How to Write an Alternative Investment Memorandum. Part 2. By Rosamond Stenhouse.

Please note that I am not a financial advisor I am an entrepreneur now a business mentor/consultant who built, with a co-founder, a 100 million fund in the past 100 showing a net of 17% per annum to investors.  During a recent conversation with a global business owner, it reminded me that if you aren’t from the investment world, it’s an absolute minefield, hence this series. My 2 pence to shedding some light, so you're better equipped to engage the necessary advisors.

Creating an Alternative Investment Memorandum (AIM) requires a well-structured document that provides potential investors with detailed information about the investment opportunity, including risks, returns, and strategies. Here’s a guide on how to develop one:

Page 1.

1. Executive Summary

• Objective: Clearly state the purpose of the investment, the target amount, and what the funds will be used for.

• Key Highlights: Summarize the key points of the investment, such as expected returns, investment horizon and any unique features that make the opportunity appealing.

NB. "Include as much education to the reader as you can provide, in alternative investment funds, you will have a portion of Investors who won't specialise in your industry. Remember, the most valuable clients you can ever have are informed and educated investors, if they are not, they are a liability. We had to educate some big companies covering our industry because our area was so niche.

Page 2.

2. Investment Strategy

• Type of Investment: Explain what type of alternative investment this is (e.g., real estate, private equity, tech fund, sports fund, strategic land fund, hedge fund, venture capital, etc.).

• Market Overview: Provide an analysis of the market in which the investment operates, including trends, growth potential, and competitive positioning.

NB. "Don't skimp on up-to-date sources to every piece of data it is precious backup information to your overall argument for the Investor as to "Why you?" Why is your offering better than the hundreds of other investment offerings available to them?"

• Strategy Details: Outline the specific strategy for achieving returns, including any sectors or assets you plan to focus on.

NB. "Remember, just because you are providing a serious document doesn't mean all the end users like nothing but words. Some people process through graphs, some need pictures, and some only like words. Include all these types in your memorandum."

Page 3.

3. Management Team

• Team Bios: Provide background information on the key members of the management team, their relevant experience, and why they are qualified to execute the strategy.

NB: the management area is a fine balance, even if you know you have the expertise and experience, Investors like to see big names and significant track records, If your niche, that's hard to achieve. You also need to manage costs in the early fundraising six months; one option is to communicate and agree with the management team they roll up fees till success, and fund stabilisation is achieved, a risk mitigation decision.

• Track Record: If available, include the historical performance of similar investments made by the team.

Page 4.

4. Investment Terms

• Minimum Investment: Specify the minimum amount that investors need to commit.

• Investment Horizon: Define how long investors are expected to stay invested.

• Liquidity: Detail how and when investors can liquidate their investment or exit.

• Fees and Costs: Include any management fees, performance fees, and other costs involved.

NB. While many Memorandums mention exit plans, the specifics around market conditions that could impact the exit are often overly optimistic or vague. Avoid that you are protecting yourself. The other area is valuation methodology, ensuring it's presented with sufficient detail behind the assumptions.

Page 5.

5. Risk Factors

• Market Risks: Highlight the external risks, such as economic downturns or changes in market conditions, that could affect performance.

• Operational Risks: Identify internal risks such as management issues or liquidity constraints.

• Regulatory Risks: Note any legal or regulatory risks that could impact the investment.

NB. Don't be afraid of highlighting risks they are your allies.

Page 6.

6. Legal and Tax Considerations

• Legal Structure: Explain the legal structure of the investment (e.g., limited partnership, LLC).

• Tax Implications: Discuss any tax benefits or liabilities that come with the investment, including the potential for deferred or reduced taxes.

NB. "Please see my previous document on "Jurisdictions" as tax has massive impacts if you are in the wrong jurisdiction for your target audience or aren't up to date with changing legislation.

Page 7.

7. Financial Projections

• Expected Returns: Provide estimated returns, including both best- and worst-case scenarios.

• Use of Funds: Detail how the raised funds will be allocated.

• Exit Strategy: Explain how the investment will be realised and returned to investors (e.g., sale of assets, IPO, etc.).

NB. Remember thinking your fund is going to be an immediate success post-launch is not a wise thought. Few are. As with everything in business, whatever you think involving time frames, times it by three and manage your cash out from that point. Another big mistake people make is unless your fundraising has been running for six months, no one knows if your chosen fundraisers are the right ones, so keep talking to the investment community to see who is raising what and where.

Page 8.

8. Due Diligence

• Supporting Documentation: Attach any market research, valuation reports, and legal opinions that support the investment opportunity.

• Performance Metrics: Include key performance indicators (KPIs) or benchmarks to track the investment’s success.

Page 9.

9. Appendix

• Additional Information: Attach any additional data, charts, legal disclaimers, or agreements necessary to support the memorandum.

By ensuring the memorandum is clear, comprehensive, thorough and well-organized, you can give potential investors confidence in the opportunity. Legal and financial professionals should review the document to ensure accuracy and compliance.

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