VDR setup and management

During a fundraising process, investors will engage in a due diligence process. Complexity depends on several factors, such as business maturity, deal size, due diligence style.

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If you plan to interact with multiple investors and share large volumes of data, you should consider a virtual data room. A VDR is an online repository allowing you to securely store and share documents with interested parties.

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Setting up a basic deal room in not difficult, but it is guaranteed to be laborious and take time. Gathering, organising and preparing data is not the best use of a founder's time. It involves coordinating with colleagues to identify, update and prepare a collection of accurate company information.

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A well-structured VDR and good information flow can keep investors engaged, increase competition and lead to a better deal outcome.

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How to build a well structured virtual data room

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The first step involves choosing the data room suited to your needs. Not all investor data rooms offer the same functionality, as reflected by cost. A startup raising Series A or Series B will have different requirements from a large enterprise preparing for a sale.

Several data room providers are available at different price points, which can make the selection confusing. Price, reporting functionality, ease of use, workflow, Q&A, customer service and security are all factors in determining your provider.

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You should have your own due diligence checklist (an index) of information to share with investors. This will include a list of documents that investors will likely request. These typically include legal, strategy, financial, HR, sales and marketing, commercial, IP and legal documents.

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You can create a folder structure and start populating your VDR upfront based on your index. By doing so, when investors move to due diligence, you have information ready to share - this will speed up due diligence.

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In addition, collecting and organising information upfront will help refine your equity story and projections, and prepare for due diligence questions.

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Investors might also provide you with a due diligence checklist, requesting specific information during the process. A dataroom allows to easily release information to multiple investors, while keeping track of what has been shared and who with.

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During the diligence process, you should monitor the VDR to ensure that documents and answers are made accessible to relevant investors.

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What to be aware of in preparing a VDR?

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When gathering and preparing information, remember that a data dump is not the best way to share information. Providing the correct information will ensure that investors are looking at your business in the right way and control the narrative.

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Some considerations you might want to bear in mind when gathering data:

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• Exclude irrelevant information - knowing what to share will avoid having to gather data that investors will not need
• Identify confidential documents - this might need to be redacted or only shared with selected investors in advanced stages
• Present data in the right light - you may need to overlay analysis on data, to provide context

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A well organised data room will speed up the due diligence process and reduce the dropout rate. To achieve this, keep information well organised.

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This entails renaming files and keeping an organised and logical folder structure. If possible, consider a VDR software with a file indexing structure. This creates an index number for each folder and file, making it easy to reference and locate information for investors.

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In certain instances, you might want to set multiple datarooms. For instance, you could have a less confidential, summary data room for pitch deck, financial model, KPIs analysis and preliminary information. This would be limited to the early stages of a process and made available to multiple investors.

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Separately, you could have an extended VDR with confidential files to make accessible to investors who have shown strong deal interest.

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Even within the extended VDR, you will want to review access level, security settings and permissions. Identify which folders and files you want to make accessible, when and for which counterparties. More expensive providers will have superior flexibility for controlling access to sensitive information (more granular security features, watermarks, etc.).

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How our specialists can build a great VDR

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Uploading documents to virtual data rooms is only one aspect of a due diligence process. Gathering all the information required, analysing it, making it investor ready and releasing it to investors is the harder part.

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An Ithaca specialist can be a great resource in the VDR preparation stage, helping you save time and resources. They can support in planning the VDR folder structure, information gathering, redacting and loading documents into the data room and monitoring and answering investor questions.

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