Are you familiar with the investment memo? It is essential for a business owner to have investments. A memo on investments is a crucial component of investment management.
Similar to a pitch, an investment memo can influence an investor’s desire to invest in a company. What then is an investment memorandum, and how do we write one? Let’s discover below!
What Is Investment Memo?
The purpose of an investment memo is to promote a company or business to investors. This memo describes the company’s vision, strategic plans, and product designs, as well as the investor’s expectations.
As its name suggests, an investment memo should be a concise document. With a well-written investment memorandum, a company can pique an investor’s interest and secure funding. Thus, an investment memorandum may assist business owners in acquiring additional capital injections.
When planning to approach new companies for investments, numerous venture capital firms compose investment memos. It may sound similar to a pitch deck, but the two are distinct in reality.
Typically, startup founders use pitch decks to acquire funding. However, investment memos have grown in popularity as a fundraising tool over the past few years.
For those who are more confident in their writing skills than their public speaking skills, an investment memo may serve as a substitute for a pitch deck.
Also read: 7 Ways To Start A Successful Startup Company
Why do Investment Memo Matters?
Why do Investment Memo Matters? (source: freepik)
There are numerous reasons why an investment memo is essential for the sustainability of a business. As stated previously, an investment memorandum is an effective tool for raising capital, promoting a product, and other purposes.
With the advancement of digital technology, business owners will increasingly use investment memos to attract investors. Here are a few reasons why an investment memo is important to the business’s long-term viability.
1. Building trust
A purpose of an investment memo is to persuade prospective investors. To persuade investors, the memo will explain the company’s business concepts, strategic plan, and product.
2. Building network
An investment memorandum may strengthen the relationship between business owners and potential investors.
A strong network is required for fundraising in the startup and venture capital industries. Having positive relationships with potential investors will increase the likelihood of acquiring funding.
3. Creating harmony
An investment memorandum is also a useful instrument for fostering cooperation between business owners and potential investors. It depends on the initial intent of the investment memo. For instance, an investment memorandum created to raise capital may ensure that business owners and potential investors remain on the same page.
In a different scenario, the current project will be governed by an investment memo created to communicate with the team. Therefore, whenever something unusual arises during the course of the project, everyone can refer back to the investment memo and make a decision based on the team’s original agreement.
Also read: 11 Business Presentation Tips That Attract Investors
Investment Memo Main Content
Investment Memo Main Content (source: freepik)
Several essential components must be included in an investment memo for it to effectively persuade potential investors. Here are some of the essential components of an investment memo.
1. Purpose and goals
No rational investor would invest without understanding the investment’s purpose and objectives. Consequently, each investment memorandum should include a section explaining the following:
- 1. Why should investors care?
- 2. The memo’s purpose.
Make this section as clear and short as you can so that investors can easily understand the purpose and goals of the investment memo.
2. Problems
This section should describe the company’s challenges. The problem should be clearly stated, and proposed solutions should be included.
Through a clear problem statement, investors can determine the significance of the investment for the company and whether or not it can effectively solve the problems.
3. Business’s strength
As with a resume, an investment memorandum should always emphasize the company’s strengths. Consequently, the above-mentioned proposed solution should be one of the business’s strengths. At this point, it is essential to demonstrate the uniqueness and marketability of the company’s products.
4. Market size
Next, an investment memo must describe the size of the target market. Create a profit simulation based on the company’s offerings and describe the company’s strategy for penetrating the market with the aforementioned offerings.
5. Competition
In the startup industry, market competition cannot be avoided. The objective is not to seek out markets with no competition, but rather to analyze the competition and determine its strengths and weaknesses. By conducting a thorough analysis of their competitors, business owners can determine the optimal winning strategy.
Also read: How to Get Investment from Venture Capital?
6. Product development
Product innovation is essential to the company because it demonstrates how it can evolve and improve over time to meet customer needs. In this section, business owners must describe the current production situation and the future product development strategy.
7. Sales & distribution
A brilliant product will fail without a solid sales and distribution plan. Therefore, the company must determine how to sell and distribute the product to the appropriate market.
8. Metrics
The metrics section is another requirement for every investment memo. This section describes the tested metrics used to predict the success of the company. Complete the explanation with supporting data from the company’s previous year’s sales and a suitable graph to make the metrics easier to comprehend.
9.Team
Finally, the investment memo should provide a narrative about the team. In this section, business owners may respond to the following questions: What type of team does the company require? How do you build the ideal team? What personality traits does your team seek?
Examine the organization’s current talent pool. If the company already has a strong team, the investment memorandum may elaborate on the team’s unique value proposition and how they handle adversity.
This is a summary of investment memos and how to compose one. Ensure that you do not overlook any of the aforementioned considerations when writing an investment memo.
