There tends to be this pivotal moment in a capital raise for every founder where things are moving ahead quickly, you really like a couple of investors you’ve been speaking with and then – one of them asks for you for a bunch of data. How do I pull all of this data together? Do I even have what they’re asking for? Boy, this is a lot of work! And in the matter of a phone call, the cool calm entrepreneur disappears and your brain explodes!
How do you avoid losing momentum in the fundraising process when asked for access to your data room? Build it early. Build your data room before you start fundraising, before you build your pitch deck, before you actually need it.
The benefits of having an organized, well thought out data room before a potential investor asks for it can cut down on your fundraise time and maximize your chances of success. It also helps position you to think about your company as a financial investment for an investor opposed to you “looking for capital”.
A well-built data room (especially at this early-stage) tells investors you respect their time, you are an organized businessperson and are responsible. You’ll save all parties, including yourself, time by eliminating the need for investors to dig up and through your data and peppering you with questions along the way. You want to provide answers to the questions your potential investor hasn’t asked yet through your data.
So, what’s a good data room look like?
Well, it’s not exactly straightforward. Due diligence checklists tend to be pretty in-depth and vary by investment firm. What you decide to include will depend on your product, business model and what you believe to be most critical in conveying the opportunity you are presenting by way of your company.
The first step in creating your data room is deciding which filesharing system (Google Drive, Sharepoint, Dropbox, etc.) you’re going to use and start compiling data there. Remember to use a simple, straightforward naming convention across all documents (highly recommend including the date the document was last updated).
Below is an initial ‘Data Room Checklist’ we suggest as a good starting point. You should receive a specific, more detailed list from your potential lead investor.
Data Room Checklist:
- Investor Deck
- Revenue Forecast Model
- Income / P&L Statements
- Cash Flow Statements
- Balance Sheet
- Salaries by Department (Currently & Post Funding with Critical Hires)
- Use of Funds Breakdown
- TAM Analysis
- CAC:LTV Analysis
- Competitive Analysis with Features & Pricing
- Pipeline with $ Value and Expected Close Dates
- Typical Customer Contract
- Historical Cohort Analysis
- Latest Detailed Cap Table
When you take the time to do this as an early-stage company you will differentiate yourself and set yourself up for success by having reliable information at hand and ultimately, make a great impression. It might be the difference that makes the difference!
Let your data room be your panic room of fundraising. Build it before you need it.