How to Run an Investor Data Room For Your Startup

To make an investment deal, companies had to submit many confidential papers regarding their financial situation, history, and more. Partners on whom the agreement’s success depended would visit designated spaces to review these documents. Still, fortunately, now there are virtual data rooms that provide you and your partner with a digitally secure area to conduct due diligence. VDRs for startups are great enablers that ensure their data is safe, as well as easy document management and effective communication with the other party.

Why does a startup need a VDR for an investor?

A startup is a very fragile thing that needs special protection against intellectual property leakage. Virtual data rooms are becoming the perfect solution for a startup, and here are the benefits they bring to them:

  • Improved due diligence

There are a lot of documents to be involved during due diligence, and they need to be organized so that the audit goes faster and the first impression of your company is not vague. With VDR, you can easily manage a large document flow, with automated uploading, indexing, and search functions to help you do so.

  • Guarantees security

In the VDR space, your documents remain securely protected from external and internal threats. You can fully control access to your data and prohibit the document’s copying, forwarding, printing, and editing. In addition, data encryption allows you to transfer documents securely.

  • Enhances the work of investors

Venture capital funding has multiplied recently, so investors have busy schedules and can’t afford to investigate deals for too long. VDR for investors makes their share much easier because you can set up the startup room in advance, and they, in turn, don’t have to leave their desks to research the necessary materials.

How to set up a VDR for a startup

Essentially, a data room is a more advanced version of your existing file structure, and all you have to do is move that structure into the VDR space. Try to create a folder structure that is as transparent and easy to navigate as possible. Remember to name your folders and subfolders properly; it is better not to use acronyms. Investors’ time is very valuable, so they will tick if your file system is intuitive for them. For investors to be able to examine documents without problems, all they need to do is allow them to read. Also, you can create a separate VDR space for each investor so that only appropriate information is given to each of them.

What to include in your data room?

You may have a hard time when it comes time to contribute documents for your fundraiser. It’s important to find a middle ground because if you include little data, investors won’t have enough information to decide. On the other hand, if you include too much, you risk overloading other users with unnecessary information and taking up too much of their time. Below we provide a list of documents that can and should be included in your due diligence:

  • Company documents – various agreements (partnership, voting, investor rights), customer contracts, minutes, consents, market research, business plans, marketing materials, etc.
  • Finances – your profit and loss statements, forecasts, records, asset register
  • Intellectual Property -Registered patents, trademarks, software license information, IP strategy
  • Employees – information on past and present employees, data on internships, list of current employees, their positions and salaries
  • Technology – information about major integrations, system architecture diagram, API documentation