A data room is an online location where startups can organize all the important information that investors would like to see during due diligence. The most cost-effective virtual data rooms usually have features that allow startups to manage what information is shared with who. This way, only the appropriate documents are placed into the hands of the appropriate people. With granular access controls including expiring links, watermarking, and password protection Startup teams can make sure the right investors have everything they need to make an informed investment decision.
For instance, if you are involved in fundraising at an early stage and an investor wishes to know more about your product than is provided in your pitch deck, the investor could ask for specific additional information to be included in the data room. However, it is vital to ensure that the information provided in the data room doesn’t overburden an investor since this could slow down the due diligence process and cause the investor to walk away from the deal.
Another key document that is frequently found in the investor data room is a detailed financial model. It should be both historical and projected. This is what investors will ultimately be looking for to determine if the value that you are selling is present in your business.
Startups can also make use of the data room to store other relevant documents including HR and legal agreements. They can also add market research, intellectual properties or any other relevant information. It is essential that a startup does not overcrowd the investor data room with too much information as this may confuse an investor and increase the likelihood of them committing fraud or compromising the content.