How to Build a Data Room
This is part of a series of articles aimed at helping up-and-coming founders and entrepreneurs entering the startup game for the first time. The startup world can be intimidating so we’re here to provide free access to resources and education to help make it easier to get started.
As an early-stage Venture Capital fund, we have the absolute privilege to engage with some of the brightest and ambitious founders building the next amazing thing.
We speak to a variety of founders; those who are veterans or at least know the startup game pretty well all the way to those who are newbies doing this for the first time like a fish out of water.
This article is for the up-and-coming founders!
So picture this…we get to the end of the conversation – we love everything they’re building, really enjoyed the conversation and now talking about next steps. Usually we will request they send us a Data Room and it’s here that many first-time founders project the blank-face….
*Founder confidently replies with “absolutely!”*, but they secretly are thinking, “uhhh, what’s a Data Room?”
Today, we wanted to clear the air a little bit for beginner founders out there, and provide a quick primer into understanding what a Data Room is and why it’s important especially when you’re raising external capital from Angels and VCs.
As a founder, tackling the data room effectively is one of the best methods to strengthen your pitch to a potential investor and leave a memorable impression.
Now, what exactly is a Data Room you ask?
Think of it as a holding place for “stuff” you want to share. This “stuff” can be in the form of documents and items that are pertinent to company, but more importantly, they are things that are worth sharing with stakeholders — not everything you have needs to be put on show — this can be a bad thing!
Effectively, the data room is a supplementary storage area whose main purpose is to showcase the traction, growth, inner workings of your business thus far.
As mentioned earlier, Data Rooms are mean for external parties; one of which is investors.
If you want to raise external funding, this is a crucial component addition to your portfolio along with the deck that can provide deeper insight to your company.
For beginners, we would recommend using Google Drive as the third-party platform of choice to build your data room. But you’re more than welcome to use others as you see fit.
Organizing your data room with folders, having an easy-to-follow structure, and making sure your data room looks neat and clean are crucial as your target audience is likely someone who knows nothing about your business and needs to be able to easily navigate what’s in front of them – Google Drive makes checking these criteria easy.
As far as content goes, here is a comprehensive list of “non-negotiables” that we recommend just about every data room includes:
Incorporation Documents: These are the documents that you have filed with a government body to officially and legally establish your corporation’s creation i.e. Delaware C-corp (US), Pty Ltd (Australia), Pte Ltd (Singapore) etc. They are a checklist item that show your investor that at the very least you have established yourself as a company and are legally allowed to receive external funding.
Cap(italization) Table: By adding a Cap Table, the reader is able to see clearly and transparently who they’re getting involved with. It can help to create a sense of “FOMO” for any potential investors and showcase the traction with other investors you’ve already got.
Financials: Some critical information include revenue and operating expenses. However, for companies that are at an early stage i.e. pre-seed/seed, these can include projections.
Investor Materials including a deck, flyer, and/or brief. Essentially any other material you want to present to the investor that you have on hand. It helps keep everything in one spot.
Product Demo samples that you might be able to provide in a data room appropriate format — these might include videos of you using the product or links out to websites/platforms that provide access for investors to have a look around.
Team: explaining the members of your company and adding a short blurb on their role can also enhance the legitimacy of your data room
Traction: These may include customer contracts, Letters of Intent (LoI), engagement letters, signed agreements, metrics on user growth, retention etc.
Past investor updates: If you’ve already got some investors under your belt, including newsletters or email updates that you’ve sent in the past also adds to building credibility around your traction.
Remember what you want to include is up to you!
Above all, remember to keep it simple.
It can be easy to get carried away and begin to add every little detail and document you find even a tiny bit relevant, but you want to avoid overwhelming your reader.
When in doubt, stick to the non-negotiables!
Figure 1: Example Data Room
We included a screenshot of an example data room that you can use as reference. Take note of the formatting and the README. You can use a REAME to provide context to investors about what to expect and how to navigate the data room.
If you’re new to being a founder, starting with a solid data room shows potential investors that you know what you’re doing.
It’s a formal method of showing that you’ve got your stuff together and you’ve got what it takes to stay organized and to build and scale a business.
As your company grows, having that data room to build off of as you continue through your series funding will be a convenient baseline for continuing documenting your traction!
If you would like additional information, check out this explanatory video from our very own General Partner Barry Winata!
Until next time,
Nico
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