What is an Investor Data Room?

An investor data room is a storage space, online or physical where companies store all the information, data and documents that are needed for the due diligence process. It may or may not contain other company related data. This information is particularly helpful when companies are intending an M&A deal, fundraising or are intending to buy out a particular company altogether. In modern times most companies big or small, the world over have an online investor data room that is provided by some reputed data room service providers like Docully VDR.

A virtual data room is one of the most important component of your company’s or startup’s M&A, fundraising or buy-out-sell-out efforts and provides backers with all the information they need to decide whether to invest.The information stored in this virtual data room should answer most of the questions or clear most of the doubts that potential investors or Venture Capitalists may have. So having a good, organized online investor data room showcases your company’s or start-ups professional and favorable image to the investors. Moreover, having a virtual data room makes communication easier and enables faster due diligence. Consequently, an online investor data room speeds up your M&A, fundraising or buying-selling process.

 

Should I have an Investor Data Room?

There has always been a lot of debate among founders, especially of start-ups whether they need an investor data room as it comes at a cost. The fact is that a good, well organized investor data room from a reputed data room service provider like Docully VDR, adds a lot of value to your company. 

It’s worth remembering that an investor data room isn’t always only about fundraising or M&A. It’s all about your business’s evolution. Your data room tells the entire story about all aspects of your company’s journey right from it’s inception up to your current stature, from technical reviews to competitor analysis. So in that sense, it’s better to have an investor data room rather than not having one.

 

When should I set up an investor data room?

It’s never too early to put a virtual data room together. A forward-thinking founder will already be planning for the future from the first day of the company. A highly organized data room portrays a very progressive, forward-thing and professional image, even if you are a start-up as it goes a long way towards impressing potential investors.

 

What should your investor data room have?

Your investor data room should have all the information that a potential investor might feel necessary. It is should have the information that can create an interest in your company’s potential in the minds of the investors. But care has to be taken not to stuff it with too much information. If an investor wants any particular additional information then let him request you his specific need.

Normally an investor data room includes the following:

Company Documents:

1. Legal structure and all articles of incorporation including amended and restated articles.
2. Agreement about Voting 
3. Agreements about Investor rights
4. Any previous agreements about First refusal & co-sale agreements
5. Agreements about Stock purchases
6. Capitalization table
7. Any documents/details about previous fund raising and liquidity events (if any)
8. Business Plans

Board of Director Documents:

1. Minutes of all previous board meeting 
2. Details of all consents and actions taken by the board

Financials:

1. Profit and loss statements
2. Pro-forma statements for next year
3. All Projections
4. Third-party professional service providers tax returns, audits, financial evaluations and other reports 
5. Additional operational liabilities, including capital expenditures, commercial leases and investments in R&D

Marketing Materials:

1. One-page Marketing Plan Summary
2. Marketing Pitch deck
3. Marketing branding guidelines and vision
4. Marketing assests

Intellectual Property:

1. Details of all granted and filed patents
2. Trademarks
3. IP strategy details

Market Research:

1. Market studies reports/details
2. Competitive analysis, features & pricing

Sales:

1. Details about your Sales process
2. Sales strategy and pipeline, including existing customers MRR and ARR

Staff:

1. Details of all current employees including titles, salaries, remuneration
2. Agreements with Employees
3. Future critical roles and hires
4. Details of workers and firms on contract

Technology:

1. System architecture diagram
2. API documentation
3. Details on any large integrations
4. Export and release map of any Product backlogs
5. Existing products details and screenshots

While the above list details almost everything that could be asked by a potential investor, it’s important to realize that not every business document needs to be included in your investor data room. This is because:

• Additional documents require more time for review and analysis and could slow down the due diligence process which will subsequently delay the deal.
• Irrelevant documents can distract, confuse the potential investors 
• The more documents that are included, the higher the risk of potential misuse or compromise of those documents.

Additional documents can be saved for the next stage of the investment deal after the investor has expressed initial interest and wants to move forward.

 

What features should your investor data room have?

Your initial investor data room should be:

Intuitive and easy to navigate for all parties.

Role based personalized views:

Your data room should include all of the documents — but you should create different views and access rights for the individuals evaluating your documents depending upon his role or department.For example, the investor’s marketing counsel may not need to see certain legal documents.

Give read-only access:

This way you will be sure that no document can be altered, copied, shared or printed without your permission by your potential investor

Set audit and tracking measures:

The data room should provide you details about who has accessed what documents at what time and for how long. If you notice any unusual activity, such as attempts to print or share, then you can take appropriate precautionary measures with that individual. In case you notice that certain documents haven’t been accessed at all then you can think why they are not being accessed or can remove those documents in future investor data rooms in which you’ll participate.

Facilitate making updates easily:

The investor data room should allow making updates hassle-free. Removing or adding documents should not be troublesome. 

Communicate easily:

Your data room should have an in-built facility for messaging or commenting. This helps and eases the review process as potential investors don’t have to leave the platform in order to send a message or make a comment if needed.

 

Conclusion

A good, well-structured investor data room is one of the hallmarks of a well-organized company, and you may be able to benefit immeasurably from having it A virtual data room can be your most important component  in your M&A or fundraising efforts and should provide potential investors with all the information they need to make an informed decision about whether to invest in your company or not.