Writing a good information memorandum
A proper Information Memorandum, very often referred to as an IM, maximizes your chances of raising capital. It is the main marketing document used when raising AIF funds and one of the supporting documents included in the marketing application to the authorities. Writing a good IM does take quite a lot of time and efforts as it needs to contain a lot of detailed information. We would like to provide an advice on what should be included in a professional, credible IM, to maximize your fund-raising opportunity as well as meeting the regulatory requirements.
Producing the IM usually happens in parallel with developing limited partnership/shareholder agreements, alongside dialogues and negotiations with anchor investors and advisors. In many cases completion of the IM is the single case delaying the marketing application process to the authorities. It is therefore important to start working on the IM early enough to secure keeping up with the project’s deadlines.
Size of the IM typically depends on the size of the fund, structure, complexity, nature of the investors etc. For smaller and simpler structures, the IM usually becomes a 30-40 page document summarizing the business plan and highlighting the most important aspects and opportunities the fund has to offer. For bigger and more complex structures, the IM can easily reach 60-70 pages. The IM is similar to the pitch deck but it should contain much more information when it comes to analysis and facts. It should be very precise and it must align with the LPA/SA, KIID as well as what is written in applications to the FSA. So, what should be included in the IM?
- LEGAL DISCLAIMER- as crucial information about your fund will be disclosed to your potential investors, you want to make sure that it is kept confidential and that it will not be shared further. Use the disclaimer to limit the use of information, prohibit duplication of the document, limit the liability and as a disclaimer for accuracy and completeness of the IM.
- LETTER FROM THE DIRECTOR- forgotten by many, which allows to add a personal touch to the document. Here you can summarize what the business is about, what are you aiming for and what is included in the IM.
- INVESTMENT HIGHLIGHTS– a summary of your fund and often the first thing an investor will read in the IM. What makes your opportunity exciting? Describe the fund, team, investment strategy; characteristics and process, opportunity etc. This section should give an investor a good understanding of the investment without having to go into details.
- KEY PRINCIPAL TERMS– the technical part. Here you are to describe all the elements such as: fund structure, regulatory status, investment objective, key persons & venture partners, the board, investor commitments, fundraising period and size, drawdowns, defaulting investors, cost for management, organizational expenses, fund expenses, waterfall vehicle, term. This is the core of your product being offered to the investor. The terms must be described in a very clear manner. Exactly the same terms must be reflected in the limited partnership agreement (LPA)/ Shareholders Agreement (SA).
- THE FUND– write about your investment strategy, region, stage, sectors, investment criteria and your expansion plan – where are you going and how are you going to get there?
- MARKET OVERVIEW- how big is the market, what segments of the market are you going to cover and why these ones? What problem exist in the market that you are looking to solve?
- THE TEAM– the number one thing that the investors will be looking for when investing in your fund. Even if you are raising your first fund there must be things you and your team have achieved in the past which allow you to do what you do today. Describe all the milestones and give a good description of all your team members. Describe your organization and roles and do not forget about the venture partners, mentors and board members. If you are using any service providers, mention them as well. That way you will show that you are catching up with the regulators and leverage your credibility. Show that you have the best people on board who will make your fund a success.
- KEY SUCCESS FACTORS- what the organization needs to get right to achieve the goals.
- CERTAIN RISK FACTORS– outline all the risks involved when investing in the fund and what you have done as a fund manager to minimize them? Remember to include conflict of interest matters and compliance requirements.
- ADDITIONAL INFORMATION- any legal, tax matters etc.
When working on the IM it is important to set-up the timeline and stick to it to avoid delaying the fund establishment operation (IM is the part of the application process). Many of our customers appoint a document holder, who is responsible for the overall shaping of the document. We recommend starting with developing an index to later divide sections between the relevant team members. Layout, design and graphics are important to think of, as the document needs to look as professional as possible. It is therefore beneficial to engage someone with graphic design skills to bring your document up to the next level. Last but not least, big attention should be paid to the language. No misspellings should be allowed.
At Permian we have a team of experts working closely with fund managers on developing their IMs to be professional and the most appealing to the investors and the authorities. If you are looking for a professional help with your document, you are welcome to contact: firstname.lastname@example.org