An investor data room is where startups can store due diligence documents for investors who are interested in investing in a round of funding or for acquirers in an M&A transaction. These are documents that do not fit into an pitch deck or slideshare presentation, and that prospective financial backers need to check before investing or sign off on the term sheet.
These documents are essential to investors because they help them make quicker decisions and easier, which cuts down the time investment managers have to spend on the deal. They also allow them to feel like they are a part of the startup’s team, which can build trust and leads to more informed feedback.
The most effective investor data room will also provide startups with visibility into who is accessing what information, ensuring sensitive documents do not fall investor data room into the in the wrong hands. Transparency allows startups to customize their conversations with investors and enhance the results of any transaction.
In a pinch, a shared folder can function as an investor data space for angel or seed investors, but purpose-built software is a better option, especially for Series A rounds and beyond. A high-end, professional-grade virtual dataroom is more affordable than consumer grade software and includes advanced security features, an efficient search capabilities, and other features. Some even offer digital rights management (DRM), which secures files to ensure that they are not able to be copied, edited or printed by anyone outside the platform. CapLinked’s investor data room product is a good example of this feature, as well as others.