What is an Information/ Investment Memorandum?

Information Memorandums (IMs) are essentially confidential documents that businesses use to pitch their ideas for new investments or businesses to prospective investors. They can be technical in nature, but they must be written in a way that is accessible and convincing. IMs are frequently used as part of a process called 'due diligence,' which refers to the process in which prospective investors assess the risks and benefits of a business investment. An IM should answer most of the queries investors might have about investing in a company. It includes confidential information about the investment opportunity, the company's history, market positioning, growth potential, financial projections, and executive bios, among other things. An informed decision can only be made after examining this kind of information.

What makes IMs important?

During the due diligence phase, potential investors want to know everything about the business and its owners.

If done correctly an information memorandum is one of the best ways to: provide extensive information to prospective investors, maximise your investment opportunity and help your deal sail through due diligence.

If rushed or created by a person who does not understand you business or your target audience a poor IM will devalue your business and potentially 'kill the deal'. It's surprising how often this occurs!

IMs provide an opportunity for owners to consider how they might be perceived by investors.

What is their vision? How do they respond to stress? What are their personalities like? For instance, how would the owners and executives respond to changes in the economy? What if the economy experienced a downturn? What if an unforeseen opportunity arose? How much risk are they willing to take?

In the IM owners can indirectly answer these questions before they are asked by demonstrating how they have responded to past challenges in order to anticipate future ones.

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.

Bottom line

An information memorandum is a pitch for a fresh enterprise or investment opportunity that answers the concerns of potential investors. In my business, Stepchange Business Growth we believe that any business owner seeking to sell within three years should create a dynamic information memorandum and maintain it in conjunction with the company's strategy and business plan — that's why we created 'The Living IM.'

To find out why we have this unique approach and the pitfalls it avoids please contact me.