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An investment memorandum is a legal document that outlines a private placement investment’s goals, risks, and terms. Financial statements, management biographies, a full explanation of the business activities, and other information are included in this document.

The purpose of an investment memorandum is to inform purchasers about the offering and protect sellers from the risks of selling unregistered securities. It is a document sent to potential investors. It is an essential business plan that skilled investors may use to do due diligence. These documents are mostly a formality employed to satisfy securities authorities’ obligations, as most intelligent investors conduct substantial due diligence. However, offering memorandums is comparable to prospectuses—private placements rather than public offerings.

An offering memorandum, also known as an investment memorandum, is often prepared by an investment banker to explain a company’s capital requirements to potential investors. The banker utilizes the memorandum to hold an auction among a select group of investors to find the best deal.

Private equity firms sometimes seek to accelerate their growth without taking on debt or going public. If a manufacturing corporation, for example, wants to grow the number of facilities it owns, it can use an offering memorandum to fund the expansion. When this occurs, the company must first select how much money it wants to raise and at what price per share it will do so. In this case, the firm needs $100 million to fund its expansion for a $60 cost per share.

Importance of Investment Memorandum

An investor memorandum is significant since it explains if the company is a good or terrible investment. The memorandum serves as a business overview or a revised business strategy.

It allows a company to demonstrate its strengths and why it is a good investment.  Its significance extends beyond the fact that it is a required document in the investment process for sellers and investors. The document protocol aids the investor in comprehending the investment’s prospects, potential dangers, prospective returns, activities involved, and overall capital structure.

The offering memorandum protects the investor and the issuers of securities. The issuer must adhere to all SEC requirements to the letter (Securities and Exchange Commission). The Securities and Exchange Commission (SEC) promotes investor fairness by protecting investors in the securities sector from false information and assisting investors in making educated decisions when investing large sums of money.

The offering memorandum also gives the vendor a professional appearance. Investors will not put their money into companies that do not appear to be well-organized or experienced in their field. Memos are a simple approach for stakeholders to generate opinions about a concept. This is especially true when discussing a memo with possible investors, but it also applies when utilizing a memo to make a product or strategy choice. If an investment memorandum is well-designed and complete, it may be an indirect marketing tool.

What is included in the Investment Memorandum?

Investor memorandums usually provide information on the company’s structure, financial risk and health, and other pertinent information. This information aids an investor in determining if the risk is acceptable in exchange for the business’s prospective profits. A typical memorandum has the following items:

Outline of Investment Memorandum

Outline of Investment Memorandum


The initial pages of the offering document include a brief description of the firm, its principal operation, and all “legends” needed by federal and state securities regulations.

Summary of the Terms of the Offer

The firm’s capitalization –before and after the offering – should be included in this part, which is usually the form of a term sheet. Liquidation preferences, conversion rights, anti-dilution clauses, voting rights, and other investor protection provisions may also be incorporated.

Factors at Risk

A PPM will list any risk factors that the issuer can think of that might affect the investor’s investment, including both generic risks that apply to comparable investments and risks specific to the issuer and its securities Concerns might include, for example, reliance on a strategic relationship, reliance on a limited number of individuals, or competitive risks.

Description of the Company and Management

This part offers the company’s history and discusses its goods and services, the industry, goals, competitors, advertising and marketing strategy, suppliers, intellectual property, client descriptions, and other essential information the investor could find helpful. Biographical information, specific abilities, and additional background information will be included in management information.

Use of Proceeds

A corporation must explain how it intends to use the net funds generated from the offering and the estimated amount anticipated for each purpose. This allows the investor to see how their money, as well as that of others, is being invested is used

Securities Description

The rights, limits, and class of securities being sold are described in this section. It should also indicate the company’s ability to adjust its capitalization through multiple shares and dividend distribution types.


Exhibits allow a business to present additional information and documents that may be relevant to an investor’s choice. Copies of investment contracts, financial statements, the issuer’s organizational documents, essential agreements, licenses, and other documents may be included as exhibits.

Tips for Writing a Perfect Investment Memorandum

An investment memorandum can be prepared while keeping in mind some points like making it simple, preparing a layout, mentioning transparency about risk, including the investment’s terms, etc, these are further discussed below:

Writing tips for Investment Memorandum

Writing tips for Investment Memorandum

Make it simple to comprehend

Clarity is essential. It’s critical to take your time and speak in a manner investors can comprehend. Their primary objective is to grasp the possibility and develop a business plan. If you use jargon in your investment memoranda, you risk attracting the wrong attention. Keep things simple; don’t throw folks off by making things too complicated.

Optimize the layout

Include a summary of the firm and the market. An overview of your products and services, competitive analysis, your target audience, and your financial model should be included. Use graphs and charts to concisely communicate essential information while making your investment memorandum. More aesthetically appealing. This is very beneficial when dealing with financial data. Using a bar chart to share sales growth, for example, emphasizes how quickly you’ve expanded and is simpler to read than a standard table.

Be transparent and upfront about the risk

Nobody enjoys being surprised. As a result, rather than the fund discovering risks during due diligence, set them out in your investment memorandum early on.

Include the investment’s terms

Outlining the financial project’s goals is an intelligent thing to undertake. Determine if the funds will be utilized for expansion, acquisitions, or working capital.

Make sure your financials are in order

This is the most crucial aspect since it is the key to receiving high-level term sheet offers. You must supply a complete financial statement that contains the following information:

-Gross revenue

-Flows of funds


-Profit and Loss Statements



Use statistics from the previous two years and an estimate for the following five. This allows potential investors to run their numbers and see if you’re a reasonable risk. Be as specific as possible.

Why Magistral Consulting?

Magistral consulting prepared a Private Placement Memorandum for a large land parcel amid a mega-global city and successfully analyzed cash flows and returns from all scenarios. It also used to raise over 40 million USD worth of co-investments.

Investment Memorandums

Magistral consulting provides investment memorandum services for Funds, Properties, Farms, Luxury Hotels, Land Banks, Islands, Resorts, etc.

Analysis of Valuation

Using techniques such as comps, precedent transaction research, and leveraged buyout to determine the company’s fair market value.

Primary Research

Exploratory interviews with all stakeholders at Target Company, including management, workers, ex-employees, vendors, and investors, to identify any red signals.

Company Profile Data

To ensure that the memo is completed in its completeness, we gather all the company-specific data and all the questions that may be asked.

Detailed Financial Analysis

We provide a complete financial review utilizing all essential characteristics from balance sheets to income statements.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is in Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com