1. Be purposeful
Every brand needs a purpose. Consumers assume brands are in business to make money, of course, but they also expect a well-defined and clearly communicated brand purpose...
People do not generally talk about “designing a business,” yet that is exactly what you do when you align the business goals with the customer experience. Taking a conscious decision to make this alignment is the first step in designing your business.
“Thanks so much for your time, Sarah. I’ll just leave you with some material summarising everything I’ve mentioned today, and I’ll follow up with you in the next few days to answer any questions you may have”.
The prospectus and IM are very similar documents. Most of the information you are legally required to include in the prospectus will be included in your IM, but have a lawyer look over your IM to ensure you have included all the necessary information.
See also: ASIC regulatory guide for prospectuses
An IM is your business plan in a nutshell.
It’s a short document, about 20-30 pages, which highlights the most important aspects and opportunities your investment offers.
It’s very similar to your pitch deck, which you would have used as a visual cue to support your pitch.
The main difference is your IM will be much meatier. It will include more analysis, projections and explanation than you could possibly reveal in your pitch without boring your investors to tears.
That’s not to say this document should be long and drawn out.
Do you think they’re going to sit down with a glass of wine and read it cover to cover? No way!
They’ll use it when a question pops into their head, when they need their memory jogged about something you touched on in your pitch, or when they need to quote a number.
They should be able to scan the contents page and flit immediately to the section, sub-section, even sub-paragraph, that contains the answer to their question.
Being succinct is key to a professional IM. You want punchy sentences. Fact after fact after fact!
These headings and structure are based on Main Street Capital’s recommendations.
In this post I’m going to bundle up the best of the two and provide some further explanation and examples on how to write an information memorandum for your app startup.
Not really, but you need to woo them with your words!
This letter adds a personal touch to the IM by introducing what you and your business are about, your skills and experiences, and your vision for this idea.
We all know that even in business, people make quick judgements based on their first impressions.
Investors are only human after all, and they’re busy humans at that!
Just like the opening sentence of your pitch is hard hitting, grandiose and inspiring, your letter from the director should set up the rest of the IM for success.
This is often the first thing an investor will read in the IM (they might skip the letter if you stood out in your pitch), but unless you appeal and convince, it will be the last.
It should list in dot point form the key highlights of the investment, your offer, and what makes it such an exciting opportunity.
Why is your idea especially interesting or relevant to them?
Why should they keep reading?
The executive summary serves as a short summary of the business plan. It was invented because executives didn’t have time to read a whole business proposal.
It should be written last and contain only the most relevant and significant points made in the IM.
I’ll tell you now that it will break your heart having to condense your entire product, business strategy and market analysis into 1-2 pages.
You might think the summary makes your business look superficial, but believe me, it’s worse to spew information that the investor has to wade through.
You’ll just look like an amateur who doesn’t know what the purpose of an executive summary is.
Allow plenty of time to write a succinct, appealing and convincing summary.
Use subheadings that correspond with the sections of your IM, so investors can easily refer to certain points. Dot points work well here too, as it’s just for scanning.
Even if you’re a startup, there should be some key milestones you’ve achieved to get to where you are now, pitching to that investor.
What have you done to get here?
These milestones almost act like social proof that your idea has traction, and shows you’re a founder who gets stuff done.
If there were setbacks in the company history, (you lost steam somewhere in the middle, ran out of funds, there was a massive drop in customer retention, etc) make sure you address these and talk about the steps you took to prevent these losses happening again.
Overall, this section needs to make you look productive!
That’s a neat segue into talking about your product and where the business is going.
What are your goals, and what is your plan of attack to getting there?
This is all pretty high level stuff. Investors know that execution is always changing and there is some flexibility with your plan, so don’t worry if you don’t nail down exact dates.
At the minimum, you should cover key tasks for the next 3 years.
Be specific in describing which aspects of the business you see expanding, but always remain conservative. Keep assumptions at a minimum, and if you must make one, keep it conservative and explicitly state that it’s an assumption.
You should go into more detail that this, however.
Eg: Raise investment – how much and from who?
Expand existing product line – to what, and why is this a good idea?
Analyse data – what are you going to be looking for in the data?
You don’t need to go overboard, but looking ambitious and organised will show investors this business has long-term potential, and ‘de-risk’ their investment.
It’s also important to justify every step in your growth plan.
Why do you want to expand to serve Adelaide in 2 years time?
What evidence exists that this is a good opportunity and a good move for your business at that exact time?
This shows that you haven’t just thrown in growth milestones because they look good on paper. These milestones should be highly specific to your business.
This section shows you’ve done your homework – that you’re aware of a world of product offerings, competitors and customers that exist outside your business.
With regards to the market itself, you need to include:
With regards to competitors, you need to include:
The best way to find this information is by executing a SWOT analysis.
A SWOT analysis is a breakdown of your competitors’ perceived strengths and weaknesses, what opportunities they create for you and what threats are presented.
Whatever it is, you’ll need some convincing analysis to back up the claims you’ve just made, and prove that your idea has legs to stand on.
Key success factors demonstrate to investors that you’ve thought about ways in which they’ll be able to assess your performance.
It shows them specifically what outcomes they should look for as a result your efforts.
Key success factors are invaluable for founders as well as investors, because they serve as useful benchmarks to reaching your goals.
In terms of measuring your app’s success, there are 5 key metrics:
As well as measuring the success of the product itself, set some KPIs for your business as well:
• social media presence
• employee growth
More importantly, how have you mitigated them?
Your IM will invariably contain some assumptions, so this is where you can address them.
It’s crucial that you consider any and every possible risk involved. If a potential investor identifies a significant risk that you hadn’t considered, it seriously undermines your credibility.
Here’s an actual quote from Blockbuster’s 1999 analyst report: “Investor concern over new technologies is overstated”. Really!
And here’s a photo of a Blockbuster store now:
Moral of the story? Every business venture contains risks.
You might be hesitant to reveal to investors the very real risks of their investment, but you shouldn’t be. Showing that you are aware of the risks demonstrates that you’ve considered the investment proposal thoroughly, and that you’ve put yourself in the shoes of the investor and are prepared.
What can these risks relate to?
Here are some examples of risks:
List risks in order of importance and likelihood of happening.
Beside each one, state the steps you’re taking to minimise the impact of these risks (should they actually occur).
Your risk section doesn’t need to be negative! Transform it into a positive by showing investors your are realistic and proactive.
Why is that?
Without much in the way of data, a customer base or a viable product, the team is the best indicator of a venture’s success. What have they achieved before? Are the likely to do better next time?
State why your team is investment worthy. What skills, connections and experience does each person bring to the table?
Include a photo and a short bio of each person involved in this venture, not limited to immediate or full time staff.
Include any advisors and mentors you can leverage credibility off.
Here’s what you need to include:
It’s basic to the evaluation of an investment opportunity, as well as determining how much company equity the investor will want in return for their investment.
These projections should be justified by the strategies you’ve previously outlined in the IM, and should be conservative.
Include a short paragraph of your big hairy audacious goals (BHAGs) that will inspire investors and bring them back to the same excitement level they had when you were pitching.
An IM is a very formal document, so including a personalised touch at the start and finish puts them in a great frame of mind to read your plan, and reflect on it later.
It also helps investors determine if they’re compatible with your business.
Throw any doubts or restrictions out the window and think about what you want your app to achieve in the long term.
Do you want to expand to every continent?
Do you want to be acquired by Microsoft or Google?
Do you want to revolutionise an industry and completely eliminate the current market leader?
Whatever it is, bundle it up neatly and concisely in a little inspiring package.
Don’t worry about sounding stupid. If you’re not embarrassed or overwhelmed by your long term goals, they’re not big enough.
Investors might not even look at it, but it serves as a place for them to find further information that isn’t immediately relevant to the investment opportunity (eg legal statements, disclaimers, financial statements, data).
Your IM should be able to stand on its own, so it’s a good idea to throw in anything you think there is a slight chance investors will want to see.
Don’t be scared of rejection. It happens to everyone!
Check out these rejection emails Brian Chesky received from Silicon Valley investors after he pitched AirBnb. Read the full list here.
Every investment opportunity is different, just like every business and team is different.
If you follow this structure, you’ll have a professional document to hand to investors when leaving an investment meeting.