Top Five Information Memorandum Mistakes in 2016
I have been writing information memorandums for the best part of ten years. During this time, new clients have often approached me with an information memorandum they have written and ask for my opinion on it.
If I’m engaged these documents inevitably become part of the raw data that forms the basis of an information memorandum that I write for them. However, not everyone has their information memorandum vetted by an expert and in fact head off into the investment market with their DIY information memorandum.
The five biggest issues I have seen with DIY information memorandums in 2016 have not changed much since 2006. They include the following:
- Assumed Knowledge – The writing of an information memorandum comes at the end of what is typically a long journey in preparing a business or idea for market. The writer, often the business founder or proponent, knows the business inside out and back the front. When they put pen to paper to write the information memorandum, there is often a degree of assumed knowledge about the industry, market, product and its potential place in the market. This is a particular risk with technical offerings. I tend to persevere for a few pages, to try figure out what is on offer. However, one may be assured that if an investor can not understand what the business does by the end of the first page, they will simply move on to the next opportunity.
- Perspective – Perspective is an interesting thing. If someone asks me what value I bring to the table, one of the key skills is the ability to adopt various perspectives. Similar to the point above, the only perspective that matters in an information memorandum is the investor’s perspective. One must generally rewrite all internally focused content to include what is only relevant to an investor.
- Complicated Offers – Often in an attempt to actually be generous to investors, clients raising their first or second round of capital, create an information memorandum and offer that resembles those put forward by international listed company. They may propose multiple classes of shares, all with varying rights, or debt with highly complicated conversion terms, etc. They may create multiple unnecessary structures. Keep the investment instrument and structure as simple as possible. When revenue and growth supports it, one can complicate life then.
- Weak Management – The founders, inventors or those who have been with the business in the early days are not necessarily those that should be running the business at the time of seeking investor funds or commercialisation. I have seen countless information memorandums significantly weakened by lack of relevant management. If there are people in the management team who are related by birth or marriage, it is particularly important that their skill set and experience qualify them to be there.
- Imbalanced Valuation – Most matters either attract investors quickly or they get passed from around the investment market and attract little or no interest. The main reason is the valuation is not in balance with what’s on offer. Almost a polite way of saying, its overpriced for the current market conditions. If two qualified investors turn your matter down citing this as the reason, stop and regroup, as it is the reason.
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