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.
However you go about it, the bottom line is your team has to convince potential investors of the viability — and lucrativeness — of your idea.
What’s more, decks and pitches are not enough. Investors need to be able to look under the hood and see the financial data analytics for startups. This means they need secure access to your company’s most valuable information — with all the nightmare scenarios that situation conjures up.
This is where a virtual data room for startups (VDR) can come in handy. In this article, we’ll look at what this means and outline the extra value you get with a VDR.
Data Room use for startups and fundraising
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.
Regardless of whether you’ve reached the break-even point or not, scaling up requires additional capital. This can come in the form of a startup fundraiser, accelerator program, or startup incubator. Alternatively, it can be a direct investment from Venture Capital (VC) funds that come in several rounds (Series A, B, C, etc.), all the way to IPO.
The main point is that at any stage after seed funding, external investors will want to take a look at how the previous rounds of investment were spent and evaluate your chances of success. Here again, a data room lets them check the financial data of your company in a secure environment that you control.
Specifics of startups
As a startup owner, you’ll be familiar with a few main challenges:
- Offering something innovative that hasn’t been done before
- Handling data securely among remote team members
- Ensuring the data stays protected from copying to address IP right concerns
The solution is to have a secure collaborative environment in which company members worldwide can jointly work on ideas and share work-related files and data, while not being able to copy anything. This is one of the best use cases for data rooms, as they provide such features. These include:
- Centralized document storage integrated with Google Drive, Dropbox, and other secure cloud storage options, allowing easy file sharing
- Data encryption, so nothing can be easily copied and pasted elsewhere (Granted, users can still copy data verbatim from the screen, but this is where your NDA comes in.)
- Granular user access controls to ensure everyone has access only to the data they need
- Usage data analytics for startups, which lets you or your C-level team know which user spent what time with which document. This helps you evaluate investor engagement and ensure that team members don’t mishandle the data you’ve given them access to.
Features like these help your startup act quickly and follow up with the right messages at the right time, increasing your chances of successfully raising investment.
Startup funding is a highly competitive market, which makes succeeding even harder. Startup tech companies also have to be transparent in order to attract investors and must move quickly to close deals. A virtual data room for startups is a crucial tool for achieving both of these goals.