Making an Investment Memorandum
An investment memo is a clear and concise articulation of the key components of your company and what the rationale is for investing in it.
Writing an investment memorandum helps the investor to understand why he should invest in your company. VCs also write investment memos of their own, so doing the work for them is a way to incept your vision of the memo into their brains.
An investment memorandum is more professional than the deck because the deck does not provide sufficient insights. Founders tell us that memos sent before meetings instead of a deck were more effective.
In contrast to a pitch deck, an investment memorandum has a number of distinct advantages:
- Completeness. You can send the investment memorandum in an email and do not have to worry about someone reading it without you. Investors can understnad the full pitch before they even meet with you. Therefore, you have time to dig in on questions and objections, instead of spending the entire time presenting the pitch.
- Effective. Sending a standalone investment memorandum up front, helps you, and the firms you’re pitching, quickly identify whether there is interest so they can either make your company a priority, or let you focus your efforts on firms with which you are a priority.
- It aligns more closely with the mindset of the investor. The final step in an investor’s evaluation of an investment in your company is usually a Monday morning full partnership meeting. If you’ve already written the investment memorandum for them, it makes it more likely they will become susceptive to the business you are developing.
We recommend Liveplan.com for making the investment memorandum, which should include the following sections:
Start your business plan, investment memorandum, pitch deck, et cetera with the following statement:
This document contains forward-looking statements. These statements are based on information currently available to the company, described in this document (“Company”) and the Company provides no assurance that actual results and future performance and achievements will meet or not differ from the expectations of management or qualified persons. All statements other than statements of historical fact are forward-looking statements. The words “believe,” “will,” “may,” “may have,” “would,” “estimate,” “continues,” “anticipates,” “intends,” “plans,” “expects,” “budget,” “scheduled,” “forecasts” and similar words are intended to identify estimates and forward-looking statements. Forward-looking statements are not guarantees and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results and developments may be substantially different from the expectations described in the forward-looking statements for a number of reasons, many of which are not under our control, among them, the activities of our competition, the future global economic situation, weather conditions, market prices and conditions, exchange rates, and operational and financial risks. The unexpected occurrence of one or more of the above-mentioned events may significantly change the results of our operations on which we have based our estimates and forward-looking statements. Our estimates and forward-looking statements may also be influenced by, among others, legal, political, environmental or other risks that could materially affect the potential development of the Project, including risks related to outbreaks of contagious diseases or health crises impacting overall economic activity regionally or globally.
Nothing on this document should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment in the Company. Investments are available only to “accredited investors” and “qualified investors,” as such terms are defined under European Union and United States Federal Securities laws. Information about investing is only available in the form of Private Placement Memoranda and other offering documents which are provided to qualified prospective investors as defined under European Union and United States Federal Securities laws. We do not offer any investment products to the public.European Chamber of Digital Commerce
Introduction (roughly a paragraph each)
- What do you do?
- What problem are you targeting?
- How does the world work now in relation to this problem?
- How do you solve the problem?
- How does solving the problem change behavior and make you money?
- What is the scale of the opportunity?
Traction / Metrics
- Discuss traction up to now (include a chart).
- Discuss main related metrics, such as customer churn and Annual Contract Value.
- Discuss revenue drivers.
- What does the go-to-market look like?
Challenges to Growth
- What’s prevented you from growing even faster?
- How will raising money solve this problem?
- Who are the customers?
- How do they think/act?
- How big is the opportunity they represent?
- What happens to the market as you start to win?
- How do you change the market and where does that lead your company?
- What is your competitive landscape and how do you defeat it?
- Who are you and what makes you special?
- Surface the main objections you are likely to face, and eloquently knock them down. Data is good here.
- This is probably the part where the memo is most powerful relative to a deck.
Use of funds
- How much have you raised in the past?
- How much are you raising and what are you going to do with it?
Make it easy to understand
Clarity is key. Taking your time and using language which funds understand is very important. Their top priority is getting to grips with the opportunity and business plan.
By allowing them to scan proposals and find answers to pressing questions quickly, you are increasing the likelihood of getting an investor interested.
The problem with including weighty information and jargon in any business communication is:
- It confuses and leads to misinterpretation.
- It slows readers down; they lose interest and drift away.
- The document raises questions of camouflage, as expectations are neither raised nor lowered.
If you fill your investment memorandum with jargon, you might attract the wrong type of attention. Keep things simple, do not put people off by over-complicating things.
Optimise the layout
Include a concise company and market overview. This should include a summary of your products and services, competitor analysis, your target audience as well as your financial model.
Use graphs and charts to get key points across clearly, all the while making your investment memorandum more visually appealing at the same time. This is especially useful for financial data. For example, using a bar chart to share revenue growth, highlights how fast you have grown and it’s easier to read than a standard table.
Do not be afraid to show yourself. Include an overview of the management team, it makes it more personal and gives you a chance to highlight previous, relatable experiences and unique credentials.
Be transparent – outline the risks
Investors do not like surprises. So, rather than the fund finding out risks during due diligence, lay them out early on in your investment memorandum.
Include the use of the investment
A good thing to do is to outline the objectives of the investment. Be clear on what the money will be used for, whether that is growth, acquisitions, or working capital.
Get the financials right
This is the most important point and is the key to getting high-level term sheet offers. You must include a detailed financial statement which includes:
- Gross sales
- Cash flows
- Profit and Loss
Use historical data from at least the last 2 years as well as a forecast for the next 5. This enables potential investors to work through their metrics and decide if you are lendable. Be precise.