How to Write a VC Investment Memo?

Benjamin Debonneville
Founder & CEO
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When raising funds, a pitch deck is a visual tool that outlines your vision. Yet, it's the investment memo that completes the picture, especially when you're not there to walk investors through it.

This document is where venture capitalists turn to weigh up whether a startup is worth their investment. It's a practical piece that founders can provide, detailing critical information that investors seek.

Investment memos are not just a formality; they're a strategic asset in fundraising, offering a clear, digital communication of your project's value. In this guide, we'll discuss the nuances of crafting a standout investment memo, the kind that captures attention and opens doors to potential venture capital investment.

VC Investment Memo: What is it and How it Works?

A VC investment memo is a document startups use to describe their business to potential investors straightforwardly. It’s like a map that shows where your company is heading and why it should get some fuel—in this case, money—from investors to go further.

This memo spells out the big dream of your company, the steps you’re taking to get there, and why investors should join the journey.

Here’s how it works:

  • Storytelling: It begins with a story, introducing the startup and its mission in a clear way.
  • Reasons to Invest: It lists solid reasons why the startup is a good bet, like a team that’s on fire or a product that could change the game.
  • Alignment: It makes sure everyone – the startup team and potential investors – are looking in the same direction and understand what’s most important.

For startup founders, making this memo is like giving investors a sneak peek at their business, all to get the best support for their journey.

For investors, it's a look into the startup's life, showing its strong points and how it stands out. It's a key piece in the puzzle of funding, especially when big money is on the line.

Why Do Startups Need an Investment Memo?

Startups need an investment memo to communicate their value and potential to investors clearly. This document is crucial for sparking interest and building trust.

Key Reasons Startups Need an Investment Memo:

  • Quick Decisions: Memos help investors decide faster if they want to meet and talk business.
  • Build Conviction: They let investors feel confident about the startup's idea before they even meet.
  • Clear Pitch: Memos give a sharp reason to invest, highlighting what makes the startup special.
  • Alignment: They keep all investors, new and current, updated and on the same page with the startup’s goals.
  • Information Sharing: They’re perfect for giving a snapshot of the startup that investors can easily share with others.
  • Later Benefits: A strong memo can make it easier for VCs to argue your case later when it’s real-time.
  • Controlled Presentation: Writing it yourself means you present your startup just the way you want.
  • Informed Decisions: Memos give a full view of the startup, helping VCs understand and trust in the potential.

Investment Memo vs. Pitch Deck (Basic Difference)

Pitch decks and investment memos are both crucial, but they serve different purposes in the startup fundraising journey.

Basic differences between Investment Memos and Pitch Decks:

Let's break down the basic differences between an investment memo and a startup pitch deck:

  • Presentation vs. Documentation: A pitch deck is like a trailer for your startup's story, designed for visual impact and brief highlights. An investment memo is the full narrative, providing a detailed written account of your business strategy and potential.
  • Detailed Context: Pitch decks offer a glimpse, ideal for initial introductions, but may lack depth without narration. Investment memos deliver a thorough breakdown, explaining each aspect of the business and its market position comprehensively.
  • Function and Circulation: A pitch deck is crafted for face-to-face engagement, sparking interest with its succinct, impactful slides. In contrast, an investment memo is a standalone document, detailed and ready for in-depth review, easily shareable with stakeholders.
  • Controlling the Narrative: While a pitch deck can be open to interpretation, an investment memo allows you to firmly control the business narrative, providing a clear, unambiguous portrayal of your company's vision and operations.
  • Accelerating Decisions: Investment memos enable investors to reach decisions rapidly, offering them all the necessary information to consider a meeting or investment without the need for further presentations or clarifications.
  • Comparing Narrative and Analysis: Pitch decks are crafted to captivate and initiate a dialogue, often light on data. Investment memos offer a complete analysis, backing up the startup's potential with in-depth research and facts.

What to Include in a VC Investment Memo? (Key Essentials)

Creating a VC investment memo is like packing a suitcase for a crucial trip. You need to include the right things to ensure a successful journey.

Let's explore what essentials should go into this key document for your startup's funding adventure:

1. Introduction/ Business Overview

The introduction of your investment memo is like the first chapter of your business story. It’s where you set the stage, telling investors who you are and what you're all about.

Key Points to Include in the Introduction/Business Overview Part:

  • Business History: Detail the journey of your company, including its founding story, major milestones, and evolution over time.
  • Purpose of the Memo: Start with the memo's goal. Are you seeking investment? Be clear, so investors grasp your aim right away.
  • Company Essence: Explain what your company does, the niche it fills, and the big reason it exists.
  • Business Scale and Opportunity: Show the scale of the opportunity. What financial heights can your company reach post-investment?
  • Mission and Objectives: Include your mission statement and goals, highlighting your competitive edge.
  • Business Model and Milestones: Describe your business model, your achievements, and your future goals.

2. Market Opportunity/ Problem

The next important part of an investment memo should be the Market Opportunity/Problem section which highlights the gap your business aims to fill. It’s about showing investors the 'why' behind your company’s existence.

Let's dissect this part a bit in detail. This section should cover the following points:

Key Points to Include in the Market Opportunity/Problem Section:

  • Defining the Problem: Pinpoint the exact problem your business solves. Make it clear and relatable to your audience.
  • Pain Points Addressed: Describe the specific challenges your target customers face and how you plan to alleviate them.
  • Friction Point Identification: Identify where the market feels friction and how your solution eases this pain effectively.
  • Market Gap Recognition: Show the gap in the market that presents an opportunity for your solution to make a significant impact.
  • Solution Realism: Ensure your proposed solution to the problem is realistic, feasible, and meets the needs of your target audience.

3. Solution/ Product

After discussing the problem, it's time for a solution. This section of your investment memo is where you shine a spotlight on what sets your business apart.

It's about explaining how your product or service solves the big problem you've identified.

Key Points to Include in the Solution/Product Section:

  • Solution to the Problem: Clearly articulate how your product or service effectively solves the identified problem.
  • Unique Value Proposition: Highlight what makes your solution stand out from current market offerings.
  • Product Roadmap: Outline the current and future state of your product, showing how it will evolve.
  • Product-Market Fit: Describe strategies for ensuring your product aligns perfectly with market needs.
  • Broadening Scope: Discuss the potential for expanding your product line to solve additional problems.
  • Capital Utilization: Show how the capital raised will be used to develop and enhance the product.

4. Market Potential

The next essential of an investment memo should be the Market Potential or Size. This part examines the market landscape, essential for demonstrating to investors the scope and scale of the opportunity awaiting the business.

Key Points to Include About Market Potential or Size:

  • Total Available Market (TAM): This outlines the entire market demand for the product or service, setting the stage for potential growth.
  • Serviceable Available Market (SAM): It identifies the specific segment of the TAM targeted by the business initially.
  • Serviceable Obtainable Market (SOM): This focuses on the portion of SAM that the business realistically aims to capture shortly.
  • Market Growth Indicators: These highlight the signs of yearly growth within the market, indicating it's evolving nature.
  • Expansion Potential: The section explores additional markets the business could venture into as it develops.
  • Current Market Position: This describes the business's current standing in the market and its potential for expansion.
  • Customer Demographics: It’s important to detail the target customer base and their specific needs met by the product or service.
  • Market Size and Value Capture: The memo must articulate the size of the market opportunity and how the business plans to leverage it.

5. Competitive Advantage

The next essential to be included in the investment memo is the Competitive Advantage section. This part highlights the unique aspects that set the business apart in a competitive market, showcasing what makes it a standout choice for investment.

Key Points to Include About Competition:

  • Identifying Competitors: List the main players in the market, both direct and indirect competition should be identified.
  • Unique Selling Points: Explain what makes your solution superior to others and how it differentiates from competitors.
  • Competitive Landscape Analysis: Provide an in-depth look at the competitive environment, showcasing your company’s edge.
  • Feature Comparison: Compare your product’s features against those of competitors, highlighting strengths and uniqueness.
  • Product Development Plans: Discuss competitors' product development and how your company's strategy is more effective.
  • SWOT Analysis: Conduct a SWOT analysis – strengths, weaknesses, opportunities, threats – for a comprehensive competitive view.
  • Market Trends and Opportunities: Identify market trends and potential features not addressed by competitors.

6. Team

Another key element in the investment memo should be about your Team. As they often say, investors don't just invest in ideas or products, but in the minds behind them.

This section should highlight the individuals fueling the startup's journey, emphasizing their skills, experiences, and unique qualities that drive the business toward success.

Key Points to Include in the Startup Team Section:

  • Core Team Bios: Provide brief biographies of key team members, emphasizing their relevant experience and roles.
  • Uniqueness and Suitability: Explain why each team member is perfectly suited for their role and what makes them exceptional.
  • Execution Capability: Highlight how the team’s combined skills and experiences make them uniquely capable of executing the plan.
  • Founding Team’s Strengths: Emphasize the founding team's domain expertise and their previous successes, underscoring their ability to lead.
  • Connection to the Vision: Show how the team’s background and skills directly align with the startup’s vision and goals.
  • Team Dynamics: Illustrate how the team works, showcasing their synergy and collaborative strengths.

7. Traction and Growth Metrics

The next key element of an investment memo should be Traction and Growth Metrics. This section provides a factual and detailed look at the startup's journey so far, highlighting achievements and evidencing growth potential.

Key Points to Include About Traction and Growth Metrics:

  • Company KPIs: Detail key performance indicators like revenue, customer churn, and average revenue per customer, providing a clear performance overview.
  • Financial Growth: Show financial growth trends, using line graphs to visually represent progress over time.
  • Major Achievements: Highlight significant milestones like major product launches or traction thresholds surpassed.
  • Key Partnerships and LOIs: Mention any significant partnerships or letters of intent demonstrating market validation.
  • Short and Long-Term Vision: Describe what’s next on the roadmap, illustrating the company's plans for growth and scaling.
  • Core Revenue Drivers: Identify and explain the main factors driving the company’s revenue.
  • Business and Product Metrics: Present important metrics like product churn, average contract value, and others relevant to your business model.

8. Financial Analysis

Lastly, a detailed analysis of the financials and the required funds is a vital component of the investment memo, as it represents a cornerstone for startups during fundraising.

This part breaks down the numbers, showing how the business handles its finances and plans for the future.

Key Points to Include in the Financial Analysis Section:

  • Revenue and Expenses Breakdown: Provide a detailed overview of the company’s current revenue streams and expenses.
  • Fund Allocation Plans: Explain how the raised funds will be used, whether for key hires, product development, or working capital.
  • Historical Financials: Include past financial performance to give context to the company's growth and fiscal management.
  • Management Projected Financials: Present the financial projections as forecasted by the management, showcasing expected growth.
  • Revenue Model Focus: Detail the business’s revenue model, including how it generates income and its sustainability.
  • Cash Burn Rate and Runway: Explain the company's current cash burn rate and how long the funds will sustain the business.

Top Investment Memo Examples

For a clearer picture of investment memos, let’s explore some top investment memo examples. These standout examples offer valuable insights and inspiration for early founders looking to create their own effective investment memos:

  • Airbase investment memo that effectively secured $60 million in Series B funding.
  • Twitch's 2012 Series B venture capital memo that successfully secured $13M.
  • Shopify's VC Memo outlined its mission for securing $7M in Series A funding.
  • Rippling's Series A $45M raise in April 2019 succeeded without a traditional pitch deck.
  • Use Steve Schlafman's Notion investment memo template as a helpful starting point for your memo.

Final Thoughts

Writing a VC investment memo is a crucial step in your startup's journey, acting as a bridge between your vision and potential investors. It's more than just a document; it's a narrative that brings your business to life.

By clearly outlining your business overview, market potential, solution, competitive edge, team dynamics, financial analysis, and more, you craft a story that resonates with investors.

Remember, this memo is your chance to show why your startup deserves attention and investment. Approach it with clarity, focus, and confidence, and you'll create a memo that not only informs but also inspires.

Benjamin gave great tips to my start-up Blend for polishing and optimising my pitch deck, refreshing perspective. Recommend!