A data room is an area where you can provide private information about your business with potential investors, or acquirers as part the funding round or M&A transaction. Historically, these were physically-based rooms, but these days they are mostly virtual. It is important to ensure that your investor data room is equipped with an easy-to-use navigation system for users and is prepared to provide documents for every stage of due diligence. You should also keep track of usage so you can see the documents that have been looked at and when. If you feel it is necessary you can restrict access.
Generally, investors would like to confirm the information that you have shared in your pitch deck, and they also want to get more detailed on your business model, its traction and financials. The investor data room is a vital component of the fundraising process for your startup, therefore it is imperative to be well prepared for due diligence.
Prepare documents that will be requested more often including your cap-table (which breaks down ownership percentages) and your legal documents, as well as an extensive list of previous investments made by your company. This will ensure that the most frequent concerns are addressed and will give you an advantage in the process of making decisions.
It is an excellent idea to have documentation on your team, like employees’ handbooks, employment contracts and future hiring plans. Additionally you should be prepared to provide an example of your product, especially if you are at the pre-seed or seed stage of your venture.