How to Write a Compelling Investment Memorandum for Startup Investors; with template

What is an investment memorandum?

An investment memorandum is a tool to communicate a company’s fundraising narrative in a written document. Along with your pitch deck, this is an essential tool when you pursue Series A funding.

After performing due diligence, venture capital firms write an investment committee memo to decide whether or not to invest in a start-up. However, as a start-up founder looking for investors, writing your own memo makes sense to help investors and control the presentation of your company. 

Why do I need an investment memorandum?

If you can write well, add investment memos to your arsenal to build better relationships with investors.

Sending an investment memo before pitching a potential investor is a simple yet effective way to:

• Speed up decision-making on whether to take meetings.

• Help decision-makers build conviction around your idea and set the tone for meetings.

• Articulate why someone should invest in your start-up.

• Align current and potential investors with your business messaging and the progress of your funding round.

• Provide stakeholders with a brief to share with outsiders.

Writing a solid investment memo also helps you later in the funding process. A VC firm that wants to give you a term sheet writes an internal investment memo to convince other stakeholders about their opportunity. It’s their way to provide a fact-based assessment of an investment opportunity.

Writing one yourself reduces work for potential investors and ensures you control the presentation of your company.

How long is an investment memorandum?

An investment memo is about ten pages long, excluding appendices. It’s a medium-length presentation of a company that includes the primary information about the business. The deal memo should include all information required to convince partners about an investment decision. 

Do investors expect both a pitch deck and an investment memo?

The visual format of pitch decks makes them the perfect instrument for a presentation but they don’t give a detailed view of your company. An investor memorandum is a better indicator to potential investors regarding your company.

When investors read your pitch deck outside of your presentation, you risk losing part of your message. An investment memo, in comparison, stands alone and presents all necessary details and information clearly.

From an investor’s perspective, an investment memorandum records how a VC firm or partner thought about a start-up before investing. In addition, it documents how they made their decision. So it serves a different purpose than a pitch deck too.

Template for Investment Memo

Here are ten key sections to include in your investment memorandum:

1. Introduction

Spend at least one paragraph on each point:

• Company overview: Describe what you do and what problem you’re solving.

• Describe the problem: Show why this problem is a big deal. Why hasn’t anyone solved this problem yet? What’s wrong with the way people address this problem now?

• Showcase your unique solution: How do you solve the problem, and why is this better?

• Financial viability: How does solving the problem earn you money? Map your current growth and future growth. Show revenue metrics.

• Opportunity to scale and make money: What is the scale of the opportunity? How much more can the company make after an investment?

2. Market analysis and opportunities for your company

Set the scene for your product by talking about the market you operate in.

• What is the market precisely? Where and how large is it?

• What is your critical insight on this market? Why is it unique, and why is now the best time to solve the problem?

• How can the market grow over time?

3. Competitor landscape

An investment memo needs to describe direct competitors, previous attempts to solve the problem and how they fall short.

Show how your company fills the gap to surpass the competition.

4. Product

The competitor section naturally leads to a paragraph explaining what’s unique about your product or solution.

Answer the following questions with a sentence each:

• What is the product today?

• What will the product be?

• Why will it be possible to achieve that vision?

• What is the problem you are solving, and for whom?

• What other problems can you solve with expanded product offerings?

5. Company traction and growth metrics

This section discusses your traction to date (use line graphs over time to show your growth). Don’t worry about less-than-spectacular results. Most start-ups aren’t making any huge profits yet. Just be honest. 

Four aspects of business traction to include:

1. Company KPIs like revenue numbers and other metrics like customer churn and average revenue per customer.

2. Financial growth.

3. Relevant customer testimonials (even better if they are market leaders in your customer segment. If you’re raising a pre-seed or seed round, show early feedback from your initial customers).

4. Achievements: Did you launch an essential product or surpass a certain amount of traction? Make it clear in your investment memo.

6. Challenges to growth

Describe what’s prevented you from growing further and why you need more funds to solve this growth challenge.

7. Funding ask and use of funds

Talk about how much you’ve raised in the past and how much you want to raise this round. You may also want to talk about how you plan to use the additional funding to grow your business.

8. Team

Describe each key team member’s background. Investors want to know if your team can execute the vision you’ve put forward in previous sections. Think about how your team has an unfair advantage to succeed given your domain expertise, credentials and experiences.

9. Frequently Asked Questions

This is the most significant advantage over a pitch deck. Compile questions from previous start-up pitches into a section in your investment memo. Use data where necessary to support your answers.

10. Executive summary

Write this part last, but include it on top. Summarise the main section of your investment memo into three clear and concise bullet points:

• Write a one-line overview of your company.

• Explain what you do today.

• Describe what you’ll do in the long run. Show why you deserve the investor’s trust and money. Don’t be afraid to go big and talk about your vision.

Additional resources including example to write better investment memos

To get a better idea, here are a few examples of excellent investment memos to seek inspiration from:

• Published investment memos from Bessemer Venture Partners featuring well-known companies like Shopify, Twilio, Twitch and LinkedIn.

• Vertex Ventures’ retrospective and snippets from the investment memo on Grab. (They were Grab’s first VC investor in 2013).

• How employee management platform Rippling raised $45 million. Airbase’s investment memo helped them raise $60 million in Series B funding in ten days.

Start writing with these investment memo templates

• A sample template for an investment memo based on Y Combinator’s Series A guide.

• Angel investor Steve Schlafman’s investment memo template in Notion.

Investment memos: part of the bigger picture

A strong investment memo will bring you closer to obtaining funding from the right investor. However, it’s only part of the whole fundraising picture. 

To increase your chances of success, learn all the ropes about start-up fundraising.