What Is An Investor Memorandum?

Raising funds for your company can be a daunting, long and hard process, especially from seed stage and beyond. You’ll no doubt already be familiar with the three key documents needed to raise equity funding: your pitch deck, financial model and a well-structured virtual data room.

Each of these serves a key purpose, but we have found that in the extremely competitive world of early-stage fundraising, where there are many more startups seeking investment than capital available, a founder needs to do everything possible to stand out and make their business and funding round as attractive as possible. 

One way to do that is to add a fourth item into the mix, which we could call the Investor Memorandum or ‘Investor Memo’. 

The Investor Memo is a narrative document of approximately 5 pages which sets out the key aspects of the investment rationale that an investor might want to include in their own internal investment memo. Essentially, the startup founder does as much as possible of the ‘heavy lifting’ that the investor/fund might otherwise have to do themselves.  

In a fundraising environment where every edge, angle and cheat-code can be the difference between an investment and a ‘thanks but no thanks’, the Investor Memo can enable your startup and funding round to jump the queue of others also seeking investment, and therefore increase your chances of securing the funds your business needs. 

Why You Might Need An Investor Memo 

An Investor Memo is a concise and objective memorandum that gives the investor all data points for the investor’s decision-making in one document. Essentially, it is an attempt to write the investment committee memo for the potential investor, from their point of view and in their voice. This will save the investor (especially if it is a fund) time and effort, and also elevate their understanding of the business, its potential, and why they should invest.

It is critical that the Investor Memo is: 

• Written from the point of view of the investor, not the founder. This means it should be in the third person, i.e. “The Company is involved in…” and you should not use first person subject pronouns like ‘I’, “We”, and “Our”. 

• As balanced as possible. Bear in mind that the investor will be hoping to lift and shift or cut and paste from your Investor Memo directly into their own Investment Committee Memo / Approval Paper. So, keep it objective, unbiased and avoid any ‘belief statements’. Ask yourself this question with every sentence you write: “where in data room can I show proof of this statement?”. 

Key Components

1. Company Overview

Describe your company so everyone can get a good understanding in just a few sentences. What space are you operating in? What is your business model? And, of course, what sets you apart from other investment opportunities? This can include early traction, an experienced founding team, valuable intellectual property, and other hard-to-replicate advantages.

2. Vision

Investors don’t back the status quo — they invest in potential. Paint a picture of what your company can become, and clearly lay out your long-term vision and the lucrative opportunities it holds, but remember to stay as balanced as possible.

3. Traction

Lay out all the juicy details like revenue, MRR, ARR, or pipeline. Be transparent and don't hold back your numbers. If you're pre-revenue, own it. But make sure to show how you grow and pick up momentum. And of course, make sure every metric aligns with the financial model in the data room.

4. Customer Acquisition 

Show your detailed understanding of the market and customer insights. Include your Ideal Customer Profile (ICP), acquisition channels, channels for growth and retention.

5. Goals 

Turn your vision into a tangible checklist. Include short-term and long-terms objectives, key performance indicators (KPIs) and timelines to hit those milestones.

6. Market Analysis 

Outline the key components of the market covering everything from size and growth to the latest trends segments. This should validate the demand for your business and also outline opportunities and threats. And don't forget to back it all up with data and insights from credible sources.

7. Use of Funds 

Show how the investment will be allocated to achieve your goals. Provide a detailed budget breakdown including product development, hiring, marketing and other expenses. If this is too much detail for the Investor Memo, provide a summary and hypterlink to the detail in the data room.

8. Team

Especially in the early-stages of a company, it's all about people. Why, of all people, are you the ones who will crack your target market? Showcase your team's roles, and relevant experience.

9. Competitive Landscape 

10. Risks and Mitigations 

This shows how well you are prepared for risks and how well you understand the market. Be honest, usually investors are comfortable with risk and just want to see that you're aware of them and have a plan to mitigate.

11. Capital Structure and Round Dynamics 

Give an easy overview of details like the current cap table, details of previous funding rounds, and current conversations with other investors.

12. Exit Scenarios & Defensibility 

What are potential exit strategies for companies in your market? Outline different options like acquisition or IPO, a list of potential acquirers, and similar exits in the space.

How To Create Your Investor Memo 

• Be neutral and evidence-based: This document is an attempt to look at your business from an Investment Committee’s perspective. The document should be as neutral and verifiable as possible, identifying the objective data points that make your business investable. 

• Write from the 3rd person: To make it as easy for the potential investor as possible, write in the 3rd person so they can simply copy and paste the relevant parts of the Investor Memo into their own actual investment committee paper. 

• Use Visuals and Graphics: Make sure to include relevant visuals and graphics to break up the text but also to add to the credibility. Especially helpful are insights into how the product works and looks like, any important statistics, financial charts, and roadmaps. 

• Keep it concise: Keep the Memo short but informative. 

Main Takeaways 

The Investor Memo is a great tool to enhance your fundraising. Put yourself in the shoes of the investor, and make the investment case for them.

Key Components

Make sure to:

• Write the document in 3rd person and focus on neutral and verifiable information. 

• Use relevant visuals and graphics throughout the document. 

• Keep it concise.