Equity, debt or private placement: how do you choose a funding route?
How to choose between equity, debt and a private placement: what each costs, what you give up, and the questions that decide the route for a mid-market company.
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An information memorandum is the detailed document a seller or fundraiser gives serious investors after they sign an NDA. It sets out the business, market, financials, forecast, management and the proposed transaction. It matters because investors judge quality and credibility from it, and the financial model behind it must agree with every number.
Where it sits in a process
- Teaser. One or two anonymous pages that test interest.
- NDA. Interested parties sign a confidentiality agreement.
- Information memorandum. The full story, in writing.
- Management presentation and data room. Questions answered and documents opened for diligence.
What it should contain
| Section | What it answers |
|---|---|
| Executive summary | Why this is worth the investor's time, in one page |
| Business overview | What the company does, for whom, and how it makes money |
| Market and competition | The size and direction of the market and where the company stands |
| Operations and people | How the business is delivered, and who runs it |
| Historical financials | Revenue, margins and cash flow, with clear accounting policies |
| Forecast and assumptions | Where the business goes next and what must be true to get there |
| Investment highlights and risks | The case for investing, and the honest risks |
| Transaction overview | What is being offered, how much is sought, and how the money will be used |
Why it matters
- It sets credibility. Investors read for consistency, and inconsistencies make them doubt everything else.
- It filters the market. A clear document attracts serious investors and saves management time.
- It anchors negotiation. Claims in the memorandum are later tested in diligence.
It must match the financial model
Every figure in the memorandum should trace to the financial model, and the model should trace to the accounts. Investors compare the three. A forecast that cannot be reconciled to past performance usually costs more credibility than a modest one.
Common mistakes
- Hockey-stick projections with no stated assumptions.
- Leaving out customer concentration or key-person dependence, which diligence will find.
- Different numbers in the teaser, the memorandum and the presentation.
- Writing for yourself instead of for an investor who knows nothing about your sector.
A note on regulation
An information memorandum is a market-practice document, and no single rule fixes its format. If you offer securities to investors, company law and, where relevant, SEBI rules govern what you can say and how you offer. Take legal advice before you circulate one.
Sources and further reading
General information based on market practice and the official sources above. Rules change, so check the current position with your adviser before acting. See our disclaimer and the M&A glossary.
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