What Do I Include in an Investor Data Room?

An investor data room is a physical or digital space containing company information relevant to the due diligence process of a startup. Investors have differing opinions on the usefulness of data rooms. Some argue that a well-organized data room improves the chances of receiving investment by aiding the fundraising process; others argue it can decelerate the process, costing founders significant time that could be spent building the startup. Although there are instances where data rooms aren’t used in the deal process, there are real benefits to building and maintaining one. Founders should create a workflow to update and maintain the data room periodically, and it’s useful to have it prepared in advance of an investor presentation.

For first-time founders, an investor data room can impress potential investors. The information included can answer most of a potential investor’s due diligence questions, an opportunity for founders to showcase their expertise and other qualities investors find favorable. As investors review many deals, prioritizing an easy-to-use virtual data room is helpful. In an information-driven age, data rooms help build trust with prospective investors, so it is in a founder’s best interest to provide accurate information. Citing sources helps prove the credibility of information.

Choosing a Virtual Data Room Provider

Google Drive and Box are two of the most common platforms I’ve seen founders use to create data rooms. Other virtual data room providers include Firmex, ShareFile, CapLinked, Ansarada, and Deal Room. Before choosing a provider, consider these factors: privacy and security, cost, storage, document management features, and permission settings.

What to Include

Having picked a provider, here are the sections founders should consider including. Including an index or table-of-contents document with links to different sections helps with navigation.

• Company organization and formation documents: Information on where the company is registered, tax information, and anything else an investor needs to verify the legitimacy of the company, bylaws, articles of organization, business certificates, and Tax ID numbers.
• Financing information and deal documents: Information on previous fundraising activities, including executed legal documents, term sheets, and capitalization tables. Once a term sheet is agreed upon with the lead investor, founders can choose to include the current financing terms here.
• Pitch decks (and, in some cases, a whitepaper): Founders in more advanced technology markets could draft a document that concisely informs readers about the complexity of the problem and how their product solves it. Founders should always include their pitch decks.
• Financial information: The historical and/or projected financial performance of the company. For projected statements, include any assumptions, sources, and reasoning guiding those assumptions.
• People-related documents: Resumes of key team members, as well as information on employee stock agreements and hiring documentation.
• Market information: Market size, growth trajectory, competitive landscape, and regulatory landscape, plus go-to-market and growth strategy.
• Other information: Product development roadmap, demo videos, and other legal documents necessary for the fundraising process.

Although data rooms are not used in every diligence process, more often than not they aid fundraising efforts. Founders should use the data room to tailor the story of their startup to investors. There are numerous providers to choose from, so be prudent given the sensitive nature of the information, and be wary of including proprietary information such as code or trade secrets.

At Render Capital, data rooms help accelerate the due diligence process. After confirming that a firm fits the initial criteria for the fund, retrieving information from the firm’s data room reduces the number of follow-up questions we ask. We often verify accuracy by comparing quantitative data points, such as market size and growth, with third-party sources. That is why it’s important to include sources and guiding assumptions behind data points, it proves the credibility of the information provided.