Investment memorandum is a great way to attract an investor
An investment memorandum is a document in whichwhich contains all the data about an enterprise, drawn up for an offer to a potential investor. The methodology by which it is formed is sufficiently well developed and therefore it is not necessary to deviate from its rules.
The investment memorandum contains the information,the structure of which was worked out by the world investment practice, norms of law, court decisions and simple everyday wisdom. The information that is in it should allow any investor to draw the required conclusions. Since the competence of potential investors can vary in a wide range, the memorandum is a sufficiently detailed document that allows you to understand and make an assessment of investment attractiveness to virtually any of them:
- If we take, for example, an individual private investor, then it is the least competent, but at the same time is best protected by law.
- The institutional level of competence and documentation requirements are very high, especially if the manager of a joint or pension fund acts in his role.
- The corporate competence can depend on its size, as well as whether it works in the same industry as the enterprise that wants to attract investments.
- Commercial banks can direct investments to acquire the fixed capital of the enterprise, if this is part of their activities.
- Trade and investment banks pay great attention to competence, since the welfare of their clients depends on this.
- But venture capital funds are the mostdemanding and competent, they are interested in maximum openness and the opportunity to participate in each level of the firm's activities, including personnel management.
- For government and sponsored fundsagencies, priority lies in achieving specific, pre-specified political and social goals. In this case, there may not be a return on investment - the main thing is that the desired result is achieved.
Do not confuse the investment memorandum withbusiness plan, because the essence and purpose of these documents are very different from each other. If the memorandum is a document aimed at attracting an investor, then the business plan is a practical guide to action for top managers. First, a business plan is drawn up, which indicates the direction for further development, and then a memorandum is formed to attract investment. It is unlikely that a firm will be able to access investment if it does not have a good business plan.
Despite the fact that there are no strict rulesas to how an investment memorandum should be drawn up, an example of the structure that is given in almost every source includes the following mandatory items:
- Summary - a brief overview of the investment opportunity.
- Overview of the industry in which the firm is located (the general state of the industry, opportunities, threats, state of the market, etc.).
- Information about the company invested (history of the company, its organizational structure, characteristics of the main shareholders and owners).
- Production and characteristics of the producedproducts. This section describes in detail all the stages of the production process and the technologies used. Also given are data on the cost of goods, existing patents and trademarks. The opportunities for expansion of production and R & D are necessarily indicated.
- Marketing and sales. Here, market analysis is done, the marketing policy used is described, potential consumers of manufactured products are identified. The dynamics of sales is presented.
- Personnel composition (assessment of the professional level of both the management and the workers themselves).
- Other corporate issues.
- Financial information (feasibility study, basic accounting documents, etc.).
- The financial plan (the plan of movement of the finance, the scheme of return of invested means, an estimation of probable financial risks, etc.).
In the end, usually write general conclusions, recommendations, suggestions.
Thus, as we see, an investment memorandum is a great way to interest investors.