Years ago, as part of the due diligence process, the organization buying a company would request to see financial and historical company documents. These records would be kept in a safe location that was constantly watched over.
People who were important to the decision-making would come to the chamber to look at the paperwork. These days, these locations exist only online and are known as investor data rooms.
One of the signs of a well-run business is a VDR, and having one might be really helpful if you want to use data to tell the story of your startup.
Data Room Set Up
Regardless of the type of financing, if you’re thinking about a capital round, you must.
Set Up a Data Room Prior to Beginning a Raising!
Additionally, bear the following in mind when you set up your VDR:
Use Dropbox or Google Drive, if appropriate. Other choices exist, but they can be expensive, whereas Google Drive and Dropbox both feature user-friendly, cost-free versions.
Make a neat, logical folder structure that is simple to traverse. The time of investors is valuable; make sure your structure is as straightforward as you can.
Permit read-only access! Your business data should not be downloaded or edited by outside parties.
Make sure each investor has their own access to the data room so you may customize the information. You should tailor part of your messaging to the different types of investors.
What Should You Include in a Data Room?
Choosing which papers to put in your data rooms can be difficult. If you include too little, investors won’t have the information they require. If you add too much, you run the risk of inundating them with information and making them waste their time trying to sort through it all.
You might want to include the following:
- Company documents: articles of incorporation that have been updated, agreements on voting, investment rights contracts, co-sale and first refusal agreements, purchase agreements for stock, table of capitalization, any information or records about prior increases (if any)
- Financials: profit and loss statements, pro forma financial projections for the following year, an asset register, management accounts, audited accounts, a capitalization table, and information on prior increases are all included.
- Intellectual property: trademarks, IP strategy, information on software licenses, a list of any utilized open-source software, ownership of domain names, and patents that have been issued and filed.
- Employees: all contracts for current workers, including a breakdown of their job titles and pay, as well as any contracts for interns and consultants in the past and present.
- Technology: diagram of the system architecture; API documentation; information on any significant integrations; product backlog export and release schedule; screenshots of current products.
Past investor updates in your VDR demonstrate to backers that you are willing to disclose both the good and the negative. It’s a great method to demonstrate to them that you value open communication with investors and transparency, which will increase your credibility.
Share the mission of the group you’re assembling in the “employees” area. This enables an investor to use their own networks to find the team members you require.