An information memorandum is the document an investor reads before deciding whether to take you seriously. It is not a pitch deck with more words in it, and it is not a brochure.
Its job is to answer, in order, the questions a professional investor will ask anyway — and to answer them before they have to be asked.
What goes in it
The proposition, in one page
What the business does, how much is being raised, in what instrument, on what terms, and what the money is for. A reader should be able to decide whether to keep reading from this page alone.
Resist the temptation to open with the market size. Nobody has ever invested because a market was large.
The business
What it sells, to whom, how it makes money, and what it costs to deliver. Written plainly enough that someone outside the sector can follow it.
If the business is pre-revenue, say so here rather than letting the reader discover it in the financials. Being told is fine. Finding out is not.
The financials
Historic accounts if they exist, and projections if they are honest.
Projections are read as a test of judgement, not as a forecast anybody believes. State the assumptions explicitly — pricing, volume, conversion, churn, headcount — so a reader can disagree with an assumption rather than the whole model. A projection without visible assumptions is not analysable, and an investor who cannot analyse it will simply discount it.
The use of funds
Where the money goes, in enough detail to be checkable, and adding up exactly to the amount being raised.
This is the single most revealing page in the document. “Working capital and growth” tells a reader that the number came first and the plan second.
The instrument and its terms
Rate, term, security, ranking, repayment source, default provisions, conversion rights if any. Not a summary — the actual terms.
If the instrument is secured, the security chain belongs here: which asset, valued by whom and when, held by whom, ranking where.
The people
Who runs it, what they have done before, and what they own. Bios that match Companies House and LinkedIn, because both will be checked.
Any prior insolvency or disqualification should be disclosed here, in your own words. It will be found in the first ten minutes of diligence, and disclosed-by-you reads entirely differently from discovered-by-them.
The risks
A real section, not a page of boilerplate. Name the three or four things that would actually damage the business, and say what is being done about each.
Investors do not expect a risk-free proposition. They do expect to be dealing with someone who can see their own risks clearly.
The legal and regulatory position
Who the issuer is, where it is incorporated, what it is and is not regulated to do, who the professional advisers are, and what protections the investor does and does not have.
What keeps it out of the bin
It reconciles. Every number that appears twice appears the same both times. The amount raised equals the use of funds. The team page matches the public record.
It is specific. Named assets, named customers where permitted, named advisers, dated valuations.
It does not oversell. One unsupportable claim causes a reader to re-examine everything else in the document, and they never tell you that is what happened.
The test before you send it
Give it to somebody numerate who does not know the business, and ask them to find the weakest point.
If they find something you already knew about, the document is not honest enough. If they find something you did not know, you have just avoided finding it out in front of an investor.
Related reading
- Investor-ready documentation: what they read before they read you
- The seven documents investors ask for in diligence
- How long does it take to raise capital?
Mark Johnson is a Director of BDM Wealth Management, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.
BDM Wealth Management is an introduction business and is not regulated. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Capital is at risk and you may get back less than you invest. For high-net-worth and sophisticated investors only. Take independent professional advice before making any investment decision.