What’s In a Data Room?
Scale yourself during the fundraising process
Data rooms are one of those things that can save a founding team a ton of time and allow themselves to scale during the fundraising process. It also allows interested investors to access information in a secure manner and helps them stay organized. It requires some upfront investment but is totally worth it.
What to Include?
Pitch Deck + Supplementary Decks
Remind me the details of the pitch again?
This is self explanatory. Include the pitch deck you’re using to raising your round along with any supplementary materials. The latter tends to be content that is created to answer common questions or flesh out points that were brought up during discussions.
Corporate Legal Documents
Do the legals check out? Has this company been setup properly? Does the operating agreement check out?
These are primarily for legal counsel to ensure the structure of your entity is ok. Include formation documents, operating agreements, certificate of incorporation, IRS EIN confirmation, et al. Your legal counsel will be able to tell you what is required and can generally take care of populating this.
What is the shape and size of this market - can this support a big business? What about competition? Why now?
This is extremely underrated but can be super helpful to accelerate investor diligence. Many investors spend a lot of time digging into the market and dynamics of the the customer base. I have appreciated white papers, primers, primary research, competitive studies, among other things here.
Technology and Product
So you've told me a lot, now show me. What might P/M fit look like? Are there any technological advantages?
The important thing at seed is a product demo or credentials for a live account. In some cases, and often times in A rounds, the details of your tech stack are required. We often times request product roadmaps and materials to understand the product development process.
Sales & Customer Materials
How does the team engage with customers? What are sales cycles like? What is the sales motion? How scaleable is this distribution strategy?
Items here tend to be customer testimonials, user stories, and a list of customers we can reference check. The references should be given a heads up and it should be expected investors do this randomly. If you have major sales contracts, this should be included in here.
Providing color to the sales process, a snapshot of the pipeline, and any relevant materials to get comfortable with the go-to-market never hurts.
Human Capital Documents
What type of culture do the founders want? Who is on the team? What's the plan going forward? How are people getting paid?
This might be surprising but important. After all, people are helping the business grow from nothing to something. We tend to see employment contracts, stock compensation agreements, culture/ethics statements, roster of current employees, and future hiring details.
What are the key operating levers for the business? How does the founder think about them? What are expectations for the next 12-18 months?
Include your financial model in Excel format. It’s helpful to have the latest financial statements as a reference.
How much does the founding team own? Who is currently invested? Option pool? What's the current deal look like?
The term sheet is an obvious one. In addition, a worksheet showing pre-close and post-close cap tables. It helps to have documentation related to previous fundraises: outstanding securities, voting agreements, etc — some of these will likely cross reference your company legal documentation. If there is a lead, there is generally a draft stock purchase agreement, investor rights agreement in here too. Legal counsel will tend to request other pertinent documents as well.
Odds & Ends
1. I have found that any of the common file storage providers are suitable for this — don’t go pay for a premium offering with bells/whistles. Dropbox, Box, or Google Drive are fine
2. Everything should be in PDF format except a few select documents that are likely going to be in Excel
3. Make sure you have the proper permissions — you don’t want the folders to be available to anyone/everyone. Also ensure you have the right permissions in place. Generally, you have 1–2 people from the fund and legal counsel
4. Your legal counsel can help guide you as to the pertinent documents required (especially around corporate formation and the latest cap table)
5. Iterate on the contents. If you noticed a common ask among investors, bundle it up and place it in the data room!
I hope this can be useful for founders as a quick reference. If you think I’ve left anything obvious out, please let me know.