Writng a DIY Information Memorandum – Proceed with Caution

Several times a month, I speak with business owners who have set out to write an information memorandum in order to raise investor funds. They either ask to see one I’ve written so as to provide a basis upon which they may write their information memorandum or alternatively I get asked to ‘have a look at one they’ve already written’ and provide feedback.

For me, this type of project is often an exercise in ‘how do I save this person from themselves?’

I do have a strong vested interest in this subject as part of what I do for a living is write a range of investor documents so my opinion may be slightly bias.

You see whether one offers investors a 5 page investor brier or a 100 page prospectus, the underlying principals used to write such documents are the same. In fact, the 5 page investor brief is the deceptively tricky of the two.

After years of writing investor document, one develops sensitivity toward any hint of deceptive or misleading content – this may include statements, images, tables and diagrams. Much of the content used that fall into this category is designed to ‘sell the matter’ to investors and as this is the general aim, a DIY investor document is often jam packed with such risky content.

Why is such content risky? The risk is that an investor if free to base their decision to invest upon any content offered in an information memorandum. As such, they are also free to base a legal claim on any content offered in an information memorandum.

So how does one sell a matter to investors? One doesn’t. If a business owner feels they need to ‘sell’ a matter the matter is not ready for investors. People with money don’t need to be sold to. They only want facts. Boring, objective, no frills facts.

However, even with my keenly developed senses and ‘risk radar’ – in most cases, even I work hand in hand with a lawyer who offers a further legal perspective.

Following is the opening line to an information memorandum that was sent to me with a request that I offer feedback.

This is the opening line of the document.

“This document outlines a rare and unique opportunity for investors to reap significant financial and social returns…”

After reading the opening line, I sent it back and advised I couldn’t help and suggested directors take out adequate insurances.

Use of adjectives such as ‘rare’ and ‘unique’ would need some type of substantiation or better yet, they would need to be removed altogether. However, the unqualified use of “…reap significant financial [and social] returns” in my eyes, can nail a directors coffin. With no substantiation or qualification offered, investor reading such statements are free to determine when such ‘significant financial …returns’ should materialise and, in fact, what ‘significant financial’ returns actually refers to. An investor worth $100m may have different expectations to one worth $1m.

A large part of what I do is write investor documents. However, what I’m doing for the most part is making judgment calls, word by word and statement by statement, on the reliability of such information.

Leaving this judgment out, irrespective of where it comes from, is the one greatest pitfalls of a DIY information memorandum.

For assistance with any information memorandums or any invetor offer document, please contact The Financial Writing Company 1300 477 210.