Both founders and investors find that a data room is a vital part of venture capital deals in the initial stages. They are a central place to keep important documents and other data during the due diligence process. It is now simpler for startups than ever to create and manage data rooms. It isn’t always easy to determine whether a new venture requires one. If there’s nothing secret in a financial statement, or any sensitive industry information in the company strategy document, a startup may be able to do without a data room.
In the past, companies would physically keep confidential or proprietary documents in a secure room for potential buyers to look over as part of the due diligence process. Nowadays the norm is for the documents to be kept in the form of a virtual data room, also known as an investor data room.
Investors require a lot information to make an informed decision and determine the worth of a new venture. Uploading these documents to an investor data room is more efficient than sending multiple spreadsheets that can easily be lost or become outdated.
Organization is the key to a successful investor dataroom. Create an overview folder that holds all the relevant information you wish to communicate to investors. This should include your pitch deck, the basic financials (cash metrics, P&L, projections) and cap table, a list of pending and committed investments, as well as an useful site analysis of competition based on any market research you have conducted. Additionally, it’s useful to include customer references and references to show that your business is gaining traction in the marketplace.