Previously, when mergers and acquisitions took place, the buyer company would request all of the company’s financial and historical records, which they would then store in designated rooms. Then some people came there to obtain approvals and studied the documentation for several hours every day. Now there are virtual data rooms instead of physical rooms; it helps organize the company’s documents conveniently and gives a big advantage to the startup company in front of investors.
Why does a startup need a data room for investors?
Below we give a few good reasons why a startup company needs a data room:
- Helps with due diligence
In the virtual data room space, you can create a clear folder structure that, if properly organized, could show your stakeholders all your strengths in a favorable light. You make it much easier for investors because now they don’t have to dig through a big pile of paper to find the right document, and it speeds up the M&A process considerably.
- Speeds up the fundraising process
Upload all the documents you need for the deal into your virtual room space. While raising venture capital, investors need to review your company’s history, and with VDRs, they can easily do so. Find the right document with Smart Search
- Easily guides investors
In today’s world, venture capital deals are much more frequent, so it’s difficult for investors to devote much time to reviewing any one company’s documentation, but data rooms can make their burdens much easier.
If you’re working on a startup and will soon need funding to move forward, we’d advise creating a data room ahead of time. If your data room already has all the necessary paperwork and is up and running before you first discuss fundraising, you’ll notice how it will save you and your investors a lot of trouble.
- Keeps you organized and focused
Fundraising is a pretty exciting time that makes you as a young entrepreneur looks at everything you do through the eyes of your sponsor. It can motivate you to improve what you have, and we’d suggest documenting all your development plans and customer engagement products.
What should and should not be included in your data room
For many, it can be unclear exactly what documents should be uploaded into the space. You can’t upload too little information, because that way investors won’t have enough reasons to release your project to the masses. But you shouldn’t upload too many documents either, because among them there will be already irrelevant and unnecessary ones, which will only slow down the fundraising process.
In the space of a virtual data room, you can include such documents as:
- Company documents
- Finances
- Intellectual Property
- Employee information
- Technology
If you allow investors to look at past updates, they can understand that you are showing them the real picture, which has both good and bad. They will understand that your intentions are serious and you are providing them with a transparent system of your company, their trust will grow.
Still, you shouldn’t give investors too much information in the first stages of fundraising, some of it can be carried over to the next stage of the deal when you are sure that investors will give you financial support.