Investors need documents that communicates ideas and information, but they invest in a company, in a product, and in people.
As you begin raising money from outsiders such as investors, venture capital (VC) fund or banks, you will need to use different communication tools to accomplish various goals. The following 6 key documents are usually required to engage and communicate with a prospective investor:
Investment Brief / Executive Summary
Your Investment Brief / Executive Summary is a high level overview of what your business does, how your product works, and your strategic plan to develop the business. The summary needs to be enough to engage a potential investor but is not intended to be comprehensive, that’s the function of your Business Plan.
Investors will want to see your past performance, proposed use of funds and financial projections at a minimum. Any serious investor is going to request this information before making a commitment to your company so its critical information to have on hand.
Indicative Term Sheet
The parameters and terms of your offering need to be determined before you start talking to your prospects. This includes the amount that you are looking to raise, the percentage of equity you will provide potential investors, how you value your business, investment structure and any relevant deal terms that are pursuant to your particular deal.
The Pitch Deck is a more visual version of your Investment Brief / Executive Summary, most widely used for in-person presentations. More and more, the Pitch Deck is replacing the Investment Brief / Executive Summary as the first document requested by investors, mainly because it forces entrepreneurs to be brief, which investors appreciate.
Information Memorandum / Business Plan
An Information Memorandum (IM) is a document provided by a company to prospective investors after the investors have reviewed a brief Investment Summary, or “teaser”, and signed a Confidentiality Agreement.
Some business owners and financial advisors look at an IM as a marketing document which provides a selective overview of the attractive features of a company.
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.
Why prepare an IM ?
In general, an IM allows the owners of a company to present a comprehensive, accurate, and attractive picture of a company.
It’s also worth stating the obvious here – Investors EXPECT an IM, if you don’t have one you almost certainly will not get anybody interested let alone get their $$$’s.
An IM also helps to ensure that all investors receive the same information. This is particularly crucial when an Entrepreneur is running a competitive process. The more information that finds its way into the IM, the less need there is for investors to pose written questions, saving time for both the Entreprenuer and the Investor.
From an investor’s point of view, a good IM demonstrates the professionalism and motivation of the Entrepreneurs, as well as the quality of the management—all important factors when deciding whether to invest in, or buy, a company.
When creating your IM, think about how an investor is going to read it. 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!
Here are the sections you need to include, in order:
- Letter from the director
- Investment highlights
- Executive summary
- Company history with milestones achieved (including R&D)
- Expansion plan
- Market overview
- Key success factors/metrics
- The team (management team)
- Financial information
- Finance required/the offer
- Long term goals / exit plan
- Any further supporting information
Upon closing, you will need to have specific documents prepped. For example, you’ll need to complete a Shareholders Agreement which provides detailed terms of the investment to all committed investors. It is helpful to have these documents prepared in a draft format prior to fund raising. They can also be drafted once funds have been verbally committed.
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