How to Write a Deal Memo

Everyone running a startup knows about the deck.

There are countless tutorials about how to write this PowerPoint presentation that forms a key part of a startup’s pitch. Shoot, I’ve even written one.

But what about the deck’s mysterious cousin: the deal memo?

Founders generally send potential investors a deal memo along with the deck when they’re trying to raise money. You would generally send one once you’ve confirmed some interest from the investor. (For the first introduction, a short deck is good.)

But when an investor is ready to take a serious dig into your business, it’s time for the deal memo. So what does a good deal memo look like?

I see over 200 of them every month as an investor. Here are how some of the best look:

Length

Generally more than 2 but fewer than 10 pages. About 6-8 pages is good.

More important than the exact length is that you cover important elements thoroughly but concisely.

Which brings us to…

Topics

Here are the sections I like to see, ideally in this order.

A paragraph or two for each section is good.

  • Deal Terms: How much are you raising at what valuation? And what type of security is it (SAFE, priced round, etc.)?
  • Prior Investors: Who has invested before and who is investing in this round?
  • Company Description: What do you do?
  • Traction: Show us your revenue growth in a monthly or quarterly chart. If you have no revenue, at least show us user growth. You should also compute the growth rate for the last 6-12 months using a tool like this.
  • Market Opportunity: How big is this market? Show VC’s that your market is big enough for you to become a billion dollar company, because that’s what they’re looking for.
  • Why Now?: Why is now the right time for this company to dominate? Why is the market ready? For example, imagine starting a videoconferencing company in 2019 versus 2020. The 2020 market would’ve been far more receptive.
  • Why Us?: Why are you and your team the right people to take on this problem? Tell us about your skills and also why the problem matters to you. If you’re solving a problem you’ve had yourself, you’ll probably be better at it and less likely to quit.
  • Competition & Defensibility: Who are your competitors, and why is your solution better? Many companies say “We don’t have any competitors. No one else does what we do.” That’s usually not a good answer. Maybe no other company does exactly what you do, but who is close? And why are you the better bet?
  • Use of Funds: What will you use the money you’re raising for? A simple breakdown like 60% engineering and 40% sales is fine.
  • Hiring: Who are you hiring now? Investors might be able to introduce you to a great candidate!
  • Key Risks: What are the top few reasons this business could fail? For example, you may struggle to hire talented engineers in this tight labor market.

Wrap-Up

Writing a good deal memo is a lot of work. But when investors are seriously considering your company, this document can seal the deal.

Leave nothing to chance! Get the deal memo right and give yourself the best shot at a fat check.

What questions do you have about deal memos? What did I miss?

Leave a comment at the bottom and let me know!

Glad to be back with you guys for another fun week! 👋

More on tech:

How to Ace a 3 Minute Pitch

The Lean Startup

Robot Pizzas and the Future of Fast Food

Photo: “Asleep at the Wheel” by Aaron Jacobs is marked with CC BY-SA 2.0.

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been great so far.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me.

Every fruit and vegetable is super fresh and packed with flavor.

I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

3 thoughts on “How to Write a Deal Memo”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s