A data room is a virtual space that allows sharing of sensitive information during due diligence or other business transactions. Data rooms are used in many industries, such as finance, healthcare and IT to share sensitive data with potential investors. Prior to this due diligence was usually performed in physical rooms, but now it is mostly conducted digitally and usually includes large quantities of documents.
Investors will have a lot of questions about the startup’s documentation. It is the job of the founders to answer these questions in a manner that impresses them and speeds up the process. Start by creating an organization structure that is clear and organized, with clearly defined documents that are grouped in categories (e.g. legal, financial, contracts). Labelling these folders or documents clearly allows users and stakeholders to locate the information they require. It is also beneficial to add metadata to the data room in order to provide additional information to each file.
Other useful sections that founders can include in their data room include a competitive analysis, a list of current customers and referrals, as well as a customer references/testimonials section. Lastly, a company organisation/formation section includes any documents that show how the startup is legally registered and operated. This could include articles of incorporation or business certificates, as well as tax information, and an audited financial statement. This will show that the startup is a legitimate and legitimate entity.