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Entrepreneurs calendar    Aug 17, 2021

What Do I Include in an Investor Data Room?

An investor data room is a physical or digital space containing company information that is relevant in the due diligence process of a startup.

An investor data room is a physical or digital space containing company information that is relevant in the due diligence process of a startup. Investors have differing opinions on the usefulness of data rooms. While some argue that a well-organized data room improves the chances of receiving investment by aiding the fundraising process, others argue that it can decelerate the process, costing founders significant time that could be spent on building the startup. Although there are instances where data rooms are not utilized in the deal process, there are benefits of building and maintaining a data room.  Founders should create a workflow/ process to update/maintain the data room periodically. It is useful to have a data room prepared in advance of an investor presentation.

For first-time founders, an investor data room can impress potential investors. The information included in a data room could answer most of a potential investor’s due diligence questions. Thus an opportunity for founders to showcase their expertise as well as other qualities investors find favorable. As investors review many deals, prioritizing an easy-to-use virtual data room would be helpful. In an information-driven age, data rooms help to build trust with prospective investors so it is in the best interest of a founder to provide accurate information. Citing sources helps prove credibility of information. 

Google Drive and Box are two of the most common platforms that I have seen founder’s use to create data rooms. Some other virtual data room providers are Firmex, ShareFile, CapLinked, Ansarada, Deal Room. Before choosing a virtual data room provider here are some factors to consider: privacy/ security, cost, storage, document management features, and permission settings, etc. “Step-by-step Guide to Choosing a Virtual Data Room in 2021” by Marsha Lewis is a great article that goes over that topic in detail. Below is an image comparing some of the virtual data room providers:

Having picked a virtual data room provider, here are some sections that founders should consider including in their data room: Including an index/table of contents document with links to different sections of the data room would help with navigation. 

  • Company Organization/ Formation Documents: This section should include information on where the company is registered, tax information, and any other information an investor needs to verify the legitimacy of a company. Examples of documents that go in this section include company bylaws, articles of organization, business certificates, Tax ID numbers, etc.
  • Financing Information/ Deal Documents: This segment contains information on previous fundraising activities. The documents that can be included in this section include executed legal documents, term sheets and capitalization tables. Once a term sheet is agreed upon with the lead investor, founders can choose to include the current financing terms in this section.
  • Pitch Decks and in some cases a Whitepaper: Founders in more advanced technology markets could draft a document that informs readers concisely about the complexity of the problem/ market and how their product/service efficiently solves that problem. Founders should always include their pitch decks in the data room.
  • Financial Information: This section includes the historical and/ or projected financial performance of the company. For projected financial statements, please include any assumptions, sources and reasoning guiding those assumptions. 
  • People-Related Documents: The resumes of key team members as well information on employee stock agreements and documentation on hiring can be included in this section of the data room. 
  • Market Information: Some founders include information on the market size, growth trajectory, competitive landscape & regulatory landscape of their industry. In addition, they can choose to include information on their go-to-market & growth strategy.
  • Other Information: Founders may choose to include information on the product development roadmap, demo videos, other necessary legal documents that are necessary for the fundraising process. 

Although data rooms are not used in every deal due diligence process; more often than not, they do aid fundraising efforts. Founders should utilize the data room to tailor the story of their startup to investors. There are numerous virtual data room providers to choose from so founders should be prudent when choosing a provider because of the sensitive nature of the information. Company organization documents, pitch decks, financial information, people-related documents, market information are some of the sections that are often included in a data room. Founders should be wary of including proprietary information such as code, trade secrets, etc in the data room.

At Render capital, data rooms help accelerate the due diligence process. After confirming the firm fits the initial criteria for the fund, retrieving information from a firm’s data room reduces the number of follow-up questions we ask the firm. Oftentimes, we ascertain the accuracy by comparing with third party sources quantitative data points, such as market size & growth, that a company provides. That is why it is important to include sources & guiding assumptions behind data points to prove the credibility of the information provided.

Investment Associate

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