Investors and founders alike find that a data room is an essential part of venture capital deals in the early stages. They provide a central space to keep important documents and other data during due diligence. It is today easier for startups than ever to set up and manage data rooms. However, it is difficult to determine what a startup really needs one. If there’s nothing secret in a financial statement or no sensitive industry information in the company’s strategic plan The startup could be fine without a data room.
In the past, companies used to store sensitive or proprietary data in a secure area for prospective buyers to look over during due diligence. Nowadays the norm is for these documents to be kept in a virtual data room known as an investor data room.
Investors require a large amount of data to make an informed decision and evaluate the potential of a new venture. Instead of sending multiple spreadsheets that can quickly be lost or outdated and inefficient, it is more efficient to upload these files into an investor data room.
The key to building a successful investor data room is organization. Create an overview folder which contains all the relevant information you wish to give investors. This folder should contain your pitch, basic financials (cash metrics and P&L projections), cap table, list of pending and committed investments, as well as any research you’ve conducted yourself. It is also beneficial to share references from customers or referrals to show that your company is well-known in the market.