7 Things You Need to Know Before Starting a Data Room Agreement with an Investor

Virtual data rooms have been a regular part of business activities like capital raising, mergers and acquisitions (M&As), fundraising, joint ventures, and strategic partnerships for over a decade now.

That’s because a virtual data room is among the most reliable tools for such kinds of transactions, and most VDRs hardly take only 10-15 minutes to set up. Yet, it is important to know how to use data room software properly and efficiently, especially for external parties like investors, buyers, and so on.

Therefore, here are some of the most important things to consider when setting up online data room software for dealmaking.

7 tips for setting up a virtual data room for investors

1. Find a certified virtual data room provider

Whether you are looking for an M&A data room or a VDR for fundraising, start with choosing a secure data room provider.

When you compare virtual data rooms for investors, make sure they are certified ones. A certified virtual data room provider complies with basic cyber security standards, including ISO 27081 and ISO 27001. Furthermore, local or geographical certifications are also mandatory to operate in specific regions or countries. Some important regional certifications include GDPR, FINRA, SSAE 16, and SOC2.

Here are some of the most secure and best virtual data room providers for investors:

  1. iDeals virtual data rooms
  2. DealRoom data room
  3. Merrill Datasite
  4. FirmRoom data rooms
  5. SecureDocs data rooms

2. Prepare a list of documents to be uploaded to the data room

Potential investors will definitely look for all important corporate documents before making a decision. Modern-day decision-making is based on the latest and refined data. However, knowing what should be included in the due diligence checklist will not only help you save time, but the data organization will be better.

Here are some important documents that must be included in a fundraising or M&A data room:

  • Company documents (AOA, capitalization table, voting agreements, etc.)
  • Board of directors’ materials
  • Financial statements (balance sheets, profit and loss statements, projections, etc.)
  • Intellectual properties (trademarks, patents, software, IP strategy, etc.)
  • Human resource data
  • Technology
  • Market research
  • Sales

3. Structure your data in an easy-to-find manner

Structuring your corporate documents in the right and easily searchable order is necessary. You can start by following the due diligence list you prepared and structure your folders accordingly. Creating folders and subfolders for documents of similar nature improves the document search process.

Moreover, you can improve the data search ability by using advanced virtual data room services. For example, high-end virtual data rooms give you the option to search a document via search tag, keyword, or even a phrase or sentence from the document.

Thus, with a decent due diligence folder structure — and a data room with good search capabilities — you’ll have no problem navigating your files and finding all the necessary information at ease.

4. Set security settings

Presenting your confidential data to the investors is necessary, but having full control of your documents is also essential. Virtual data rooms have so many options that help you control the flow of documents, but surely, the number of options depends on the data room services you use.

Any good quality electronic data room has document access control settings. That said, VDRs allow you to set access restrictions for the users according to your desire or needs. For example, if you feel that investors shouldn’t be able to download, save, edit, copy or print your product prototypes, you can activate fence view or read-only mode on those documents. VDRs also allow you to revoke document access, track document interaction activities, or adjust access permissions literally anytime.

5. Create separate data rooms for investors

Dealing with one investor at a time is outdated, and it reduces the chances of desired outcomes. You can use a virtual data room to negotiate with multiple investors simultaneously.

For this, create numerous data rooms for all potential investors and start with pre-due diligence documents. If the investor shows intent to proceed further, prepare the data room for due diligence.

When you create a separate data room for every investor, you can negotiate with all of them simultaneously without letting them know that you are in talks with other investors. This will help you close the best possible offer.

6. Get NDAs signed by the investors

Although virtual data rooms have multiple security layers, it is highly recommended to prepare NDAs and ask the investors to sign them. NDAs will entitle you to take legal action in case the investors misuse your data. Many VDRs provide ready-made NDA templates, which can be used as they are or adjusted to your needs.

7. Update documents regularly

It goes without saying that documents uploaded for due diligence must have the latest data. Moreover, even during the due diligence process, it is mandatory to add the latest events and information to the documents so that investors have a clearer picture of everything. Be sure to regularly update your data room and use auto-notifications options for making sure that you and your potential investors are on the same page.

Final words

Setting up a virtual data room for investors becomes easier when you know what should and shouldn’t be added to the VDR. Besides, the tips mentioned above can help you set up your data room effectively and boost the chances of desired outcomes.

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