Entrepreneurs in early stage companies and startups typically need to engage in fundraising in order in order to bring their visions to reality. They typically seek out angel investors as well as Venture capital companies to get the funds for marketing, completing purchases, and creating solid teams.
However, the businesses that have the funds to finance your business won’t invest in the venture blindly.
This is where investment memos are useful. They aid investors in making decisions by providing information about your company’s future plans that investors will appreciate.
What is an investment memo?
Investment memos are commonly described as “deal memos.” These memos provide your investment plan and key information on your company’s operations and the market it is operating in. Investment memos are essential tools for:
Entrepreneurs: Entrepreneurs make use of investment memos to aid in fundraising, which gives them greater chances of obtaining the funds they require.
For investors: The memos enable prospective investors to exercise the due diligence required and take smart investment choices.
Nine important elements that make up an investment memo
The investment memo you write should contain nine important elements. These comprise:
The company overview should clearly define your business’s model as well as the milestones that you have accomplished, and the ones you are planning to reach.
Team include bios of the core team members.
Evaluation metrics for valuation need to be considered with care in order to reflect where your business is today, its revenues and loan requirements for business and the market opportunities.
The issue: Clearly define the issue your company solves.
The solution: Explain clearly how you can solve the issue.
Market size: Display investors the market’s overall potential by comparing the size of the market.
Product development: Explain the level of product development you’re at.
Distribution and sales: More information on the current distribution channels and sales.
Pitch deck Slide decks that provide an easy-to-read overview of your business.
Guidelines to write an investment memo
When you draft an investment document, be sure to keep these top practices in mind
Be honest. You don’t wish to over-promise or under-deliver to investors.
Be realistic: You’re aware your business can be a billion-dollar business However, it’s crucial to investors that you present accurate projections.
Be open: Don’t try to hide information. It could cause gaps in your memo which could cause investors to doubt the credibility and value of the investments you make.
Think like an investor: think about what investors might want to see in your memo.
A successful example of an investment memo (and how it did it)
Airbase’s highly successful investment memo was able to help Airbase raise $60,000 within 10 days. These are the elements that helped make the memo a success:
The author didn’t concentrate on the nuances that investors don’t consider.
The author was aware that not all investors would have the same vision.
The author was candid and revealed their story.
The rules and regulations for investors in search of capital
Similar to any other procedure there are both right and wrong ways to obtain the money you require. The most important “do as well and do not” areas are discussed in greater detail below.
The types of funding
Do: Take the time to study the different types of funding options available and select the one that best suits your company.
Don’t blindly accept funds simply because it’s there.
There are many different kinds of financing to think about. These are:
Non-dilutive financing: This kind of financing is usually an unsecured loan and does not require you to sell equity.
Venture debt is a type of debt supplied by VC companies. You might be required to surrender certain equity.
Mezzanine fundingis a combination of equity and debt financing.
E-commerce financing: Financial assistance specifically created to meet the needs of e-commerce.
Equity financing: The act that involves selling a share of your business.
Microlending: Get access to small amounts of cash when you require it.
Valuation
Your business could earn hundreds of millions in revenues in the near future however, it’s not yet there. Investors are attentive to valuation indicators; if the valuation of your company is high enough, you will not receive a loan. A low valuation can also turn investors away. You must ensure that your price is sensible, considering the current situation of your company.
Y Combinator
Y Combinator is a group that is widely regarded as the top graduate school for start-ups. You should consider joining the program and following an Y Combinator approach to developing your investment memo.
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