Information Memorandum

What is Information Memorandum?

An information memorandum (also known as offering memorandum) is a document prepared by your company to provide a comprehensive overview of your business to prospective investors.

It captures the past, current and future performance outlook and is typically used for raising large amounts of capital, for later stage investment after initial rounds, for divestment of major assets or for a sale of the entire business.

What’s included:

• Investment Highlights: A summary of the key selling points of the business generally and the proposed transaction specifically
• Corporate Information: Corporate history with major milestones, organisational structure, geographic spread, ownership, management team and their expertise, current and future business goals, strategies and plans
• Products and Services Offerings: Products and services your company offers, total number of customers and their segments, unique selling points and associated risks
• Performance Overview: Past and current financial and operational performance review, key performance metrics, future outlook of your company and how you will achieve targets
• Market and Competition: Overview and potential of the target market, current and expected market share, competitor analysis, industry drivers and barriers, applicable regulations and associated risk factors
• Proposed transaction: A summary of the transaction that investors are being asked to participate in including, where relevant, the reasons to raise capital, amount of capital to be raised, stake available for sale and related company valuations and clear information about what you will spend the funds on and why, including milestones and timeframes

Why is Information Memorandum important for business today?

An Information Memorandum is only prepared for a specific event. However retaining a copy of Information Memorandum prepared for past events can serve as a useful source of material when there is a need to prepare summary information on the business.

Why is Information Memorandum important for an event tomorrow?

An information memorandum is important for an event tomorrow for the following reasons:

• It lowers the cost participating in the transaction by providing potential investors with a summary of the key aspects of the business and the potential transaction
• This allows potential investors to, at a very low cost, form a view as to whether they wish to proceed with the transaction and conduct further due diligence
• It also allows additional investors to be educated on the fundamental elements of the business and proposed transaction at no additional cost to the company management team in the form of time spent presenting or answering individual questions
• These factors combine to enable a greater number of potential investors to assess the opportunity thereby increasing competitive tension in the transaction and increasing the chance of achieving favourable terms
• The information memorandum also provides a strong vehicle for clearly conveying the key selling messages to investors to ensure that these are not misunderstood, or worse, missed altogether
• It also provides a mechanism for educating potential investors on the nuances of your business, particularly for those investors that may not have a great deal of familiarity with your industry, regulatory environment, competitive landscape or geographic region

Pros of addressing Information Memorandums

• Increase the pool of potential investors in the transaction
• Reduces the impact on management of the preliminary education of potential investors
• Allows the key selling messages of the business and investment to be clearly articulated
• Helps educate potential investors who may have a lower level of starting knowledge

Cons of not addressing this topic

• Increases demands on management time by requiring them to convey information to each potential investor individually
• Increases the cost to investors of reaching a preliminary view on the business and opportunity thereby reducing the number who will ultimately participate
• Increases the risk that some potential investors may not appreciate all of the key selling messages that the management team may wish them to.