What is the key to startup fundraising?
A bit of industry statistic number-crunching shows that a staggering 140,000 new startups are founded daily. If you’re one of them, this clarifies the need for you to stand out from the pack.
And for that, you need a lot to think about before jumping into action.
Usually fundraising consists of several stages, for which startups should be perfectly ready to increase the chances of a favorable outcome. While the process may vary by industry, due diligence remains an integral part of any case.
Typically, it involves investors investigating sensitive information such as financial documents, intellectual property, corporate documents, financial updates, etc. Obviously, this data is valuable for a startup, so companies need reliable ways to protect data from the general public or competitors while making it available to the investor.
This is where virtual data room solutions for startups can come in handy, delivering robust data protection and convincing potential investors of your engagement and viability..
What is a virtual data room for startups?
Virtual data room, also known as investor data room, is a cloud-based software solution that meets startup needs for secure document storage, remote data access, shared space for investor collaboration, and reporting. In other words, the platform is a founder’s tool for navigating and optimizing the fundraising process.
Among other business solutions, a virtual data room stands out with its substantial capacity, particularly for startups.
- Firstly, an electronic data room provides proven security, thereby strengthening the position of a startup among competitors.
- Secondly, its accessibility allows teams to work and stay in touch anywhere and investors to make decisions faster with data at hand.
- And lastly, the platform makes capital raising transparent, helping convince investors of data integrity and accuracy without pitfalls.
Still, the right software is more likely to benefit startups and help them deal with challenges efficiently. Specifically, the data security, relationships with prospective investors, the due diligence process, and reporting depends on a virtual data room provider.
Therefore, potential users must ensure the platform has everything for each startup life cycle component before making a choice. By the way, most providers offer a free demo and trial for this so that you can see and test how it works.
Use of data rooms for startups
Right now, your startup could be at any of four key stages. Here’s what a virtual data room can offer you at each one.
- Forming a team. This is the pre-seed stage, where you need to obtain initial investment and form a core team. You’ll also be drawing up documents that need to be organized. A virtual data room acts as a remote file server and also gives you a secure place to showcase your pitch decks without the risk of potential co-founders walking off with your idea.
- Talking to potential investors. Who’s viewing your pitch decks? Who spent the most time doing so (meaning they might be most interested)? Data rooms provide such analytics for startups, allowing you to follow up on leads fast.
- Undergoing due diligence. You need to show confidential information to persuade investors of your transparency. You also need to retain full control of this information, in case anyone decides to back out of the deal. A data room offers granular access that you can grant and revoke instantly.
- Reporting to investors. Once you’ve raised investment, you need to report on the progress of your project. A data room is a perfect way to share confidential details such as growth and expense reports with only the people who need to see them.
Investor data room features
The software features comply with what founders, investors, and portfolio companies typically require at each startup fundraising stage. What’s more, they help securely host sensitive company documents and coordinate organizational structure.
- Bulk upload – upload hundreds of documents in one click.
- Automatic file indexing – navigate data easily as you move or upload it.
- Granular permissions – specify data room access policies for viewing, downloading, printing, etc.
- Remote shred – revoke access to data even if it has been downloaded.
- Two-step authentication – log in with a single-use SMS code to prevent unauthorized access.
- User permissions – control access to sensitive information based on user roles.
- Activity log – track data room activities, including views, downloads, prints, and session times.
- Real-time statistics – get insights into the most visited files with the number of views, printouts, downloads, and other aspects.
- Q&A – support investor communication through Q&A rounds in a secure location
Advanced virtual data rooms integrate with other valuable solutions to empower team members and enable them to work with well-mastered tools. The most popular for startups are file-sharing services, cloud storage, and mobile applications.
- Gmail and Outlook. Using these tools, founders can send confidential documents right within virtual data rooms without extra tabs.
- Cloud storage. This integration makes it simple to sync Google Drive, Dropbox, or Box contents with a data room and send sensitive data directly from the cloud.
- Mobile apps. The fundraising data room is accessible on the go via an optimized web browser, making it easy to view documents and communicate with investors anywhere.
Startup funding is a highly competitive market, which makes succeeding even harder. However, the features and integrations mentioned help your startup act quickly, follow up with the right messages, and even impress potential investors, increasing your chances of successfully raising funds.
Data room benefits for startups
The main advantages of the investor data room are as follows.
Neatly organized storage
For a startup, documents are one of the tools to convince investors. Therefore, the platform should be well-organized and easy to use to facilitate in-depth data investigation. To this end, data rooms feature bulk loading, automatic indexing, labels, search engines, scroll-through viewers, and mobile apps. All these options simplify workflows and demonstrate to your lead investor the team members’ sincere and profound interest in the business idea and good preparation for the due diligence process.
By the time a founder gets to series A or B, investors expect to see intellectual property information like patents, trademarks, company documents with restated articles of incorporation and first refusal agreements, cap table, onboarding documents, and other data from the diligence list.
A secure and organized data room provides easy navigation for investors and robust security for startups. For example, an admin can restrict access to data based on roles, IP addresses, or locations. It’s also easy to disable screen capture, printing, downloading, and sharing. In addition, there are customizable NDA templates to restrict the use of information by specific investors.
Another way for early stage companies to impress investors is to stay in touch and respond quickly to updates, questions, and requests. Data rooms have private messages, group chats, integrated email, and a Q&A module. Besides, investors can comment on documents and add annotations or notes. What’s more, team members see it all in real-time since they get instant notifications to be in the know.
You can strengthen relationships with business angels and venture capitalists and have authentic interactions by ensuring transparency. For this, virtual data rooms enable investors to have the most important documents at their fingertips and keep abreast of all transactions and updates for well-informed decisions.
At the same time, companies can generate detailed audit reports, delivering detailed information on data room activities, including communications between parties, documents viewed by investors, questions and answers raised, etc.
Best Providers For startups:
|User and data management||Access security||Other features|
|Digify||screen shieldcopy, print, and download permissionsfile indexingNDAdrag-and-drop upload||control with email validation or additional passwordrecipient identity verificationdata room expiry||real-time statisticsdetailed file trackingexport activity logDropbox, Google Drive, Gmail integrations|
|iDeals||detailed user permissionsExcel viewing permissionsnotifications about uploaded and deleted documentsfence viewremote shredgranular document permissionswatermarking||access control and expirationIP and time restrictionstwo-factor authenticationuser security impersonation||full audit trailstracking user activitygroup overview reportsgranular access to Q&A threadsworkspace branding|
|DealRoom||customizable permissions4-levels permissionsbuilt-in due diligence templatefull-text search||multi-factor authentication||document activity and buyer engagement analyticsbuilt-in requests managementSlack, Microsoft Teams, Gmail integrationsversion control and Excel trackers|
The listed data rooms are fully suitable and equipped solutions for startups, delivering a great feature set and security. However, they still vary, and the choice is up to the founder.
As the table shows, iDeals offers the perfect level of data and user management security. On the other hand, Digify and DealRoom have integrations which can be decisive for some startups that have been using integrated products for a long time. But all-in-all, you decide whether to prioritize convenience or safety.