A data room is a digital space where startups can store all the information they need to present to prospective investors or acquirers in an M&A deal. They are virtual data rooms and due diligence typically used to answer questions and conduct due diligence on prospective investors during the funding process. However they also can help simplify a round of funding because they provide investors with access all the documents and information they require.
Startups may have different items in their investor’s data rooms depending on their stage and size. A stage 1 dataroom will typically only contain the pitch deck and publically available information. This will give investors an overview of the company’s business and operations. A stage 2 data room, in contrast is usually shared after the company has received its term sheet and is looking to close an investment. The data room should be structured to allow for streamlined due diligence with more specific documents and data.
For example, a stage 2 investor data room could contain things such as historical financial information and projections that are based upon your current business model. This gives investors a precise view of your business’s financial situation and lets them evaluate it against other businesses. Founders should also provide investor updates in this phase of the fundraising process to ensure that investors are aware of how the company is doing and whether they’re still working on their plan.