Virtual Data Room For Investors: How To Choose, Prepare And What To Include

What Is A Data Room For Investors?

A virtual data room for investors is an online repository of all company information that’s relevant to potential investors who are conducting a due diligence process. 

When investors study the possibility of putting their money in an investment fund, a startup or a company’s IPO, they consult a number of documents about the fund or company’s history, prospects, and legal and financial status. Some companies still use a physical data room to collect and present due diligence documentation — but more and more, these are being replaced by virtual data rooms. 

By setting up an investor virtual data room during the fundraising due diligence process, company founders and managers give prospective investors easy access to all necessary information, while ensuring the company’s confidential data remains protected.

Virtual Data Room For Investors

VDR Provider
Access Security
Customization
Deployment
Pricing Plans
Q&A
iDeals
  • Access control and expiration
  • Time and IP access restriction
  • Granular user permissions
  • User security impersonation
  • Two-factor authentication
  • Mobile device management
  • Customize logo, color and invitation email
  • Customizable header and footer
  • Language settings
  • Web
  • Linux
  • Android
  • Windows
  • iOS
  • Optimization for mobile devices and tablets
  • Flat monthly fee 
  • Q&A reports
  • Live discussions
  • Appointment of experts 
Intralinks
  • Granular user permissions
  • User security impersonation

  • Web
  • Linux
  • Windows
  • Optimization for mobile devices and tablets
  • Not provided by vendor
  • Easy-to-use Q&A
  • Bulk import of questions
Datasite
  • Granular user permissions
  • Two-factor authentication
  • User security impersonation

  • Web
  • Not provided by vendor
  • Excel import
CapLinked
  • Group user permissions

  • Web
  • Flat monthly fee
  • Q&A assignments
  • FAQ
  • Q&A audit
OneHub
  • Granular user permissions
  • Access control and expiration
  • Two-factor authentication
  • Customize logo, color and invitation email
  • Web
  • Mac
  • Windows
  • Linux
  • Optimization for mobile devices and tablets
  • Per-user
  • Flat monthly fee
  • No Q&A
Firmex
  • Access control and expiration
  • Granular user permissions
  • User security impersonation
  • IP access restriction
  • Two-factor authentication
  • Custom interface
  • Web
  • Optimization for mobile devices iPhone and iPad
  • Not provided by vendor
  • Basic Q&A module
  • Q&A forums
SmartRoom
  • Access control and expiration
  • Granular user permissions

  • iOS
  • Windows
  • Optimization for mobile devices
  • Not provided by vendor
  • Question threading
  • Question status track
Ansarada
  • Access control and expiration
  • Granular user permissions

  • Web
  • Storage capacity
  • Intuitive reports
  • Q&A via email
  • Full audit trail of all Q&A content
SecureDocs
  • Granular user permissions
  • Two-factor authentication

  • Web
  • Flat monthly fee
  • Available
DealRoom
  • Granular user permissions
  • Two-factor authentication

  • Web
  • Flat monthly fee
  • No Q&A
ShareVault
  • Access control and expiration
  • Granular user permissions
  • Two-factor authentication
  • Customize logo and URL
  • Web
  • Windows
  • Mac
  • iOS
  • Android
  • Optimization for mobile devices and tablets
  • Not provided by vendor
  • No Q&A
Citrix Sharefile
  • Access control and expiration
  • Granular user permissions
  • Two-factor authentication
  • Customize logo and color
  • Web
  • Windows
  • Mac
  • iOS
  • Android
  • On-premise Windows and Linux
  • Optimization for mobile devices and tablets
  • Flat monthly fee
  • Q&A section with an export option
Digify
  • Access control and expiration
  • Granular user permissions
  • Customize logo, color and URL
  • Web
  • Windows
  • Mac
  • iOS
  • Android
  • Optimization for mobile devices and tablets
  • Flat monthly fee
  • No Q&A
Donnelley Venue
  • Two-factor authentication

  • On-premise
  • Not provided by vendor
  • Customizable Q&A workflows

How Does A VDR Improve The Fundraising Process?

It gives you control of your story

Using an investor data room allows you to select and present all pertinent data in an organized manner during the fundraising process. And by doing so, you get to decide on — and keep control of — the company story you tell future investors. Using a virtual data room allows you to get a specific company image across to the people who are wondering whether to put their money into your business. And this can be the difference between winning or losing their interest. 

Startup investor Render Capital recommends that “founders should utilize the data room to tailor the story of their startup to investors.

You impress potential investors

First impressions count. And by presenting your company data in an organized data room, it’s easier for you to keep things essential and easy to locate, thus showing your investors that you respect their time. Even more important, an investor data room helps you highlight your business expertise, good results, and favorable prospects during due diligence, by selecting the right company documents and making them easily accessible.

Equity management company Carta states that “your prospective LPs need as much information about a fund as possible — and a data room can help you tell your fund’s story more effectively. Not only can a quality data room demonstrate your professionalism and save LPs time, but it also helps you successfully move prospects through the funnel and get existing LPs to continue investing.

It saves your investors’ time

People looking to invest in your business are certainly considering other options as well. When you present them with an organized data room, where they can quickly find the relevant data, you spare them from wasting precious time navigating email attachments, looking for nameless files in their downloads folder, and reading through dozens of irrelevant documentation. And this creates a positive image, making those people more inclined to invest in your business rather than in those of your competitors.

According to startup investor Render Capital, “data rooms help accelerate the due diligence process. After confirming the firm fits the initial criteria for the fund, retrieving information from a firm’s data room reduces the number of follow-up questions we ask the firm.

It saves your own time

Online data rooms save you time, because instead of having to prepare and send company documents to each prospective investor individually, you only prepare the documentation once — then simply add new users to the investor data room. 

Also, you avoid many questions from your future investors, simply because they will find the answers by themselves while going through your carefully selected and presented documentation. If you want to save even more time on communication, you can take this a step further and create a Q&A section in your investor data room, to answer beforehand the most common questions your investors ask.

You know who deserves your attention

Most data rooms have user analytics tools, which allow you to know exactly what each user is doing on the platform. By checking who spends how much time viewing which documents, you can find out which possible investors are more interested in your business — and this helps you decide who you want to give more attention to.

It ensures data security

During a capital raising process, you have to show investors sensitive data, such as financial projections and reports. By using a virtual data room to share sensitive documents, you make sure that data will not leak, since you have full control of data room access — including the possibility of granting read-only rights to other users.

How To Choose A Fundraising Data Room For Startup?

The first step in choosing an investment data room is understanding what are the needs of your startup. You can do so by answering the following questions:

  • What’s your budget for this investor data room?
  • For how long do you plan to use the data room?
  • How much storage space do you need?
  • How many users from your company do you plan to include? 
  • How many potential investors should have access to your data room?

After you have answered these questions, it’s time to look at what are the important features that your investor data room must have to ensure successful interaction with investors and potential partners.

What Features Should The Investor Data Room Have?

In order to guarantee successful interactions with investors when raising funds, the data room of your choice should include the following features:

  • Access security features. These tools give you the ability to control access rights to your data rooms, and to determine exactly how each user can interact with your data. Among others, they include granular user permissions — which allow you to give separate data room access to each user — access expiration, time and IP restrictions, and two-factor authentication.
  • Branding features. Also called customization features, these tools allow you to add your company’s logo and colors to your data rooms. Some providers go further, offering admins the possibility of customizing invitation emails and data room URLs. Branding features are important because they create a more professional and distinct appearance for your investor data room, setting you apart from competitors.

Other VDR features you should pay attention to are:

  • Deployment. Do you want your investors to be able to access your data room from their mobile devices? Or would you rather restrict access to desktop computers? What operational systems do you and your prospective investors use? Deployment varies according to the data room provider, so make sure you choose one that works according to your needs.
  • Suitable pricing plans. Data room vendors use different pricing plans, and some offer more than one option. The best data room plan is of course the one that gives you the most value for money — but only you can know what that is. For instance, most providers give you a specific number of rooms, and charge extra fees for additional rooms, so how many data rooms do you need? Or if you know you will need a large number of user permissions, you know a plan with unlimited users is better for you than a plan with limited user permissions and extra fees for additional users.

What Is The Best Data Room For Your Startup?

The answer to this question depends on the particularities of your startup right now. A good data room for one startup may be the wrong data room for another. So, when you look for the best investor data room for your company, make sure you keep in mind:

  • what industry you are in, as some VDRs are better for specific industries
  • the size of your startup, which will give you an idea of how many admin and internal user permissions you will need
  • how many institutional investors you want to share documents with, which will give you the number of external user permissions you need
  • how many projects you will be working on simultaneously, which is the number of data rooms you should be able to set up

Why Do Startups Need An Investor Data Room?

As discussed above, an investor data room will make your fundraising easier, faster, and more secure, because it:

  • Helps with due diligence by improving investor communication
  • Speeds up the fundraising process by saving yours and your investors’ time
  • Makes investors’ jobs easier by presenting them with organized and relevant documentation
  • Keeps you organized and focused by providing a folder structure where it’s easy to sort out and classify and update relevant documents, and share them with the right people  
  • Saves startup money by avoiding the costs of physical data rooms, as well as sparing you time and effort.

How To Prepare A Data Room For Fundraising?

  1. Create the data room within the VDR provider’s platform.
  2. Select the documents you want to share in your data room, and upload them to the VDR.
  3. If necessary, create new folders and rename files — in many VDRs, this can be an automated process.
  4. Create a document index — this too can be easily automated in many data rooms.
  5. Create user groups according to profile and the access level you want to grant them.
  6. Invite users, granting them individual or group permissions, on folder or file level. 
  7. Keep an update schedule so you periodically update the VDR with any new or amended company documents.

What To Include In An Investor Data Room?

When setting up an investor data room, you should include in it all the information relevant to the potential investors’ decision-making process. Most often, you will need to include the following documents:

  • Pitch deck. This is intended to help investors have an overview of your startup, and of why they should invest in it.
  • Legal information. So future investors know your startup is a legitimate business, you should share with them the place and date it was founded, government registration etc. 
  • Documents about previous raises and past investor updates. This is part of the storytelling — you are showing your investors that other people have already trusted your startup and invested their money in it.
  • Financial performance records. These include profit and loss statements, information on existing customers, and can include predicted performance as well.
  • Market research. Prove to investors that you have a promising niche, and that the moment favors the growth of your startup. Along with past performance records, market research — including competitive analysis — is the basis for your predicted performance.
  • Documents about the people who make the startup. Think about the startup founders and current team members and employees — knowing that there are high-level professionals involved in your startup will reassure investors that their funds will be in good hands.
  • Investor rights agreements and co-sale agreements. It’s important that investors know exactly what’s in it for them.
  • Onboarding documents. These are helpful for investors to become better acquainted with your startup’s processes. You can restrict access to these documents, and share them only with actual investors.

To start with, don’t include any irrelevant documents, as you don’t want to waste your time — or that of other people. 

Secondly, you know only too well that many people will look into your startup, but not all will decide to invest in it. So, why should you share sensitive information with everyone? 

When setting up your investor data room, you should not include proprietary information in it. Or if you do choose to upload trade secrets so you can share them with actual investors, make sure to gate it. You can do this by creating a user group in which you only include people who are already investing in your startup, and allow only that group to view your confidential intellectual property.

Invest In Your Startup’s Future With Virtual Data Room Software

When you decide to use virtual data room software for capital raising, you are not only hiring one more service — you are investing in the future of your firm. By streamlining the fundraising process, you will reduce costs and increase your chances of attracting and keeping valuable investors.