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The pitch of a business plan isn’t always enough. To convince an investment committee, you also need to produce an investment memorandum. This strategic document serves to formalize and justify an investment opportunity. It’s both the identity card of a project and a reflection of what investors are looking for: value creation potential, governance, risks, and exit scenarios. So, what does a strong investment memo look like? Who should write it, and how can you avoid the most common pitfalls?
The Investment Memorandum (IM) is a document designed to present an investment opportunity. It summarizes all the key elements in a concise format: target market, main terms of the deal, project strengths and weaknesses, growth prospects, opportunities and risks, financial statements. It is essentially a synthesis of the analysis or due diligence work prepared for an investment committee.
Who Drafts the Investment Memo?
The investment memorandum is a hybrid document, at the intersection of entrepreneurial vision and financial analysis. Its writing is not the responsibility of a single person, but rather the result of a dialogue between the entrepreneur and the investors.
In venture capital firms, the analyst and the investment director assigned to the case are typically responsible for producing the memorandum. They coordinate the information gathering, question the founders, challenge their assumptions, carry out most of the legal and financial checks, and formalize the findings for the investment committee. This work requires clarity and conciseness in order to build a credible investment thesis: what is the value creation? What are the growth levers and the associated risks? What are the potential exit scenarios?
On the startup or SME side, it is highly recommended that the founding team anticipates and prepares for the drafting of the investment memorandum. This type of document is often more instructive than a pitch deck because it forces you to step into the shoes of an investor. It also helps speed up the due diligence process and better defend your project during investor discussions.
Best Practices and Common Pitfalls
Writing an investment memorandum is an art that requires both precision and discipline. Here are some best practices to follow:
- Craft a compelling executive summary: the investor should immediately grasp the problem addressed, the team, the positioning, and the potential for return.
- Build a true investment thesis by explaining why your team, equipped with key assets, is capable of creating value for clearly identified customers.
- Structure the document effectively: market, competition, team, traction, intellectual property, use of funds… These building blocks should fit together logically to present a realistic growth trajectory.
- Be honest about the risks: no project is without uncertainties. A strong memo acknowledges the major risks and outlines the mitigations in place.
- Ensure consistency in the numbers: your business model, financial projections, valuation, and targeted exit multiple must all align.
Among the common mistakes to avoid:
- Overuse of jargon or vague buzzwords.
- Underestimating the human factor, even though a great project is, above all, the result of an exceptional team.
- Baseless estimations: instead of throwing out market size figures without evidence, provide tangible elements that support your traction, business model, and scalability.
- Unrealistic forecasts: exponential growth projections that are disconnected from industry benchmarks or operational realities will cast doubt on your entire project.
Sample Investment Memo Template
The following template is not universal, but it reflects a compilation of documents presented to the investment committee of the Paris Saclay Seed Fund. It outlines the key information typically analyzed during seed or Series A investments, usually 12 to 18 months after a first funding round.
XYZ Ventures – Investment Memorandum for NewCo
Summary:
- Company Name: NewCo
- Deal Source: HEC Paris network
- Sector/Industry: … [e.g. healthcare, advanced materials]
- Year Founded: 20xx
- Location: Paris, France
- Team Size: xx people
- Founding Team: … [Founders: background and roles]
- Mission: … [To develop and commercialize xxxx that enables…]
- Problem Addressed: … [Description of the “Job to be Done”]
- Value Proposition: … [Impact, value created in time/money savings]
- Market: … [Current size and growth of target segment]
- Next Steps: … [Key technical and commercial milestones]
- Current Traction: … [Audience, current revenue, sales pipeline]
- Intellectual Property: … [Patents, trademarks, and other IP assets]
- Funding Round: Seed round of €1.5M
- Envisioned Exit: Acquisition by ABC or IPO
- Key Figures:
- Size of funding round: €1.5M (20% equity)
- Pre-money valuation: €6M
- Investment by XYZ Ventures: €450k (30% of round)
- Ownership by XYZ Ventures: 6%
- Target exit value: €30–60M
- Target multiple: ≥3x
- Expected exit date: ≥20xx
- Past investors: Founders and Business Angels
- Board Seat: 1 board seat
Indicative Outline:
- Business opportunity and SWOT analysis
- Problem addressed and value proposition
- Founders, management team, and governance
- Intellectual property and key assets
- Target segment, market size and growth
- Competition and competitive advantages
- Technical and commercial development roadmap
- Key metrics: traction and sales pipeline
- Financials, budget, and use of funds
- Risk factors and mitigation strategies
- Proposed deal and exit scenarios
Conclusion and Outlook
The investment memorandum is far more than a presentation document: it is a tool for conviction. Writing it helps clarify your direction, structure your ambitions, and adopt an investor’s mindset.
A clear and coherent development plan is the cornerstone of a solid investment memo. By fully embracing this exercise, you lay the foundation for constructive dialogue with your future investors.
