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.

Types of Investment Memo

Here are the common types of investment memos you might come across and how they can serve your business needs:

1. Deal Screening Memo

Think of this as a quick first look at an opportunity. It’s a high-level snapshot to see if it’s worth your time.

Key features:

• Overview of the company or project
• Market opportunity and financial highlights
• Initial risks or concerns
• Recommendation on whether to explore further

2. Investment Committee Memo

When it’s time to convince others, this memo digs deeper. It’s a detailed breakdown that helps decision-makers understand the full picture.

Key features:

• Comprehensive overview of the business and industry
• Detailed financial analysis and projections
• Risks and how you plan to manage them
• How the investment fits into your portfolio
• Proposed terms and final recommendation

3. Due Diligence Memo

This one’s all about fact-checking. After doing your homework, you compile everything you’ve uncovered about the opportunity.

Key features:

• Findings from financial, legal, and operational checks
• Insights into the management team and their capabilities
• Details about the customer base, contracts, and supply chain
• Any risks or compliance issues identified

4. Post-Investment Memo

After you’ve made the investment, this helps you track how it’s doing. Think of it as a progress report for your portfolio.

Key features:

• Updates on key performance indicators (KPIs)
• Milestones achieved or missed
• Suggestions for next steps, like additional funding or changes in strategy

5. Exit Strategy Memo

When it’s time to plan your exit, this memo lays out the best options for cashing in on your investment.

Key features:

• Valuation scenarios for different exit routes
• Market conditions and ideal timing
• Recommendations for selling, merging, going public, or winding down
• Risks and opportunities for each option

6. Co-Investment Memo

If you’re teaming up with other investors, this memo ensures everyone’s on the same page.

Key features:

• Structure of the co-investment deal
• Roles and responsibilities of all partners
• How goals align and potential conflicts
• Financial returns and risk-sharing arrangements

7. Impact Investment Memo

For investments that go beyond just profit, this memo focuses on the social or environmental benefits.

Key features:

• Clear goals for social or environmental impact
• Metrics to measure success, like reduced emissions or community growth
• Balance between financial returns and impact
• Alignment with sustainable investment standards

8. Private Equity or Venture Capital Memo

If you’re considering startups or growth-stage businesses, this memo helps you assess their potential to scale.

Key features:

• Background of the founders and their competitive edge
• Total Addressable Market (TAM) and scalability
• Product-market fit and revenue model
• Exit timeline and return on investment projections

9. Strategic Partnership Memo

When an investment involves a partnership, this memo explores the benefits of working together.

Key features:

• Synergies between the two businesses
• Long-term strategic benefits for both parties
• Legal and operational structure of the deal
• Financial terms and mutual commitments

Investment memos are there to guide you through every stage of the decision-making process. Whether you’re evaluating a new opportunity or planning your next move, having the right memo keeps you organised and confident in your choices.

Who is Reviewing Investment Memos?

Investment memos are reviewed by a variety of audiences, each with distinct priorities and expectations. Venture Capitalists (VCs), as professional investors, focus on startups with high growth potential. They’re looking for clear market opportunities, competitive advantages, scalable financial projections, and a strong founding team to instil confidence in the investment. Angel investors, typically backing earlier-stage ventures, prioritise innovative products or services, early traction, and the expertise of the founders to gauge the startup’s potential.

Internal stakeholders, such as partners or analysts within investment firms, review memos to ensure the investment aligns with strategic goals and is backed by robust data and analysis. Their evaluation often forms the foundation for further discussion with investment committees. Corporate investors, who invest for strategic alignment rather than pure financial returns, focus on how the opportunity complements their business objectives, offers potential synergies, and creates long-term value.

Board members and advisors often assess memos to ensure alignment with the organisation's overarching goals. Their focus lies in risk management, the strategic fit of the opportunity, and expected financial and operational returns. Similarly, potential co-investors, considering joining the funding round, review memos for transparent and attractive opportunities, focusing on shared growth strategies and risk mitigation.

Investment committees, comprising senior decision-makers, evaluate memos for in-depth due diligence, alignment with the firm’s broader strategy, and the strength of the recommendation to move forward. Limited Partners (LPs), who provide capital to investment funds, review memos to ensure their investments align with their goals, exhibit strong risk mitigation strategies, and promise solid returns with well-defined exit plans.

Compliance and legal teams play a vital role in ensuring memos adhere to regulatory standards and are free from legal risks. They focus on the accuracy of terms and identify any liabilities. Post-investment monitoring teams, responsible for tracking portfolio performance, evaluate memos to identify key performance metrics, milestones, and any risks requiring ongoing attention.

Impact investors, who aim to balance financial returns with social or environmental objectives, scrutinise memos for defined impact goals, sustainability metrics, and alignment with their values. Sector-specific experts, such as consultants or advisors, validate market assumptions, assess the feasibility of business models, and provide insights into industry-specific risks. Strategic partners, reviewing memos for potential collaborations, focus on shared goals, alignment of values, and the mutual benefits a partnership could bring.

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. 

Pitch Deck vs Investment Memo

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 how to write an investment memo

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.

Tips for Building and Presenting Your Investment Memo

• Clarity: Use simple, straightforward language and avoid jargon and ensure the memo is easy to understand. Focus on critical detail and leave out unnecessary information.
• Make an Impact: Highlight key strengths like your unique value proposition and traction and emphasise compelling aspects of your business opportunity. Research how to write an investment memo for your company and identify the key points that need to be covered to make the strongest impact.
• Use Visual Aids: Include charts, graphs, and images to simplify complex information. Make data engaging and memorable.
• Craft a Narrative: Tell a compelling story that connects with the reader and demonstrate the business’s potential in a relatable way.
• Start with a Strong Summary: Provide an executive summary with key highlights such as the problem, solution, market size, and financial overview.
• Support Claims with Data: Back up statements with reliable data and metrics and present data effectively using visuals.
• Be Transparent About Risks: Identify potential risks and outline mitigation strategies.
• Showcase Your Team: Highlight the team’s expertise and accomplishments to build credibility.
• Tailor to Your Audience: Address specific interests and concerns of your intended readers (VCs, angels, corporates, etc.).
• Focus on Market Potential: Provide data on market trends, scalability, and growth opportunities.
• Use a Logical Structure: Organise content into clear sections for easy navigation and comprehension.
• Edit and Proofread: Ensure the memo is error-free, polished, and professionally formatted.

Mistakes to Avoid When Creating an Investment Memo

When creating your investment memo, one of the most common mistakes is overloading the reader with excessive information. While it might seem like including every detail will make your case stronger, too much information can overwhelm the reader and make it harder for them to focus on the key points. Instead, focus on the most critical information that supports your investment thesis. Prioritise clarity and relevance to make your memo easy to digest.

Another mistake to avoid is neglecting the power of visual aids. Visual elements such as charts, graphs, and diagrams can simplify complex data and break up large chunks of text. They can help convey your message more effectively, making it easier for the reader to understand the key points at a glance. Don’t underestimate the value of a well-placed visual to enhance the impact of your memo.

Lastly, it’s important to address potential risks in your memo. Many founders make the mistake of avoiding or downplaying risks, but investors want to know you’ve considered the challenges ahead. Being transparent about the risks and outlining how you plan to mitigate them shows that you’re not only realistic but also prepared. This will build investor confidence and demonstrate that you have a solid strategy in place to navigate obstacles.

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. 

Frequently Asked Questions

1. What is a good investment memo?

A good investment memo is clear, to the point, and convincing. It should cover everything an investor needs to know about the opportunity, like the market potential, competition, financial outlook, and the team behind it. It should also mention any risks and how you're planning to deal with them.

2. Who creates investment memos?

Investment memos are usually created by entrepreneurs, founders, or investment analysts. Essentially, the person or team presenting the investment opportunity will put it together to share with potential investors.

3. What is the primary audience for an investment memo?

The main audience for an investment memo is investors. This includes venture capitalists, angel investors, corporate investors, and other people who might want to co-invest in the opportunity.

4. How detailed should an investment memo be?

It should be detailed enough to cover all important aspects of the business, like the market, risks, and financials. But it shouldn't go overboard—just enough information to give a clear, concise picture of the opportunity without overwhelming the reader.

5. How do you handle risks in an investment memo?

Be upfront about any risks. Acknowledge them, explain what impact they might have, and most importantly, show how you plan to manage or reduce those risks. Investors appreciate honesty and preparation.

6. What data sources are typically used in an investment memo?

You'll use things like market research reports, financial statements, customer feedback, competitor analysis, and any other relevant data that supports your claims and projections. You want to back up your points with solid, trustworthy information.

7. How long does it take to prepare an investment memo?

It can take anywhere from a few days to a couple of weeks, depending on how complex the opportunity is and how much information you need to gather. The goal is to make sure you've got all the details right and the memo is well put together before you present it.