Information Memorandum

This is a series of headings for an Information Memorandum to be put before an investor, venture capitalist or equity stakeholder seeking funds.

Before this step, the founder has to give thought to be the dollar amount sought and the amount of equity surrendered.

This equity raised will depend on the valuation of the business.

Too often the equity for sale is offered as a minority interest where the valuation is excessive and seldom will an investor go any further. The reality of life for those seeking investor funds is that ‘control’ has to be surrendered and as a minimum a partnership has to be agreed on where decisions that need all to agree on are spelt out clearly.

This Shareholder agreement must cover, amongst other things, future salaries of the founder otherwise the future profit will never be converted into dividends to the investor.

Dependant on the interest of the investor will be the stage of development of the company – is the entity a:

• Start-up high risk venture with no track record.
• A small entity – over 5.0M in value but looking for partners.
• A medium sized entity looking to expand into new markets and needing more capital.
• A mature entity seeking a buy out, a Management Buy Out (M B O), or shareholder buyout.
• The founder should define the partner with funds that is sought. It may be a silent partner or one that brings management skills, technology, marketing or other attributes to the table.
• Often dividends and control are mixed up. It may be possible to offer one third of the dividend yet half the votes.

Headings

• Limitations as to whom the IM is directed – Chapter 6D corporations Act.
• A Directory – of bankers, accountants, lawyers, advisors, brokers, and insurers, directors, existing shareholders.
• Executive summary – including a S W O T. – the amount sought, the percentage offered, returns + how and when, what the funds will be used for.

• An overview or background of the products, its USP.
• The industry overview, the scope or total size, the percentage sought, the competition, the way it operates.
• The business plan – in summary
  • Marketing
  • People
  • Quality, inc. production
  • Risk
  • Financials, inc. cash flows and budgets
• The financial plan – in more detail
• A valuation based on a discounted cash flow, profits, dividend returns, asset basis. Intellectual property and good will valued by an independent expert.