Both investors and founders find that a data room is an essential part of venture capital deals in the initial stages. They serve as a central place to store important documents as well as details throughout the due diligence process. It is nowadays easier for startups than ever to establish and manage data rooms. However, it can be difficult to know whether a startup really requires one. If there is nothing confidential in a financial report, or no sensitive industry information in the company strategy document the startup may be fine without a data room.
In the past, companies used to store sensitive or proprietary files in a secure location for prospective buyers to look over during the due diligence process. Nowadays the norm is for the documents to be kept in a virtual data space, which is also known as an investor data room.
Investors require a lot information to make an informed decision and evaluate the potential of a startup. Rather than sending multiple spreadsheets, which could easily become misplaced or out of date and outdated, it is more efficient to upload these files to an investor data room.
The key to creating a successful investor data room is organization. Create an overview folder that holds every important information you wish to provide investors with. The folder should contain your pitch, the basics of your financials, (cash metrics and P&L, projections) Cap table, list of pending and commited investments, and any research that you have conducted in-person. In addition, it’s important to provide references from customers and references to show that your company is successful in the market.