How to Write the Perfect Investment Memo

What is an investment memo?

Use the YC Investment Memo Template to kick off your next fundraise. Give it a try here.

An investment memo is a clear way to layout and “pitch” your company to potential investors. Memos are a clear and concise document to lay out strategic vision, rationale, and expectations for an investment, project, product, or strategy. For the sake of this post we will largely be discussing how investment memos can be leveraged to help your company raise capital.

Traditionally in venture capital, many firms will write their own investment memo when determining if they should invest in a new company or not. Most founders associate pitch decks with a fundraise. However, investment memos have made a presence in the space over the last few years.

If you are a founder that is more confident in your writing ability, an investment memo might make sense for you. Check out our tips and templates for creating an investment memo below:

Why are investment memos important?

Investment memos are a powerful tool that can be used to power fundraising narratives, project guidelines, product pitches, and much more. They are becoming an increasingly important tool as communication continues to move to digital mediums.

Conviction

Memos are an easy way for stakeholders to form convictions around an idea. This is especially true when it comes to sharing an investment memo with potential investors but also holds true when using a memo for a product or strategic decision.

Relationship Building

When it comes to using investment memos for attracting investment it can be a great tool to build relationships. As we’ve mentioned in the past, venture fundraising is largely a relationship-building game. By being able to clearly articulate why someone should invest in your startup, investors will be able to build conviction (as mentioned above) and move on. This not only helps you get a quick answer but also demonstrates that you value their time and sets an expectation for communication moving forward.

Alignment

Investment memos are a surefire way to create alignment amongst your stakeholders. If raising capital, it will keep your current and potential investors in the loop with your messaging and the status of your round. Communicating with your team over a decision or project, will keep everyone in the loop and on the same page as the project moves forward. Ultimately, it can act as a source of truth to look back on post-memo.

Pitch Deck vs. Memo

Traditionally speaking a pitch deck is at the backbone of a venture capital fundraise. Over the last few years, investment memos have become an integral tool of fundraising. More founders, especially those with strong writing skills, are turning to memos and written communication over the traditional pitch deck.

Control Your Story

Oftentimes a pitch deck is passed around and can be taken out of context. If there is simply an image or chart on a slide that can be deciphered in many different ways and can take the control of the story away from you. The investment memo has the ability to stand on its own. By sending a memo in advance you do not have to worry about the investors missing any context. Investors will be able to read and digest the memo on their own. Opposed to a pitch deck that may require a pitch and narrative around different components.

Quick Decisions

A memo will allow investors to quickly pass or take the next meeting. This way you can spend time on the firms that are truly interested.

Succinct & Shareable

When it comes down to it there is no way to know if a pitch deck or memo is going to be shared to outside stakeholders. As we mentioned above using a memo allows you to control the story if it does happen. As the team at Rippling puts it, “It aligns more closely with the material you’re sponsoring GP will ultimately put together about the investment. The final step in a VC’s evaluation of an investment in your company is usually a Monday morning full partnership meeting.If you’re fortunate enough to get this far in the fundraising process, you’re not the only person in the hot seat anymore.”

What should be included in an investment memo?

When creating a memo for investment there are a few key components that the strongest investment memos will include:

Purpose

Why should I care? What is the purpose of the memo? Are you searching for investment? Be clear and concise in your purpose so investors can quickly understand what the purpose of your company and memo is.

Problem

What point of friction are you attacking? Money is made at points of friction. Define the problem you are solving and what the current process and pain point look like.

Solution

How are you removing (extracting value from) that friction point? How are you improving the current solutions? What makes your solution or product offering unique and have an edge in the market?

Market Size

How much value can you conceivably capture from this new offering? Be able to clearly define your market size and use the sections below to demonstrate how you will penetrate the market.

Competition

If the market is so big there must be others after it, right? While some argue that competition is not a good thing, a Blue Ocean approach to entering the market shows you have thoughtfully evaluated where others have failed and understand how to attack those areas.

Product Development

What is the actual product that will serve as the conduit for this better customer experience? What is the current state of the product and where will it be going? Does the capital you are raising fit into the future product roadmap?

Sales & Distribution

How will you make the market care about this cool product? Share your go-to-market strategy and any valuable data points you have to date. Use this as an opportunity to take a deep dive into revenue drivers.

Metrics

Have any of your previous predictions been tested and evaluated by your target market? How has it gone? Being able to clearly show traction over the previous periods will be a huge plus. Don’t be afraid to include a promising chart or 2.

Team

Are you the people that are going to connect all of these dots? Highlight the team and talent around you. Tell what makes your team unique and why they are the ones that can properly execute the problem and solution.

Great investment memo examples

Like most founders, you likely don’t have experience writing investment memos. Luckily, there are countless examples from VC funds and other companies that have been shared so you have a good place to start.

The YC Investment Memo

Memos have been something that most of us likely associate with VC funds writing for a prospective investment. The YC memo flips this idea on its head. In the YC Series A Guide, they share an investment memo template aimed toward founders. YC suggests sending your memo to investors in advance of a meeting to set the tone for the conversation.

YC makes the case that founders should write an investment memo is two-fold. First, it can set up a meeting with a potential investor nicely when sent in advance. Secondly, it helps you as a founder clarify your pitch, thoughts, and rationale. As the team at YC writes, “A memo is particularly effective if you can write well. It stands better on its own as the deck (sent ahead of time) can miss context provided by your voiceover. Founders tell us that memos sent before meetings in place of a deck provided the necessary to set up an engaged conversation from the outset.”

Why this investment memo works:

Opportunity to clearly articulate your metrics and current growth.
Address the challenges that are preventing your growth.
Share the market opportunity and get your new investors excited about the space.
Use previous input from investors to get in front of any questions and objections you might face during a pitch.

To give you an idea of what a memo may look like, we turned it into a Visible Update Template.

YouTube Investment Memo

Every company going out to try to raise capital from angel investors or VCs seems to have some derivative of the same question – “What should we include in our pitch deck?”

While the outsize clout people give a simple slide deck may seem silly, it speaks the importance of being able to weave a compelling narrative about your business.

Roelof Botha of Sequoia Capital is one of the most successful venture capitalists of all time. He sits on the board of companies like Square and Jawbone and led investments in Youtube and Meebo before they were acquired by Google. Recently, he checked in at #18 on CB Insights' list of the top 100 venture capitalists.

Basically, he knows what it takes to build great companies and how those companies should think about raising capital.

Thanks to court records from the 2010 Viacom-YouTube lawsuit, we can take a first-hand look at how the Youtube founders pitched Botha and how Botha pitched Youtube internally to his Sequoia partners. From there, we can better understand how companies should think about structuring their own pitches to investors as well as the major hurdles companies need to overcome to turn a potential investor into an advocate who makes sure to push their deal forward.

Why this investment memo works:

A real-life example from a proven and successful tech company.
Example of how a later-stage company models its growth and future.
Speeds up a fundraising process with the detail and information Sequoia needs to make an investment decision.
Simplified decision-making for Sequoia as it was able to be easily shared with the team and partners.

Botha on YouTube by GeorgeAnders

Helpful investment memo templates

Y Combinator Investment Memo

As we mentioned above the team at YC created an investment memo that founders can use when raising a round of venture capital. You can check out our YC investment memo template here (or below).

Best for companies that:

Are raising venture capital and want to demonstrate why an investor should invest.
Have a founder who is better at communicating via writing than pitching/pitch deck.
Want to layout their growth plans and business model to better understand their pitch and how investors view them.

Executive Team Strategic Memo

Andy Johns is a seasoned startup professional and currently a partner at Unusual Ventures. Andy recently published a blog post, A Simple Tool for Managing an Executive Staff as a First-Time CEO, to help first-time founders deal with their first executive hires. As Andy points out, managing an executive can be quite different than managing team individuals.

“An executive’s job is to focus primarily on taking strategic risks. Each year, they should identify 2–3 major initiatives, large enough in impact to shape the direction of the company and enforce great execution against those initiatives. This is in contrast to non-executives, who you want to be focused primarily on tactical execution.”

So how does a founder enforce execution against those initiatives? Andy suggests having your executives fill out a quick memo template for your executives to share with you. As Andy puts it, “Ideally, what they come back with is a strategy that has 2–3 major initiatives that they find are important, along with a list of success metrics and resources they need to get it done.”

Once a founder gets a strategic memo from each executive it makes forming a strategy and roadmap for the company as a whole easier. These memos can be used to fuel your strategic and financial plan for the year, create performance plans with executives and individuals, and the kickoff discussion points for annual planning.

Best for companies that:

They have a growing executive team that needs better communication.
Are remote or distributed and need a way to communicate asynchronously.
Rely on quarterly or annual planning for goal setting and setting objectives.

Check out the strategic memo template from the team at Unusual Ventures here.

The EVERGOODS Product Brief

The last memo is slightly different than the first two. EVERGOODS is a small equipment and apparel company based out of Bozeman, MT. EVERGOODS has a strong focus on building an incredible product and puts a great deal into R&D and perfecting every minor detail of their products (a couple of gear junkies on the Visible team can attest to this).

As the founders, Jack and Kevin, put it, “Our experience lies in product design, development, R/D, and manufacturing for the likes of GORUCK and Patagonia. We believe in product and the processes of doing the work ourselves. Each project is an exploration, and ultimately a discovery, aided by our triumphs and our failures. This evolution inspires us and is at the heart of EVERGOODS.”

Being gear junkies and product-focused ourselves, we found their product brief to be interesting and useful to more than equipment and apparel companies. While it may not translate directly to every industry, their brief is a great tool to help product-focused founders understand why and how they are building certain products and features.

Best for companies that:

If you have a product-driven business.
If you need to prioritize customer feedback and product features for your product’s roadmap.
If you want to clearly articulate what features are in the pipeline and why you are building them.

Check out the product brief memo from EVERGOODS here.

Each template above serves a different purpose. While each template may be entirely different they all have one thing in common: clear and concise communication. Setting up a system to properly share strategy and rationale in a concise way will not only strengthen relationships but keep all of your key stakeholders aligned.