This article is a perspective for junior investors on how to write a compelling internal deal memo on behalf of founders.
When I started at Primary, I was anxious about representing the companies I was seeing in the right way internally at the firm. When I wrote my first executive summary, I got too much into the weeds of the company. This is my framework for pitching a company internally and representing the founder well. While there is no perfect formula for writing an internal memo, I hope this will limit any anxiety that junior investors and even founders might have about this process.
You’ll notice the first section of the report, the executive summary, I’ve listed last, because you probably want to write it last. All the main sections will inform your perspective for that short, key-takeaway topper.
Market
In most cases, unless the “problem to be solve” is very obvious, you’ll want to set the scene by talking about the market.
- What is the market specifically, where is the market, and how large is the market?
- What is the key insight on this market? What characteristics make it unique? Why now? What is the non-intuitive surprise or shift that we need to give to the reader?
- How can the company expand the market over time?
It is important to get into the specifics of the total addressable market (TAM) and not just the market generally: How do the market insights you’ve gathered relate to the company’s business model? A great memo will note how the TAM will expand through additional product offerings.
Competition
Related to the market information, an investment memo needs a snapshot of direct competitors and legacy solutions, and where they fall short. Then relate this back to how the company you are pitching can fill the gap. In other words, how does the company meet the problem in this market where others have failed to develop a total solution?
Product
After explaining why current solutions just don’t do the trick, I dive into why this product or service does.
- What is the product today?
- What will the product be?
- Why will it be possible to achieve that vision?
- What is the problem they are solving and for whom?
- What other problems can they solve with expanded product offerings?
Each of these bullet points can be a sentence each. Where it is helpful, I have leveraged visuals from the founder or ones that I have created to illustrate the product, which makes it easier for the reader to follow the narrative.
GTM & Traction
Now that the reader understands the market, what products and services currently exist, and why this product is better than the rest, the logical next question is how the company will get this product to the end customer? I focus here on brevity. The reader just needs to know what the company has been able to do thus far. The objective here is to establish credibility and really sell the company to the team as one that has traction and can scale quickly.
- How have they managed to garner such traction?
- How far have they come? What are the key milestones?
- Where will they be in 12–18 months?
- What specifically is the go-to-market strategy?
- What is the secret sauce? How can they accelerate customer acquisition at lower costs? Shorten the sales cycle?
This is incredibly important! It doesn’t matter if this team can build the best product in the world if they cannot distribute that product to real people that need it (esp. in a cost-effective way).
Business Model
With the go-to-market covered, you’ll next need to talk about how the business makes money with the customers that strategy brings in. Lean on the operating model as much as you can.
- Set the stage: review founder material on pricing, tiers, and model.
- Validate that information: Does it seem reasonable? Why are competitors not charging as much or as little? If they haven’t started making sales, what are competitors charging?
- Does the model make sense for this business?
- As they offer new products, what will they be able to charge?
Team
The big question here is if the team can execute on the vision they set forward for the company. This should tell the story of the whole team, not just the founder(s) or CEO.
- Why are they uniquely positioned to build this company?
- What are their capabilities?
- Where is the team today?
- How do they grow over time?
- Can they execute on the vision?
- If not, what is the plan to fill the gaps with people who can?
Executive Summary
Finally, I will write the executive summary. The executive summary usually goes at the top of the memo, but I write it last, once I have the entire story together. All the preceding sections should inform this quick, informative intro to your memo.
It sounds simple, but the challenge here is to write three short, compelling sentences covering the following three questions to start:
- What is the company?
- What exactly do they do today?
- What exactly will they do in the long term?
If it feels like the executive summary is starting to describe or justify the product in this section then it has gone too far. Frame the company in terms of the problem it solves. If the members of the team read nothing else they should be able to understand the broad strokes of the company from this section. The following should also be included somewhere in your executive summary after the above questions.
- What exactly should the team know about this founder and team?
- How much money are they raising?
- To what market are they selling their product and how large is the market? Try to consolidate the broken process that exists today in the market into a few sentences rather than devote an entire paragraph to describing the journey which again is valuable context but not useful in an executive summary.
- What does their traction look like?
- What was their go to market strategy (GTM)? The initial go to market strategy may be innovative and strong and may never need to change but the odds are that the company will need to think about strategy in a bit more detail moving forward and how it will change. This is one section of the executive summary that is worth spending a bit more time building out. It may be useful to use bullet points to make it very clear to the reader what benefits this product brings to its core customer.
The final part is the investment thesis. Every firm is different on what they believe should go here. The investment thesis(es) should focus on what we believe about the market and the team (at least at the seed stage) and any unique insights that we might have on the market and team. The investment recommendation should continue the narrative being built up until this point.
At Primary we use a framework called “Gotta Believes” which are hypotheses that we can test throughout our diligence process. The best way to understand these is, what needs to be true in order for us to want to continue to do more research.
A theme to pay attention to in this section is to not provide too much detail but to scale back and tell the one line summary for the reader. This section should be relatively easy to write after writing the other sections first.
Blind spots
It may seem counterintuitive, but I am very clear about the bad eggs. I don’t have to completely sell the company in the memo. It’s okay to not have everything be perfect. I try to be very clear on what the execution risks are and what milestones need to be hit for the Series A.
Conclusion
In conclusion, memos are important documents that translate hours and hours worth of work that investors put in while conducting diligence with a company and a team. No one will ever see that diligence work but they will see the memo. The entire memo should be concise in delivery. It is essential that it communicates effectively to the team why the opportunities presented are compelling opportunities. The founders are counting on us to pitch them so that they can continue to build and make the world a better place.
Thanks for reading,
Kai Cash @kuaicash