recommendation and make sure your bullets match your model. Every thesis point should have a number attached.
Diligence: The Questions That Make You Sound "Real"
In a case interview, you won't do diligence—but you must know what to ask and why. This separates candidates with deal experience from those who've only read about PE.
Commercial Diligence (Market + Customer Truth)
- What is the real market growth rate? (vs. management projections)
- Top 10 customers: % of revenue? Churn rate? Contract length?
- Pricing power: Can they raise prices without losing volume? Evidence?
- Competitive dynamics: Who's taking share? Who's losing?
Financial Diligence (Quality of Earnings)
- What's recurring vs one-off in historical EBITDA?
- Working capital seasonality and cash conversion cycle
- CapEx split: maintenance vs growth—what's truly required?
- Any accounting policy changes that flatters recent results?
Operational Diligence (How Execution Happens)
- Biggest bottlenecks: capacity, labor, supply chain?
- KPI system and management accountability—do they run on data?
- Where is margin improvement actually feasible? (not just "cut costs")
Legal / Tax (Deal Killers)
- Material litigation or regulatory exposure
- Change-of-control clauses in key contracts
- Tax exposures, NOL limitations, transfer pricing issues
Process Awareness (Bonus Points)
Knowing terms like IOI → LOI, QoE (Quality of Earnings), NWC peg mechanism, and rep & warranty insurance signals you understand how deals actually run.
Common Reasons Candidates Fail (Even With a Good Model)
Top 5 Interview Killers
| Term | Definition | Note |
|---|---|---|
| Recommendation Mismatch | Your 'Invest' doesn't match numbers showing 12% IRR | Most common failure |
| Too Many Thesis Points | 5+ bullet points signal a weak, unconvincing story | Stick to 2-3 sharp ones |
| No Real Risks | Generic risks without specific mitigants or diligence | Shows lack of depth |
| Hero Assumptions | Base case requires everything to go right | No sensitivity framing |
| No Exit Door | Can't answer 'What would change your mind?' | IC always asks this |
Mini Case Walkthrough: Exactly How to Talk in the Interview
Let's work through a realistic example to show how this framework applies in practice.
Case Setup: ClinicSoft (Vertical SaaS)
Company: Vertical SaaS platform for mid-market medical clinics
LTM Financials: €100M Revenue, €20M EBITDA (20% margin)
Entry: 12.0x EV/EBITDA (€240M enterprise value)
Leverage: 5.0x Debt/EBITDA (€100M debt)
Hold Period: 5 years
Exit Multiple: 11.0x (conservative, assume slight compression)
Quick Model Logic
ClinicSoft LBO Assumptions
| Term | Definition |
|---|---|
| Revenue CAGR | 8% per year (stable retention + upsell) |
| Margin Expansion | 20% → 24% over 5 years (pricing + lower support costs) |
| FCF Conversion | ~70% of EBITDA (after CapEx, WC, taxes) |
| Debt Paydown | Mandatory amort + cash sweep from FCF |
Base Case Returns
Return Calculation Walkthrough
| Term | Definition | Note |
|---|---|---|
| Year 5 Revenue | €100M × (1.08)⁵ = €147M | 8% CAGR |
| Year 5 EBITDA | €147M × 24% = €35M | Margin expanded from 20% |
| Exit EV | €35M × 11.0x = €385M | 1x multiple compression |
| Remaining Debt | €50M (paid down from €100M) | ~€50M from FCF over 5 years |
| Exit Equity | €385M − €50M = €335M | |
| Entry Equity | €240M − €100M = €140M | |
| MOIC | €335M ÷ €140M = 2.4x | |
| IRR | ~19% | Below typical 20% hurdle |
Interpretation
Returns are okay, not amazing. Just below a typical 20% hurdle. The biggest driver is margin expansion + deleveraging; the exit multiple is actually a headwind (12x in, 11x out).
Model Decision Answer
Strong 'Don't Invest' Answer
DON'T INVEST (as priced). The business quality looks solid—sticky SaaS with recurring revenue and low churn. However, at 12x entry, the deal needs meaningful margin expansion to hit a typical 20% hurdle.
Base case shows ~19% IRR, which is below threshold and leaves no room for execution risk. Key concerns:
- 400bps margin expansion is aggressive for a mature SaaS business
- No multiple expansion underwritten—exit at 11x is already generous given entry
- Customer concentration in top 10 accounts needs diligence
I'd move forward only if: (1) we can underwrite stronger pricing power from diligence, (2) confirm low churn and CAC efficiency, and (3) negotiate entry price to 10.5x or better.
What Would Flip to INVEST?
- Entry multiple at 10.5–11.0x (IRR jumps to 22-24%)
- Clear evidence of pricing power—historical price increases with no churn impact
- Add-on pipeline that credibly accelerates growth to 10%+ CAGR
- Lower leverage with better terms, reducing interest burden
The IC Muscle
That last part is the "IC muscle": you're not just saying no—you're saying what needs to be true. This is what separates good candidates from great ones.
10 Rapid-Fire Questions Interviewers Love
Prepare tight answers to each of these. They're testing your ability to think under pressure and articulate your logic quickly.
Frequently Asked Questions
Is it okay to recommend "Don't Invest"?
Yes—if you can defend it. A well-argued "no" often shows better judgment than a forced "yes." PE firms want investors who can walk away from bad deals. The key is explaining what would need to change for you to invest.
Do I need a full, detailed model?
No. In many cases you're judged more on thesis, clarity, and Q&A defense than model complexity. An 80/20 model that you can fully explain beats a complex model you can't defend.
What should always be in my memo/deck?
Five elements: Recommendation, thesis (2-3 bullets), valuation/returns with sensitivities, risks with mitigants, and what diligence would confirm or deny your thesis.
How do I handle incomplete information?
State assumptions clearly and flag what diligence would resolve. Interviewers expect assumptions—they're testing whether you know which ones matter most.
Key Takeaways
Key Takeaway
- Three-question framework: Is it a good business? Is it a good deal? Is there a credible value-creation path?
- Lead with the recommendation: INVEST or DON'T INVEST in your first sentence, then support it
- Thesis should be specific: 2-3 bullets max, each tied to a number in your model
- Risks need mitigants: Show you've thought about how to manage downside, not just identify it
- Know your exit door: What would change your mind? What assumption are you least confident in?
- Diligence priorities matter: Know the 5 questions you'd answer first and why
- The model serves the thesis: Not the other way around—a clean 80/20 model with a strong story beats a complex model with a weak narrative
PE case interviews test whether you think like an investor. The framework in this article works because it mirrors how real investment committees make decisions: thesis, returns, risks, and what would make them walk away.
Reading frameworks helps. But PE interviews reward decision-making under pressure. The only way to get comfortable is to practice.