Capital Raising: When Do I Use an Information Memorandum and Why?

If you are wondering when you can utilize an Information Memorandum, you need to know that as per Australian Law, you can use the Information Memorandum only for certain kinds of security offers comprising shares or options. The Corporations Act- Section 708 sets out exempt offerings and includes small scale offerings and provides to professional and sophisticated investors.

When should I utilize the Information Memorandum (IM) in practice? An IM is mostly used when raising large amounts or for later-stage venture after initial rounds. It is possible to select and develop an Information Memorandum (IM) for the beginning round of investment, however, it is not marketplace practice. The starting stage investors will not prefer to read such detailed and long document. Moreover, a beginning stage startup company will not have entire information that an IM usually contains.

What does an IM include?

An IM is a marketing file, but it is important to include accurate and comprehensive details about the business. Question yourself, what details should be included If you wish to buy a company. Information Memorandum contains information about a business for approximately 60 to 75 pages. It does not contain the same details present in disclosure documents or in a prospectus. You do not have to lodge it with Australian Securities and Investments Commission (ASIC). It is a detailed document including:

  • Service or product or technology: You should clearly describe what products or services or technology your company sells. What does your business do? Describe the advantages and features compared to the competitor’s services and products. Outline the service or product development plans. How do you improve the product range? How will you continue innovating?
  • Purpose, goals, and performance: What is the purpose of your company? What are the present goals of your company? How the goals can be achieved?
  • Management team: Who plays an important role in the management team? How many members are there in your management team? What is their specialization? Include a brief report of each person covering their skills and how they are useful to the success of the business.
  • Legals: Describe the intellectual property rights of the company including know-how, intellectual property rights, trademarks, and proprietary technology. Does your business have any registered trademarks? If so, what are they? Does your business have any patents?
  • Market: What is your potential market? Describe the opportunities. Do not mention
    general custody statements like the market’s size is $X billion and you are aiming to
    acquire X% of the market. Ensure to include brief growth prospects and size for the services or products that the company offers. Include progress till date and how you would accomplish this expected market share.
  • Financials: Describe up to three years of financials covering pre-tax, gross profit and sales reports. Discuss growth and results till date together with the results that were lower or higher than projected.
  • Funding: Offer clear details about how you will utilize the funds and why you will utilize including time frames and milestones.

It is also necessary to concisely explain the above details in the Executive Summary.

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