The Importance of a Data Room for Venture Capital Deals

Investors and founders both agree that a data room is a vital part of venture capital deals during the initial stages. They offer a central location to keep important documents and data during the due diligence process. It is now easier for startups than ever before to create and manage data rooms. However, it is difficult to determine if a startup really needs one. If there’s no information that’s confidential in a financial report, or no sensitive industry information in the company’s strategy document, a startup may be fine without a data room.

In the past companies would store sensitive or proprietary documents in a secured room for potential buyers to review as part of the due diligence process. These documents are now how to raise capital on kickstarter and indiegogo often stored in a virtual investor data room.

Investors require access to a vast amount of information in order to assess a startup’s value and make an informed investment decision. Rather than sending multiple spreadsheets that could easily get lost or outdated, it is much more efficient to transfer these files to an investor data room.

The key to building an effective investor data room is organization. The first step is to create an overview folder with all the essential pieces of data that you will be sharing with investors. The folder should contain your pitch, a basic overview of financials (cash metrics and P&L projections) and a cap table, list of pending and commited investments, and any research you’ve conducted yourself. Finally, it is also important to provide references from customers and references to show that your company is successful in the market.