When creating an investment memo, you might be tempted to think that not discussing risks (yellow flags) makes for a more persuasive, undiluted prospect.
This is wrong.
Always include an overview of the main risks, at least five.
This makes your diligence and presentation look thoughtful, comprehensive, thorough, and credible.
Your list will typically distract the investor from thinking about additional risk factors (though hopefully you covered all the main ones).
It furthermore gives you a chance to address each risk and present a mitigation plan. You’re turning a negative into a positive.
The absence of a risk analysis will prompt your prospective investors to create one of their own. They will view your deck as incomplete, ignorant, sloppy, and shallow. And instead of a proactive mitigation plan that puts you on offense, you’re put squarely on the defense.
Good luck.
