Using an information memorandum to raise venture capital

Nov 22

Using an information memorandum to raise venture capital

Companies seeking to raise investment either privately or publically issue an information memorandum. It allows investors to decide if they are likely to invest in a business or project.

It contains much of the same information as a business plan, but also details how shares will be issued and information about the business or sector in which the company operates (also called industry analysis).

Information Memorandums answers the big questions

  1. Why does the company need investment?
  2. How will the company use the investment?
  3. What is the return on investment?

It is very important to understand how much money you need and when the investor will get their cash back? You have to value your company so you can calculate how much you are prepared to give away. For example, if you value your firm to be worth $2m, and you need $500,000, you are offering 25% of the company.

The information memorandum should motivate potential investors to want to invest in the company – but it needs to avoid hype, omissions, and provide a complete disclosure of all facts.

Information Memorandums are normally 10-15 pages in length. Some firms have been known to write Information Memorandums as long as 100 pages, especially in cases where they are providing consolidated financials.

What to include in an Information Memorandum

  1. Confidentiality clauses;
  2. Background of the company and financial summary;
  3. Critical analysis. Risks, competitors and industry analysis;
  4. Current shareholdings, value of shares and issuance of future shares;
  5. Capital structure. Current shareholdings, value of shares and issuance of future shares;
  6. Company structure. Profile of each board director, major shareholders, legal structure, and subsidiaries, holding companies, important resolutions;
  7. Summary of activity. Description of activities by segment/product categories including a breakdown of sales, customer base and developmental potential;
  8. Financial performance. Last three years of financial records including balance sheet, profit and loss and cash flows;
  9. Financial projections. Balance sheet and profit and loss Forecasts for the next three years. Include a sensitivity analysis covering key risk areas and a summary of such effects on projections and funding requirements;
  10. Operations. How services will be are delivered and products manufactured.
  11. Personnel. Organisation chart, profiles of the management team and estimation of how head count will grow over time.

Example information memorandum

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Information Memorandums are complex and long documents, and need a team of professionals with sales, technology, accounting and legal backgrounds. Futurebooks can put together an information memorandum on your behalf to raise venture capital.

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