A data room is a crucial part of early stage venture capital deals for both investors and founders. They are a central spot to store important documents and information throughout the due diligence process. It is today easier for startups than ever before to set up and manage data rooms. However, it can be difficult to know what a startup really needs one. If there’s nothing secret in a financial statement, or any sensitive industry information in the company’s strategy document, a startup may be able to operate without a data room.
In the past, companies used to keep confidential or sensitive files in a secure place for prospective buyers to look over during due diligence. These documents are now more typically stored in a virtual investor data room.
Investors require access to a large amount of data to evaluate the value of a company and make an informed investment decision. Uploading these files to an investor data room is more efficient than sending multiple spreadsheets that can easily be misplaced or become outdated.
Organization is the key to success in an investor dataroom. The first step is to create an overview folder containing all the essential pieces of information that you’ll need to share with investors. This folder should include your pitch, the basics of your financials (cash metrics and P&L, projections) and a cap table, list of pending and committed investments, as well as any research you’ve conducted yourself. It is also beneficial to provide customer data room services references and referrals to prove that your business is gaining traction in the market.