Understanding Investment Memos

What Is an Investment Memo?

An investment memo, also known as an investment recommendation, is a document that outlines the key details and analysis of a potential investment opportunity in early-stage venture capital. It is prepared by a venture capitalist or an investment team and is used to communicate the merits of an opportunity to potential investors or partners.

At Render Capital, we use an investment memo for every opportunity that warrants the final stage of our investment process, taking the deal to the investment committee.

Broadly, the investment memo for most venture firms typically includes a detailed description of the company, including its products or services, market opportunity, and management team. It also provides an overview of the competitive landscape, market trends, and potential risks and challenges. The memo may include financial projections and an analysis of the company’s valuation, the investment it has raised to date, and the current offering of this round of funding. The investment team uses this information to make a recommendation on whether to invest and at what valuation.

Below, I’ll go into more detail about exactly what is in the first section of our investment memo. Founders we have funded before, or founders currently in our pipeline, will notice how and why our questions are so specific to each of these areas. Recently, I’ve seen several firms encourage founders to fill out a template like this as part of their investment pipeline process. It reduces friction while enabling founders to understand what we look for, without scouring the entirety of their diligence folder.

Key Areas of the Memo

Company Overview: This section is straightforward. We boil down what the company does, what problem it solves, and the overall investment recommendation, including why we have enough conviction to invest in this particular deal.

Deal Overview: This area covers the terms of the round itself. What type of “paper,” or style of investment, will the company be entering into? SAFE, priced round, and convertible note are all forms of investment typical in the early-stage venture landscape.

Pre- and Post-Money: These are important pieces of the equation, because they can swing ownership a couple of percentage points depending on the size of the fundraising. Pre-money valuation refers to the value of a company not including external funding or the latest round. Post-money valuation includes outside financing or the latest capital injection.

Ownership Interest: This matters because most venture firms use it as part of their internal calculus for how much of a company they want to own or secure before an exit transaction.

Key Metrics Explained

Runway: How much capital, in months, the company has before it has to fundraise again. This is essential, as the venture fundraising process is largely a full-time job for the founder and takes four to six months from an initial conversation to checks being written. That translates into the founder not being able to focus on growing revenue or building the product. With that in mind, most venture-backed startups raise at least 12-18 months of runway, for two reasons: to get back to building without worrying about fundraising for another 8-12 months, and to give them enough time to hit the next tier of metrics in order to increase their valuation. As a side note, at Render Capital we typically target companies that have roughly $50k in monthly recurring revenue (MRR) and are growing 30% quarter over quarter (QoQ), with the goal of reaching roughly $150k a month in MRR for their next fundraise.

Current ARR/RR: The company’s current annual recurring revenue.

Pricing Strategy: This is key, especially as we look at companies that largely sell B2B. Pricing and contract values need to be large enough to earn revenue at a quick enough velocity, while providing outsized value to the customer. Your pricing should reflect the value you provide, but you don’t want to be such a large portion of a business’s budget that the product becomes an easy target for budget cuts if it isn’t performing.

ACV: The average contract value for the product to its customers. Most of our enterprise B2B companies have a mid-five-figure or low-six-figure contract value, and ideally have 10 or more customers when we invest.

Customers: Understanding customers is key not only to furthering sales but also to the ability to upsell, or “land and expand,” the current revenue base. If a startup initially sells to one business unit and can then expand within that unit or across others as the product proves value, that matters. This is true even with our CPG investments, like ZeroCarb Lyfe, which sells direct to consumer and B2B. In this section we want to understand (1) your ideal customer profile, (2) how many of those ICPs you have landed, (3) the budgetary capacity of those ICPs, and (4) your ability to sell into and expand across the organization from that original entry point.

Highlights / Key Risks: A high-level synthesis of the data and insights gained from the other sections.

Glimmer of Greatness: This is all about the exceptional goal and ultimate vision for the company, the one that drives toward an exit value north of $500M.

Although this isn’t a comprehensive list of everything in our investment memo, the hope is that, with a deeper understanding, you can begin to outline the key factors that set your investment up for success.