The Investment Committee Memorandum
When venture capitalists consider startups for investment, they follow an extensive review and selection process. For the ventures that make it to the end of the process, the lead responsible for the deal creates a document, usually a word document or slide presentation, capturing the conclusions from the extensive due diligence conducted. This document is called the Investment Committee (IC) Memorandum (aka ‘memo’) or the IC Deck. This post is an outline of an example IC memo and what it entails.
The reason the document is called the ‘Investment Committee’ memo is because it is the official communication from the lead on the deal to the investment committee. The Investment Committee (IC) is the group of individuals that review the contents of the communication and the due diligence to decide if an investment should be made. The IC usually includes the primary partners of the group and may include subject matter experts. Official voting members of the IC differ by fund. IC memos are the official document capturing the investment suggestion by the investment team of the fund to the committee and usually reviewed by limited partners who are considering investing in funds.
Below are the 17 sections and description of a Rebel One IC Memo.
1. HEADER:
The header of the memo is a table with key information relating to the startup. In this table the author of the memo enters the company name, the author’s email, the deal lead, the author’s name, the date, the closing date for the round (even if it occurs in the past), the total round size, the allocation (amount of investment in the round set aside for the firm), the ownership of the startup that investment represents, the valuation or cap, the head quarters location, the stage, the focus area (industry and/or segment), year the startup was founded, the major investors, a short one-line description of the venture, and the intended recipients — usually the people on the investment committee.
2. SUMMARY:
A brief description, 3–5 sentences, of the new venture starting with the recommendation of the lead. Example as follows:
At this time after extensive due diligence, I, {Lead’s First and Last Name}, recommend {our fund} invests $500K as an equity investment in the current round closing 2/1/XX in Amazing Startup, Inc. The following includes a detailed summary of the due diligence conducted and the fundings of the lead serving on the Rebel One’s team.
Amazing Startup, Inc. has created a products tailored to address the needs of individual retailers and consumers to deliver end to end secure and decentralized e-commerce capabilities. The Company’s web-based, integrated platform enables consumers to monetize with minimal effort, either through an in-store experience or online. Using the Amazing Startup, widgets are monetized by consumers as instant credit toward a new purchase or tax-deductible charitable donation.
3. PROBLEM:
A brief description, 1–2 sentences, of the problem the solution is aimed to solve. Being as specific about the target user and customer is preferred. Example as follows:
XX million sole proprietorships in the United States cannot easily transact with unbanked customers that do not have access to credit.
4. PRODUCT / SOLUTION
A brief description, 2–3 sentences, of the solution or platform. If there are multiple solutions, describe each of them briefly. Example as follows:
Amazing Startup has created a suite of products tailored to address the needs of retailers, consumers, warehouses, and non-profit organizations:
Product Name 1 — provides independent retailers with the ability to put products up for sale as well as execute transactions. The software manages the workflow for the account management in secure and decentralized application.
5. BUSINESS MODEL:
A brief description, 2–3 sentences, on the pricing for each of the products and services. Example as follows:
Product Name 1 — The Amazing Startup e-commerce platform is available to merchants at $19.99/month and 2.5% fee on all transactions.
6. MARKET:
A brief description, 2–3 sentences, with the pricing for each of the products. The Total Addressable Market (TAM) is the annual price of the product times the number of potential customers in the U.S. (or relevant country). For more on market sizing see this post.
If your user is different than your customer, describe both your user and customer in this section. An example is Facebook, where individuals with a profile are ‘users’ and ‘customers’ are companies or individuals paying for adds. Example as follows:
The target market for the Amazing Startup e-commerce platform is the 5.6 million employer firms in the United States with fewer than 500 workers. At an annual cost of $239.88 ($19.99/month x 12 months), the total addressable market is $1.3B USD.
7. GO TO MARKET:
You enter the partners that help the new venture reach customers in this section and distribution strategy.
8. COMPETITION:
A description of the top competitors or alternatives, 2–3 sentences each. Share how they are similar and different. You should include a 2x2 of the startup on how it is different than other startups and a features comparison at the start of competition section. Example as follows:
Famazon — a major online retailer that sells goods and services from other established stores as well as from individuals. Individuals are able to create digital store fronts and customers can browse and purchase goods online. Payment transactions take place over the platform. Shipping is handled by the merchant and store owner. The platform does not operate in a decentralized manner and only credit-bearing and banked individuals can transact on the platform.
9. TEAM:
A description of each of your team members, 2–4 sentences each. Include title, education, work history, and relevant attributes that communicate ‘Founder-Market Fit’. Example as follows:
First Last — Chief Executive Officer — Prior to co-founding Amazing Startup, Ms. Lauren Jimenez co-founded RateMyMerchant, one of the first eBay drop-off stores on the East Coast. She served as the Head of Marketing and Business Development at BigBox Retailer. She worked in a startup which developed a proprietary application that allowed online retailers to provide financing options to their customers, and he also worked as a consultant for OnlineConsultant.com.
10. FINANCIALS:
The lead should have reviewed the financial model provided by the founder and replicated the 24+ month cash flow analysis to understand the core assumptions and variables driving the success of the business. In this section you extrapolate the net revenue over 5 years and align them with key milestones to understand what is necessary for the business to achieve those goals. More details, if needed, should be included in the appendix. Example as follows:
Include the detailed analysis and all assumptions in the appendix and also the data room supporting the due diligence committed so the investment committee can reference and analyze.
11. EXPENSES & UNIT ECONOMICS:
The expenses and unit economics provide more insight into the financials. In this section you detail the primary fixed and variable expenses. Adding a normalized cashflow of expenses to the appendix is informative to identify the largest areas of spend to grow the business. Primary items included in this section are the cost of customer acquisition, the anticipated lifetime customer value, and the components of each of those estimates detailing the calculation.
12. TRACTION:
Primary backward looking ‘traction’ metrics are active users, number of paying customers (if they are different than users), and growth rate (if varies greatly from month to month, use the 3 month trailing average). Forward looking metrics are total value of ‘booked’ revenue (value of signed agreements, binding and not yet delivered), total number of customers in the pipeline, number of customers with Memorandums of Understanding (MOUs) or Letters of Intent (LOIs) and total value of those MOUs and LOIs.
Aside from revenue, active users, or paying customers — which are the strongest form of traction in venture, you can detail your product milestones completed including the number of pilots and or other advancements such as official partnerships.
13. IMPACT:
Rebel One Ventures is an early stage venture fund and we assess the the competitiveness of the investment relating to the team, financial metrics, product, as well as current and future impact. We look at impact externally, relating to how the product or service creates a positive impact in the world in alignment to our zero goals and also internally, relating to the diversity of the founding team.
14. MAJOR RISKS:
As the lead conducts due diligence there is inherently areas of risk that are identified. This section is for the lead to detail what the major variables of risk are that impact the success of the investment and ultimately the venture in an effort to mitigate this risk as we support the startup. Example in one of our investments, the night before the investment committee after our analysis was complete the founder informed the team that they were leaving the startup and appointed a successor. This factor dramatically shifted the position of the team and we decided that this risk, among other factors, altered the position of the investment team and we declined to invest. Anything can happen and the deal is not done, and the deal is not done, until it is agreed to by the team and money is wired.
15. REBEL ONE VALUE ADD:
For individuals on the investment team, this section may seem obvious, but detailing how your fund adds value to the venture points to clear action items that the fund and the startup can take to assure the startups success.
16. NEXT STEPS:
Lastly, there may be recommended action items beyond the investment that need to details. This section is meant to define any pending due diligence that may not have been completed by the investment committee date, or any last minute notifications.
17. APPENDIX:
Every startup is unique attributes and may require analyses from tracking activity of daily and monthly active users by cohort, to utilization of equipment, to expansion plans supporting the use of funds and more. These analyses should be located in the appendix and the insight from the analysis listed in the appropriate section of the memorandum.
This document is sent to the investment committee, reviewed in detail during an investment committee meeting and results in a decision to invest, a decision not to invest, or follow up due diligence needed to render a decision.
If you have any comments or found the post useful, leave a comment — we are always looking for feedback. If you are looking to learn more about venture capital and actually invest, check out Rebel One’s Investor Training Program.
Best,
