An information memorandum is the reference text that presents a project to the people being asked for money. It must be readable without its author: what you would explain in person is there in writing.
What is a memorandum for, and who reads it?
It is used when someone studies your request in detail. Three readers use it, each in their own way.
- Your banker takes from it the information needed to put together a loan application and present it internally.
- Your family and friends find in it a full description of the project, which they read again on their own before giving you an answer.
- Investors use it to check that what you told them in conversation appears in writing, with the evidence.
These readers annotate the document and sometimes pass it on to someone you will not meet, such as the person at the bank who approves loans. So the text has to answer, on its own, the questions you would be asked in a meeting.
How does it differ from a business plan and a pitch deck?
All three documents describe the same project. The business plan contains the figures and their assumptions, meaning what the calculations take as given, such as the number of customers a day. The pitch deck is the short version, the one you show first.
| Document | What it is for | Length | Who reads it |
|---|---|---|---|
| Information memorandum | To present the whole project in writing, with its evidence and its risks | Eight to thirty pages, depending on the project | The banker, family and friends, and investors who are studying the request |
| Business plan | To put figures on the project: income, expenditure and cash available month by month, with the assumptions behind the calculations | A spreadsheet and a few pages of explanation | The banker, the accountant, investors |
| Pitch deck | To present the project in a few minutes and make the reader want to read more | About a dozen slides | Anyone new to the project |
In practice, you send the pitch deck first. The memorandum follows when the person wants to study the request, together with the business plan that backs up the figures. A figure must be the same in all three documents: a reader who spots a difference between the deck and the memorandum starts checking all the others.
What does it contain, part by part?
Here are the nine usual parts, in reading order. The examples in this guide are fictional.
- The essentials on one page. The project, the main evidence, the amount requested and what it is for, readable in two minutes. Write this page last, once the rest has stopped changing. What raises doubts: a summary that states neither the amount nor what it is for.
- The market. The reader wants to know who your customers are, how many of them there are in the area you can serve, and what they use today instead of what you offer. What raises doubts: a figure with no source, or a market described at national scale for a local shop.
- The solution and the product. What the customer buys and how they use it, then where the product stands today, from prototype to first sales. What raises doubts: a product described as finished when it still has to be built.
- The business model. This is how the project makes money. For a poultry farm that sells direct, the reader looks for the price of a chicken, the cost of feed and slaughter, and what is left per bird. What raises doubts: a stated profit with no breakdown of the costs.
- Traction. The word refers to the evidence that the project is moving forward: sales, regular customers, pre-orders, written commitments from future customers. What raises doubts: a promise without evidence, such as “several retail chains are interested” with nothing in writing to back it up.
- Projections and use of funds. Forecast income and expenditure over two or three years, with the assumptions behind them. Then a table that breaks down the amount requested by item. What raises doubts: a curve that rises with no explanation, or a “miscellaneous” line that makes up a quarter of the total.
- The team. Who does what, and with what experience relevant to the project. State how much time each person gives to it. What raises doubts: a skill the project needs that no one has and that the document does not mention.
- The risks. What could go wrong, ranked by severity, and what you have planned in each case. What raises doubts: a part that is missing, or limited to risks common to every business.
- The terms of the request. What you are asking for and what the reader receives in exchange. For a loan: the amount, the term, the security. For an equity stake: the share on offer and the value placed on the company. What raises doubts: terms put off until “later”.
Depending on the framework of your fundraising, regulatory documents may be added to the memorandum. This guide does not cover them and does not replace legal advice.
How do you write it so that it can be read without you?
- Short sentences. One idea per sentence, and a fact in place of each adjective. “212 customers have ordered at least twice” tells the reader more than “a loyal customer base”.
- Written assumptions. After each forecast figure, give the assumption behind it: “40 covers a day once the terrace is open, against an average of 32 during the March trial”. A reader who finds the assumption too high can then discuss it with you.
- Risks stated openly. Write them down yourself, with what you have planned for each one. A risk the reader discovers on their own leads them to wonder what else the document leaves out.
- Sources and dates. Every figure that does not come from you carries its source and its year.
Before sending the document, have it read by someone outside the project. Each question they ask points to a passage that needs completing.
Where do you start if you have not written anything yet?
Prelud’s Scorecard gives your project a score out of 100 after a conversation of a few minutes. Its Memorandum Pack produces the information memorandum, which the Bot Opex agent helps you rework part by part. The final version can be produced once the score reaches 80 out of 100.
A preparation tool. It is neither a financial valuation nor an investment recommendation.