A Template for Startup Executive Summary or Investment Memo for VCs

Useful for Founders and Investors

9 min readMar 13, 2018

Update: I wrote a book. “Super Founders”

I spent another two years after the publication of this article gathering the same data on non-unicorn startups, so I could accurately compare what differentiates billion-dollar startups from those that failed to become one. This is the first such study that has been done with over 30,000 data points. I also interviewed founders of 15 billion dollar startups including Zoom, Nest, GitHub, Cloudflare, PayPal, Affirm, Brex, Kite Pharma, Instacart, as well as VCs like Peter Thiel, Elad Gil, and Alfred Lin (Sequoia Capital), Keith Rabois (Founders Fund). You can pre-order the book now!

https://www.amazon.com/Super-Founders-Reveals-Billion-Dollar-Startups/dp/1541768426

We all very well know that writing a 100-pages-long business model to raise funding for a startup is outdated and not used in the industry, at least not at the stages where VCs invest (Maybe some growth stage investors still need business models).

Pitch decks are the main method for founders to show venture capital investors what they want to do to and what their startup is all about.

Some VC investors write investment memos about the companies they invest in and some don’t. Mainly the purpose of the memo is for a partner in a VC firm to present their case to the other partners on the opportunity and why the partnership should invest. It is also a useful document to record how a VC firm thought about the startup at the time of funding and reflect back later to improve their investment strategies.

The investment memo gives perspective on how the VC thinks the market will evolve, insights they have from portfolio companies, the market size they think is more realistic (compared to what the startup pitch deck mentions), their assessment of the team and their needs, etc. Obviously, these kind of information are not found on the pitch deck provided by the startup.

Investment Memos almost always remain confidential. A famous investment memo that has become public due to a lawsuit is Sequoia’s Roelof Botha’s Investment Memo on YouTube.

It is important for startup founders to understand how VCs look at and evaluate startups (which is mostly from the perspective of risk: ideally a VC wants to take no risk on the team and either take the market or the product risk, not both). Preparing an executive summary can help founders create better pitches by making sure to talk about what the VCs want to hear.

It is an advantage for founders to prepare an executive summary, which is similar to a VC’s investment memo, when fundraising. Why not prepare the document that the VC partner wants to write later on to convince her/his partners?

I have written investment memos for a number of different startups, from Pre-Seed to Series B. I haven’t invented anything new here and just tried to put together the best of internet. I wanted to share the investment memo template in case other people, VCs or founders, found it useful. Please note that this template is geared towards a series A/B company, if the company is at earlier stages and don’t have the information, feel free to remove. (Note to Founders: think twice before deleting a metric/section, even if you are very early stage, maybe there is a way to estimate that metric or info, the VCs want to know everything)

Investment Memo/Executive Summary

Partner Name/Founder Name— VC Name — Startup Name

Overview

(Just one or two lines for each section, this is the overview)

Vision: The grand vision [e.g. to be the leader in affordable interplanetary cargo transport]

Problem: General problem [$Xbn direct+indirect cost of all interplanetary cargo transport] + the specific problem you are solving [Specifically, moon to mars cargo transport for housing of first-inhabitants has $Xbn direct costs for the U.S. government]

Product: Exactly how you solve it, don’t mention features or details [e.g. don’t transport cargo, place 3D printers on each planet and transport material]

Founders: Brief intro of founders [e.g. 2 of the founders are straight out of college (tier 1 university, no work experience). One founder worked at Big_Company for 4 years]

Early Hires: Quality of the hires [4 person team with 3.5 years avg. work experience in relevant companies to their roles. Team composition lacks some essential talent like material scientists and sales]

Market: TAM and market drivers/challenges [$Xbn annual TAM. Market driven by increasing global warming threat on earth. Long-term, Human-on-a-chips (HoaC) decreasing the demand]

Business: revenue, metrics, traction summary. [Z% gross margins, $Xm Average Revenue Per User (ARPU). Pilots with N companies, $Xk ARR last year]

Deal: Round size, previous VCs. [$Xm series A. Previous investors not reputable. Not a fit for OurVC. Total investment (our portion) in this and following rounds expected to be total $Ym to maintain a 20% ownership]

Risk Analysis/Expected Return/Probability Weighted Return on Investment (PWROI): r [=9]

More on this at the end of this document. The image below is work of Clint Korver of Ulu Ventures.

Reference: Applying Decision Analysis to Venture Investing — Clint Korver

Recommendation/Verdict: [Don’t invest. Weak team, not a fit, bad market long-term]

The above was the short 1-page version. Add these below for a full analysis document (5–15 pages long)

Team

History/Motivation:

[The founder’s (Jane’s) father is a cargo rocket operator]

Founders:

Jane Doe (CEO): [Worked at Big_Company as Product Manager for 4 years. Studied Rocket Science at School_Name]
John Doe (CTO): [Studied Industrial Design at School-Name. Did a design internship during studies at Big_Company where he met Jane]
Jane Roe (CFO): [Studied finance at School_Name. Risk analyst intern at Awesome Capital]

Early Hires:

[N Full Time, Z Part Time. Mostly tier X universities, total X years of relevant experience. avg. R years of experience per person. K of the employees know each other from previous companies]

Composition:

[The founders skills complement each other (design, product manager, finance)]
[No one with material science experience]
[No one worked at companies that could be potential customers. No one worked at companies selling to potential customers. The team needs at least one senior sales hire who has experience selling to customer companies]

Advisors: [Good Advisors. a 3D printing company CEO, a director at potential customer company, a serial entrepreneur.]

Board of Directors: [Good board of directors (one independent board member+Seed Lead VC+CEO]

Product

Problem: In details

Severity of the Problem:

[Highest number of … are due to … accounting for X% of the… ]
[After …, the number one reason for … ]

Product(s): …

[M2MX (Moon2MarsXpress): 3D scan and analyze on Moon and print on Mars]

Analysis: What you think about the product and to what extent they solve the problem [I think some people would want the original unit to be transported, not a copy to be made]

Core Features: Talk about features here, not anywhere else [Prints metals, wood, and plastics]

Science/Tech: Talk about the tech or science behind this company. [have developed 3D printers that can adjust to any gravity and pressure after 5 years of research]

Patents: What the patents cover, their priority dates, and status

Readiness: What is ready, what is to be made, what’s the timeline

Market

Description of the Target Market: (no numbers here, just descriptions)

Total Available Market (TAM): Not considering any competition, direct or indirect, who is the market
Served Addressable Market (SAM): Narrow down to who the company actually can serve
Serviceable Obtainable Market (SOM): Narrow down to the part of SAM that you estimate you can sell to

Market Drivers: What is increasing the demand, what is growing the market?

[Number of humans on Mars is growing at 23% per year, and on all other inhabited planets is growing at 15% per year]

Challenges: What is a potential market shrinker?

[Human-on-a-Chip, where the brain is transferred on a chipset and the person lives without the need of a physical body is passing clinical tests for FDA approval. This may shrink the market in 15 years]

Market Size:

Tip: Use This, this, this, and this to better calculate your market sizes.

Top-Bottom Calculation:
Bottom-up Calculation:
Comparable Markets: Calculate the market based on other existing markets. [Currently, the total worth of goods transported using rockets from Earth to Moon is $XBn, therefore…]
Based on bottom-up and top-bottom and comps, TAM is [$Xbn-$Ybn]

Competition Landscape:

Market is called []
[Fragmented market with top 3 companies having X% of the market]
[Market leader is AwesomePrintCo with 22% market share]

Direct Competition:

Company A: [Awesome team, no traction, $Xm funding from GreatVC]
Company B: [Recently started, no funding, no traction]

Indirect Competition:

Method 1: [costs $ but not effective]
Method 2: [costs $$ but not effective long term]
Method 3: Company C does this and Company D does that

Potential Move to this Product from Incumbants:

Established_Company_A:
Established_Company_B:

Strengths Against Competitors :

Short Term:
Long Term:

Weaknesses Against Competitors:

Short Term:
Long Term:

Barriers to Entry/Moats/Defensibility:

Business

Revenue Sources: A clean table of each product, the price per user, the cost of revenues per user, and the margin %

Cost Per Unit: Breakdown of the cost per user/unit

Pricing Model: Calculate how much the customer is willing to pay based on the savings and ROI and what they are currently using.

Sales Strategy: How they are going to cross the chasm in the long term? What is your current strategy?

Traction/Customers/Metrics:

Tip: Andreessen Horowitz has gathered a great list of metrics here and here

Current Customers:
Sales Pipeline:
Cohort Analysis: This is a good template
ARR (Annual Recurring Revenue):
ARPU (Average Revenue Per User):
TCV (Total Contract Value) or LTV (Life Time Value):
ACV (Annual Contract Value):
CAC (Customer Acquisition Costs):
MoM (Month-over-Month) Growth:

Financials:

Tip: This is a good resource for scenario analysis

Deal

Fit with the VC firm:

conflict of interest?
Experience in this space? Other portfolio companies in this space?
What about their thesis/culture matches our thesis/culture?

Round size: [$Xm Series A]

Use of Funds: [X% sales, Y% engineering, Z% operations, T% working capital]

Milestones that will be achieved with the investment: [reach $Xm ARR]

Funding up to date:

Grant/Prize/Friends & Family:
Seed: [Sep. 2017 from This_Ventures, That_Ventures, Other_ Partners]

Risk of Further Funding:

Current investors can follow up?
There is enough interest in this space from VCs we know?

Exit Scenarios/Expected Returns:

IPO: Avg Enterprise Multiple (Enterprise Value/EBITDA) = X
Names of some public companies in this space
M&A: Avg. Enterprise Multiple (EV/EBITDA) = Y
Table of a few recent acquisitions in this space (Tip: Search for the reports from investment banks who do M&A, like Capstone Partners)

Risk Analysis/Probability Weighted Analysis/Expected Return:

There are a number of methods to assess the risk of a startup and expected return. Although these are just guesses, I believe one can get better at it. These are the methods I like:

Risk Analysis:

Three Mathematical Models for Building a More Valuable Company — Leo Polovets

Decision Analysis:

Applying Decision Analysis to Venture Investing — Clint Korver

Calculators:

https://decodingvc.gitbooks.io/p9-startup-tech-due-diligence-calculator/content/

The Marketplace Calculator by Arteen Arabshahi

Tip: Make sure to keep investor dilution or pro-rata in mind when calculating the return on investment.

Due Diligence Checks

Tip: Y Combinator has a great list of Series A Due Diligence items

Reference Checks

Customers:
Industry Experts:

Appendix — References

Problem

Tip: Search for Government Agency Reports like Bureau of Statistics

Market

Tip: Search for reports from Grand View Research, Markets&Markets, IBIS World, PwC, McKinsey

I hope you found this template useful. Feel free to reach out via LinkedIn to get the template in Google Docs format.

If you liked this template, may I please ask you to share it with others as well who may find it useful?

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