Using VDR for Alternative Investments

If you’re on your way to funding or are looking for alternate investment options then it’s time to think hard about the all-important investment due diligence process that’s in store. That’s because institutional investors expect to have access to an enterprise grade VDR to securely review key documentation and intellectual property before sealing the deal.

The following are the essential steps:

Selecting documents:
Different VC’s ask for different documents.So there is no way to know the final list of files you will need to select for your data room ahead of time. Nonetheless, you can adopt the mindset of the investment due diligence team and start anticipating the types of documents that they will need.The two key types of documents commonly asked in the investment due diligence process are standard business documents and intellectual property.

Standard business documents:
Founding documents, employee contracts, leases, partnership agreements, NDAs and any other documents that look official and important should catch your eye during the document-gathering phase as these are the documents that will be asked for during due diligence.

Intellectual property:
Going into the due diligence process, you may be wary of sending documents containing your most valuable intellectual property. You’re not alone. Most companies share this concern.

Note, however, that an enterprise-class VDR will have a powerful copyright-protection tool on your side: automated dynamic watermarking. When you leverage this tool, the virtual data room will automatically stamp all documents with the specific recipient’s email address. This will strongly discourage leakage, while promoting confidentiality.

Some VCs may go ahead and ask for all key IP documents up-front, if only as a negotiating tactic or to test the waters. Others may wait until the investment due diligence process has progressed to a point where the founders feel comfortable taking the next step. Still others may not ask for key IP documents at all. Yet no matter what your specific circumstances may be, you should gather those key IP documents ahead of time as a matter of course. At the very least, you will want to have your intellectual property documents ready as a potential bargaining chip heading into your initial meetings.

Digitizing documents:
It goes without saying that you will need to digitize any paper-only documents that you need to upload to a data room. Yet there are other elements that are not as obvious but nevertheless most important:

 Renaming files and folders:
Inward-facing file names may leave outsiders scratching their heads.

It’s important to make sure that the titles of your documents and folders are search friendly. To increase the likelihood that searches will hit the target, avoid using underscores, special characters and uncommon acronyms in file and folder titles whenever possible. Of course, it’s equally important to ensure you choose a due diligence data room with excellent search functionality. 

Sharing the latest versions:
If there’s a material difference between various versions of key documents in the investment due diligence process, uploading an outdated version could undermine the confidence of VCs in your company and jeopardize the deal. Therefore, a key part of the preparation process is homing in on the very latest version of each document you intend to send. Toward this end, be sure to check each and every file under review and ensure that you have the most up-to-date version of it.

Furthermore, once the due diligence process is underway, be sure to upload any new updates to sent documents without delay. This is an important habit to foster. After all, a properly conducted investment due diligence process can take a long time and founders are expected to keep all pertinent documents and data updated.

Note that your VDR should fully support the file-updating process in an elegant and seamless fashion.

Categorizing documents:
Once the key documents selected and prepped it’s time to organize them into categories. Remember that you are primarily categorizing your documents for the benefit for VCs, accountants, lawyers and other professionals. Therefore, your arrangement should be made considering how the investment due diligence team will want to navigate your VDR’s document library. They will spend a large portion of their workdays diving into folders with names like financial statements, Litigation, Leases, Partnerships, Real estate property, Acquisitions, Documents of incorporation, Insurance, Intellectual Property, Customer contracts, Stock records, and so on.

File tracking:
One of the essential features that will help you along the way is file tracking. This advanced virtual data room feature lets you know whenever investors are viewing a given document (so you won’t have to ask them). File tracking will also give you a strong sense of what the most viewed documents and folders are so you can make them easier to find in the future.

DocullyVDR greatly facilitates alternative investments as it maintains a central deal repository, allows secure access anytime from anywhere and from any device, shares all fund documents with the entire team, prepares and sends capital call statements, maintains audit trail of access history, collaborates with advanced Q&A.