Investors and founders alike find that data rooms are a vital part of venture capital deals in the early stages. They provide a centralized location to store important documents and information during the due diligence process. It is now simpler for startups than ever before to set up and manage data rooms. However, it can be difficult to determine if a startup really needs one. If there is no sensitive information in a company’s strategy document or a financial report and a startup does not have any sensitive information, then it may not require a data space.
In the past, companies would physically store confidential or proprietary documents in a secure area for potential buyers to look over as part of the due diligence process. Nowadays the norm is for the documents to be stored in an online data room referred to as an investor data room.
Investors require a large amount of data to make an informed decision and evaluate the worth of a startup. Instead of sending multiple spreadsheets that could easily become misplaced or out of date and outdated, it is more efficient to transfer these files to an investor data room.
The key to building an effective investor data space is organization. The first step is to create an overview folder with all the essential pieces of information that you’ll be sharing with investors. This should include your pitch deck, basic financials (cash metrics, P&L, projections) and a cap table, as well as a list of pending and committed investments, as well as an analysis of your competitors based on any first-hand market research you’ve conducted. It is also important to share references from customers and referrals in order to show that your company has traction on the market.