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?
Your LBO model shows 19% IRR vs a 20% hurdle. Base case requires 400bps margin expansion. What's your recommendation?
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.
The 3-Question Framework
| Term | Definition | Note |
|---|---|---|
| 1. Is This a Good Business? | Quality of cash flows, durability of moat, downside resilience | Would you want to own this for 5+ years? |
| 2. Is This a Good Deal? | Entry price, leverage level, dependence on hero assumptions | Can you hit returns without everything going right? |
| 3. Is There a Credible Value Creation Path? | Specific operational levers, realistic timeline, who executes | How do you actually make money? |
1. Is This a Good Business?
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.
PE case interviews test investment judgment, not just modeling. Practice making Invest/Don't Invest recommendations.
2. Is This a Good Deal?
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
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 & UsesIn an LBO where entry and exit multiples are the same, EBITDA grows 40%, and half the debt is paid down, which return driver contributes the MOST?
3. Is There a Credible Value-Creation Path?
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 Memo
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 |
Diligence: Questions That Make You Sound "Real"
You're evaluating a SaaS LBO. What's the FIRST diligence question you'd want answered?
Commercial Diligence
- 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?
Common Reasons Candidates Fail
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 |
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?
Continue Your PE Case Prep
Master these related topics:
- LBO Mechanics Explained — How PE funds really make returns
- PE Deal Process & Due Diligence — From IOI to IC
- What Makes a Good LBO Candidate — The evaluation checklist
- How PE Judges Market Quality & Moats — Commercial judgment framework
- Top 20 PE Interview Questions — Comprehensive question bank