Entrepreneurs in early stage companies and startups typically need to be involved in fundraising efforts to bring their ideas into existence. They typically turn to angel investors and companies that invest in venture capital to raise funds for marketing, completing purchase orders, and forming solid teams.
However, the businesses that have the funds to finance your company won’t invest in the venture blindly.
This is where investment memos are useful. They assist investors in making informed 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 present 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 increases their chances of obtaining the money they require.
For investors: The memos enable prospective investors to exercise the due diligence required and take smart investment choices.
Nine essential elements that make up an investment memo
Your investment memo should contain nine important elements. These comprise:
Overview of your company: clearly outline your business’s model as well as the milestones that you have accomplished, and the ones you are planning to reach.
Team Bios of team members. team members.
Value metrics must be considered with care in order to reflect where your business is today, its revenues business loan needs, and the market opportunities.
The issue: Clearly define the issue your company solves.
The solution is to clearly explain the method you use to solve the problem.
Market size: Display investors the market’s overall potential by comparing the size of the market.
Product development: Explain the stage of development of your product you’re at.
Distribution and sales: More details about current distribution channels and sales.
Pitch deck Slide decks that provide an easy-to-read overview of your business.
The best practices to write an investment memo
When you draft the investment note, 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 company could grow to be a billion-dollar business However, it’s crucial to investors that you present real-time projections.
Be open: Don’t try to conceal information; it can only create holes in your report that can cause investors to question the legitimacy and value of the investments you make.
Think like an investor: think about what investors would like to see in your memo.
A successful example of an investment memo (and how it did it)
Airbase’s extremely successful investment memo helped Airbase raise $60,000 in just 10 days. The following are the key factors that contributed to the memo’s success:
The writer didn’t pay attention to aspects that investors do not value.
The author was aware that not all investors could have the same vision.
The author was candid and revealed their story.
Do’s and don’ts for investors who are looking to invest.
Similar to any other procedure There are correct and wrong methods to get the money you require. Important “do as well and do not” areas are discussed in greater detail below.
Different types of financing
Do: Take the time to study the different kinds of financing available and pick the one that best suits your company.
Don’t accept blindly funding simply because it’s there.
There are a variety of types of funding that you can think about. They are:
Non-dilutive funding: This form of financing typically is a loan that doesn’t require you to sell equity.
Venture debt is a type of debt provided by VC companies. It is possible that you will be required to surrender certain equity.
Mezzanine fundingis a hybrid of equity and debt financing.
E-commerce financing: Financial assistance specifically made to meet the requirements of e-commerce.
Equity financing: The act of selling a portion of your business.
Microlending: Get access to tiny amounts of money whenever you require it.
Valuation
Your business may earn hundreds of millions in revenues in the near future however, it’s not yet there. Investors are attentive to valuation metrics. If you have a valuation that is excessive, you’ll not receive a loan. In addition, low valuations can turn investors away. You must ensure that your price is appropriate, given the current situation of your company.
Y Combinator
Y Combinator is a group which is often referred to as the school of the future for start-ups. You should consider joining the program and following an Y Combinator approach to developing your investment memo.
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