An information memorandum (IM) is one of the first things an investor will ask for when you begin your capital raising mission. An IM lays the foundation for your capital raising and sheds light on the past, present and future plans for your business. Following is an outline of the main headings you will need at a minimum when preparing an information memorandum for your capital raising: 1. Letter to Investors This can be a Chairman’s Letter or Director’s Letter. This letter gives a summary of where you’ve been and where you plan to go. Keep it short and punchy and no more than a page in length. 2. Investment Highlights Pretty self explanatory. This can be five bullet points on what sort of return investors can expect if all goes to plan. It’s not just about the numbers though. If you are one of a few accredited providers of a product or service then this can indicate high barriers to entry for competitors, for example. 3. Executive Summary This section is basically a short excerpt of all the proceeding sections. It is designed to give a snapshot of your business and why you want to raise capital. It saves prospective investors the time of reading through an entire document. You want to give enough info here to keep investors interested but it is not meant to be comprehensive by any means. Think of it as a teaser to the rest of the content in your document. It is also a chance to cover some milestones that your business has achieved to date. 4. Business plan and growth strategy Now you’re getting into the nitty-gritty. This section can be a cut paste job from your business plan that you prepared before starting your new venture. Of course your business may have changed significantly since you last looked at your business plan so you want to update as appropriate. You want to give specific detail on the following aspects of your business at the very least:
Unless you are selling government bonds, then there is such a thing as risk. Even if you have a monopoly position or license to print money, you are still exposed to risk. It comes in many different shapes and forms, some of which you have control over and some of which you have none. Here you want to talk about risk factors related to:
6. Executive Team This is a big one for SMEs. It is a good chance to extol the value of your senior management team. You also want to give more detail on your board of directors or advisory board members. Having a good management team is a big point of leverage as it shows reduced reliance on one key person with the backing, hopefully, of key executives via your board of directors or advisory board. 7. The Investment Offer Time to go into detail with regard to your investment offering. What will investors receive in return for investment in your business? If you’re generating healthy profits and cash flow then your focus will be on an appropriate earnings multiple combined with an assessment of strategic value to find a valuation. 2x profits is the starting point for most private companies when discussing valuation. If you are an early stage company with little revenue then you will be more focused on strategic value by itself. This could be a database of subscribers, a patent, a signed contract from a potential buyer, a trademark, successful clinical trials, etc. 8. Financial Statements Most investors will want to see at least two years of operating history including Balance Sheet, P&L and Cash Flow statements. Pre-revenue start-ups with little operating history need to focus on forward looking estimates for these items. When you are done forecasting, cut your revenue projections in half and double your expenses. Be realistic. You want to round out this section with some comments or assumptions underlying your financials. 9. How to Invest Time to see the light and tell your prospective investors how they can apply for securities. Relevant instructions on how to access your application form are included here. Other details will include information on:
Here you want to highlight key terms and provide definitions. This is especially important for tech based companies in manufacturing or biotech for example. 11. Corporate Directory Include details here for your solicitor, accountant, auditor, company secretary, registered office and provide a link to your website. 12. Application Form This provides a chance to collect key information from prospective investors and provide an efficient means by which they can apply for securities and deposit funds. Get busy The outline above at least gives you an idea of the minimum level of information required when raising capital. The bulk of this you can prepare on your own. Assistance may be needed when it comes to preparing financials, both historical and forecast, and when drafting relevant disclaimers. The internet is littered with examples of effective IMs and disclosure documents so time to get googling if you want to see some real life examples. Ben Hucker is the founder and principal of iEvoke. He has 10 years’ experience consulting to listed and private companies in Australia. Ben thrives on being an active member of the start-up and small business community and uses his passion for writing and business to help clients create a powerful business case for investors. If you need help crafting your Information Memorandum to ensure you attract the right investors, for your business or property development, contact me for a no obligation quote at [email protected]. Disclaimer This article is general in nature and cannot be regarded as legal advice. It is general commentary only. You should not rely on the contents of this article without consulting professional advice from a corporate lawyer or adviser. So you've been up seven nights in a row burning the midnight oil writing a business plan that you can take to prospective investors. You've also spent a mountain of time creating a pitch deck presentation and rehearsing an accompanying dialogue. All this while running your business day-to-day and looking after the millennia of other items that quickly dispel the apparent ideals of freedom and liberty that come with running your own business. It's time now though for you and your team to get out there and start presenting your business case to investors so you can secure some much needed oxygen for your startup. But where exactly do you go to find these mystical investors that the media always keeps referring to as if they grow on trees down at the local park? You can't just head on down to Woolies and start whispering in the ear of random strangers "I have a secret". Well you can, but you'll probably get locked up. So where do you go? In my previous job as a matchmaker for startups and investors it was my job to find as many high net worth individuals (commonly referred to as angel investors) as I could. There always seemed to be an inverse correlation between the wealth of an investor and their discover-ability so the big fish can be hard to catch. This doesn't mean it is an impossible task though. In fact, it is a common myth among first time entrepreneurs that they don't know any investors. Nothing could be further from the truth. You'll actually find that you aren't that far removed from finding your next investment partner. They may even be living in your neighborhood, or living next door watching re-runs of the Wonder Years. To make the job of building a shortlist of investors a little easier, I wanted to highlight some resources that I used in my previous job to find the sometimes elusive high net worth individual. Here they are in no order of importance: 1. Your Local AccountantYour friendly accountant is one of the best intermediaries you can use when it comes to finding suitable investment partners for your startup. If you haven't got an accountant then get one. Accountants have intimate knowledge of their clients balance sheet and P&L, not that they will ever disclose any of these details to you. They are perfectly placed though to give you a friendly introduction or referral to someone they think might be a suitable investment partner for your business. 2. Commercial LawyersDitto for this group. They have intimate knowledge of every aspect of their clients business but they will never disclose any of this to you. They might be able to arrange a friendly introduction for you though depending on suitability and capital requirements. 3. Business ColleaguesIt is only natural that your business colleagues would have an interest in your new startup or business. Ask around with your current workmates if still employed, former colleagues if not, close business associates, and even the colleagues of your spouse, de-facto, family or friends. A small allocation to high-risk venture capital investments is looking more and more attractive for superannuation accounts post the release of the Government's Innovation Statement. So this method is not so far reaching and the appetite for startup investment is expected to grow. Here's a great article here from Sydney-based accelerator Blue Chilli that goes into more detail on the expected impact of the Australian Government's new stance on innovation. 4. University ProfessorsUniversity (college in the US) professors are some of the most networked people on the planet—some make Anthony Robbins look like a loafer when it comes to networking. A select few have a serious commercial streak as well, despite their preference for the hallways of academia. The professors inside the Technology and Innovation departments of city and regional universities are especially fruitful. Start reaching out with some of your old professors, or professors at your local university. 5. University AlumniHave a think about the people you used to go to university with. There's bound to be someone who is interested in what you're doing. If you didn't go to uni then think about friends from high school. Some of those early dropouts that everyone laughed at can turn out be very successful business people so you might want to do a brainstorming session here. 6. Other Start-UpsThis method is often overlooked but it can be a treasure trove of introductions and referrals. Think about a startup who has recently raised capital. Chance are they have had a 100+ coffee meetings with investors. One investor among the 100+ that they have met with might be a perfectly good fit for your startup. Get in the habit of asking other startups if they know of anyone that might be interested in investing in your business. 7. Online MediaI read an article the other day about how Sherpa—a peer-to-peer delivery platform—closed a $1.2 million funding round from private investors including Hotels Combined co-founder Michael Doubinski. This tells me that Michael Doubinksi has an appetite for marketplaces like Sherpa that connect private couriers with customers via an app. If you have startup with a similar business model but in a different vertical—say on-demand graphic design projects via an app—then it might be wise to try and reach out to someone like Michael Doubinksi. If he's not interested then he might know someone who is. Go to Twitter or LinkedIn to find a common connection or even an email address so you can get in touch. The world is pretty small these days so don't view this as an impossible task. This is a good article on how to connect with online influencers. You can rinse and repeat this cycle a number of times using the daily gamut of media updates on companies that are closing out funding rounds. The Hard PartMarketing guru and serial entrepreneur Seth Godin says you should always ask yourself what the hard part is when starting a business—the easy part is building a website, setting up a company, doing your business cards, designing a logo. The hard part is marketing your business and finding customers. The same holds true when trying to raise capital for your business—the easy part (by easy I mean it is only 20% of the process) is putting together a business plan, slide deck and one-page summary. The hard part is finding investors. "Everyday I'm Hustling"The above list provides seven methods for finding investors. They are all viable methods but there is definitely no short cuts. You really have to hustle your butt off to find the right investment partner. I haven't even talked about online Angel investment groups. This is deliberate. The methods listed above will get you connecting with real people and get you building real relationships. I hope you can use this list to find your next investment partner, or partners. The process isn't easy but if your business has serious traction—customers, sales, a good business model—then you'll probably find that investors start falling over themselves to get a piece of your business once you start spreading the word. Just remember it takes 6-9 months on average to raise capital for your startup so stay patient and persevere. Happy hunting and comment below if you are in the midst of raising capital for your business, or have raised capital in the past and you want to share some of your own experiences. Ben Hucker is the founder and principal of iEvoke. He has 10 years’ experience consulting to listed and private companies in Australia. Ben thrives on being an active member of the start-up and small business community and uses his passion for writing and business to help clients create a powerful business case for investors.
|
FREE GUIDE: WHAT PEOPLE REALLY WANT... 8 HUMAN DESIRES YOU NEED TO KNOW.
Categories
All
Archives
April 2020
|