A data room is an online secure location where startups can gather all the crucial information that investors need to look over during due diligence. Virtual data rooms that are most cost-effective will have features that allow startups to determine who can access what information. This means that the right documents are available to the appropriate people. Startup teams can protect their investors with granular access control, expiring links and password security.
For instance, if are in the early stages of fundraising and an investor wants to get more information about your offering than that provided in your pitch deck, the investor can ask for specific additional information to be included in the data room. It is important to make sure that the data room doesn’t overburden an investor, since it could slow down the due-diligence process, and even cause them to walk away.
Another important document that is typically found in the investor data room is a detailed financial model. This should be both historical and projected. In the end, this is what many investors will look at to determine if the value that you are selling them is indeed present in your business.
Startups can also utilize the data room to store other documents that are relevant, such as HR and legal agreements. It can also be used to store research on market trends, intellectual property or any other relevant information. However, it is important that startups do not overflow the investor data room with too many documents as this could confuse investors and increase the risk of them misuse or compromising the information.