A data room lets investors be able to see the investment opportunity clearly and consistently. Having one allows for an easier due diligence process, and also allows investors to content get acquainted with the company quickly and easily.
For entrepreneurs who are pitching VCs for the first time, the data room is a vital tool to showcase their company and assist them in closing the deal. A recent study found that a venture capital firm will examine 101 potential opportunities for each deal they conclude. However, 4.8 of them go to the due diligence phase and only 1.7 of them proceed to the negotiation of the term sheet. The success of a VC deal is contingent on a variety of factors, including the expertise of the founding team and the business model, as well as the market.
A comprehensive data room for investors includes financial documents such as statements of profit and loss, balance sheets, reports on cash flow as well as performance reports. It also includes legal documents such as articles of incorporation, board resolutions, shareholder agreements as well as intellectual-property documents, such as patents, trademarks, and copyrights. It also contains the cap table which shows the ownership structure of the business and a complete list of shareholders and their percentage of ownership.
In addition to these documents, the data room for investors should include a Q&A section which allows for centralized communication between all parties and simplifies due diligence processes. Version control of documents is also crucial, since it lets investors keep updated on changes in real-time. Additionally, it should include features that provide additional layers of security for sensitive documents such as dynamic watermarks that discourage forwarding and printing, and a NDA that can be automatically presented to users upon log-in.