Information Memorandums (IMs) are basically confidential documents that companies use to sell their business or pitch their ideas for new businesses or investments to potential investors. They can be fairly technical, but also need to be written in a way that’s accessible and convincing. IMs are often used as part of a process called ‘due diligence’, which is where interested parties assess the risks and rewards of an investment opportunity. An IM is basically a document that should answer most of the questions potential investors might have about investing in a particular business. It will typically include confidential information such as the investment opportunity, the company’s background, market positioning, growth opportunities, financial projections, executive biographies and other details necessary for an informed decision.
What’s in a typical IM?
There is no one standard format for IMs, but most cover a range of topics including:
- Executive Summary: A general summary of the business, the market opportunity and the proposed transaction.
- Corporate Information: The corporation’s history with significant milestones, organisation structure, geographic reach, ownership, management team, current and future business objectives, strategies and plans is summarised here.
- Products and Services: What determines your firm’s competitiveness – the products and services your company offers, the total number of customers and their segments, and the company’s unique selling points.
- Performance Overview: An overview of your company’s financial and operational performance, key performance metrics, and future outlook, as well as how you plan to achieve your targets.
- Market and Competition: An assessment of the company’s market, current and future market share, competitor analysis, industry drivers and barriers, regulations and associated risk factors.
- Proposed transaction: A concise description of the investment proposition, including the reasons for raising capital, the amount of capital to be raised, the proportion of the company that will be offered for sale, and clear information about how the money will be used and why.
Why are IMs important?
During due diligence, potential investors will want to know everything about the business and its owners. An information memorandum is one of the best ways for owners to provide comprehensive information to would-be investors. They’re also an opportunity for owners to think about how they want to be perceived. Investors will look at IMs and want to get a sense of the personalities behind the company. What’s their vision? How do they respond under stress? What are they like as people? For example, investors might want to know how owners and executives would respond to changes in the economy. How might they pivot in the event of a downturn? How might they seize an unforeseen opportunity? What is their appetite to risk? IMs give owners a chance to show how they would respond to potential challenges that might come up down the road by demonstrating what they have done in the past.
How to write an effective IM
First, do your research and understand who your potential investors might be. Do they have experience in your industry? Do they typically invest in companies like yours? Then, put yourself in their shoes. Read other successful IMs and see what makes them work. Investors are busy people and don’t have time to read everything. That means you need to prioritize information carefully and make sure it is concise. No matter how great your idea is, you’ll never get funding if you can’t get your investors to read your pitch. If you want to get funding from investors, you need to write an effective information memorandum. If you want to increase your chances of getting funding, you need to learn how to write an effective IM. Remember an IM is not a ‘one size fits all’ document and you may need to write multiple IM’s to target different types of investors.
An information memorandum is a document that pitches a new business or investment opportunity to potential investors. It’s basically a document that answers most of the questions potential investors might have about investing in a particular business. At Stepchange Business Growth we believe any business owner wishing to exit within 3 years should be preparing an IM and keep it up to date – that’s why we invented ‘The Living IM‘ – if you want to find out more then please contact us.