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A data room is a crucial component of early stage venture capital deals for founders and investors. They provide a centralized location to keep important documents and data during the due diligence process. With the rise of online and virtual data rooms, it is now even easier for startups to build and manage these spaces. However, it is difficult to determine what a startup really needs one. If there’s no sensitive information in a company plan document or financial report or in a financial report, then a startup may not need a data room.

In the past companies would keep confidential or proprietary documents in a secured room for potential buyers to look over as part of due diligence. These documents are now more often stored in a virtual investor data room.

Investors require access to a huge amount of data in order to assess a startup’s value and make an informed investment decision. Instead of sending multiple spreadsheets that could easily be lost or outdated and inefficient, it is more efficient to transfer these files to an investor data room.

Organization is the key to having a successful investor dataroom. Create an overview folder that includes all the essential information you’d like to provide investors with. This should include your pitch deck, basic financials (cash metrics, P&L, projections) and a cap table, an inventory of pending and committed investments, as well as an analysis of the competition using any first-hand market research you have conducted. It is also beneficial to share references from customers and other sources to prove that your company is gaining traction in the market.

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