What is an Investor Data Room and What to Include

15 Best Investor Pitch Deck Examples from Successful Startups

What is an Investor Data Room and What to Include
March 1, 2022

Way back, before all this digital stuff, companies kept their most valuable documents in a safe room. This way, possible buyers could readily see such information as part of due diligence. Storing this information meant using a room with the highest possible security levels. Back then, this was a document or data room. 

The name still stands today, but it's no longer a physical space that you can call a room. Nowadays, an investor data room is digital. Is it essential for your startup? The answer can be controversial. So, in this article, we'll cover everything you need to know about an investor data room. 

What is an investor data room?

An investor data room is a storage space, digital or physical, where companies store information relevant to due diligence. It can also hold other valuable data. For example, when an enterprise wants to buy a company, this information helps investors ensure everything is in order. 

The information in this data room answers most of the questions investors might have. So, from this perspective, it makes sense to have one. In addition, a good data room can showcase the startup's knowledge for a favorable image with investors. Plus, digital data rooms can also make communication easier. This is thanks to sharing permissions between the startup and possible investors. 

We mentioned in the introduction that an investor data room can be controversial. That's because some investors can question the validity and importance, but it shouldn't be this way. Still, we understand that you might be asking yourself if you should have an investor data room. So, in the following section, we'll cover this topic and much more. 

Should I have an investor data room?

This question is widespread among startup founders, and it's valid to have this doubt. There is a lot of added value behind an investor data room, and, at the same time, it does come with a cost. This has caused a lot of debate among VCs and founders, and we'll explain why. 

Some VCs and founders consider that a data room can slow down the process. In fact, according to some, the data room becomes a perfect excuse for investors to delay giving a yes or a no. In addition, since there's so much information, reviewing it might slow down decision-making. 

Another possible downside to an investor data room is that it takes time. There are no two ways about it. Gathering all this information can be a slow process and not ideal for spending all the founder's effort. 

It's important to note that the idea of a data room shouldn't be that the investor takes longer to decide. Instead, it should be efficient and to the point. So, further down the article, we'll cover what the Data Room should look like so that it's as efficient as possible. 

Naysayers aside, there are advantages to an investor data room. First, a data room can answer many potential investors' questions. (Actually, it can answer all, but we don't want to oversell it). 

Remember that an investor data room isn't only about fundraising. It's about your business from start to finish. Moreover, the data room tells an entire story, from technical reviews to competitor analysis. So in that sense, it's better to have it instead of not having one. 

Granted, not all investors will look at your data room, and that's fine. Let's hope that your startup has a line of investors waiting to put down their money, but this doesn't always happen. So, you want to be as prepared as possible by having a complete investor data room. Now that we've covered why you should have a data room let's discuss another important aspect. 

When should I put a data room together?

The short answer is: now. 

The slightly longer answer is that it's never too early to create an investor data room. 

Regardless of your company's stage, it's always an excellent exercise to have an investor data room. At the same time, it's important to note that data rooms can evolve over time. So, if your startup is in the earliest stages, you might feel overwhelmed if some of the valuable information is missing. 

Don't fret over the data room if this is the case, but keep it in mind. A startup evolves fast, and the sooner you have the information, the better. This leads us to our next point, one of the most important ones you will read in this article. What do you include in an investor data room?

What Do I Include in an Investor Data Room?

Let's make one thing clear. Defining what information you have to put in your investor data room can be challenging. If you put too much information in it, some investors might put off reading it. Still, on the other hand, if you put too little information, it might send off signs of lack of preparation. 

The following list suggests what you should have, so it can come off as long. However, if you find something you don't have or don't know its importance, this is the best moment to learn about it. 

So, here's what you should include in your investor data room:

Financials:

The financial documents that you should include in your investor data room are:

  • Profit and loss statements
  • Financial projections
  • Asset register
  • Audits (including accounts)
  • Cap table
  • All information about previous raises
  • Pro-forma statements for next year
  • Management accounts


Company documents:

The company documents that you should include in your investor data room are:

  • Voting agreements
  • Articles of incorporation (including amended and restated). 
  • Investor rights agreements
  • Partnership agreements
  • First refusal and co-sale agreements
  • Customer contracts
  • Meeting minutes (the most important are the Board meetings)
  • Board consents and actions
  • Board of directors' materials
  • Shareholders' agreement
  • Market research
  • Competitive analysis
  • Sales process
  • Marketing materials
  • Business plan (preferably a one-pager)
  • Branding guidelines
  • Office lease
  • Legal disputes

Intellectual property

The intellectual property documents to include in your investor data room are:

  • Patents (granted and filed)
  • IP strategy
  • Software license details (you should also list any open-source software that you use)
  • Domain name ownership

Employees

The investor data room should also include employee information such as:

  • All employee contracts. These include past and present, with titles, salaries, and records.
  • List of current employees, salaries, and titles 
  • All intern contracts, past and present
  • All consultant contracts, past and present
  • If your team is growing (or it's only you at the time), then you can include your vision. How many employees do you see hiring, and how soon?

Technology

Last but not least is technology. This is a critical component that many founders overlook. On technology, your investor data room should include:

  • System architecture diagram
  • API documentation
  • Product backlog export 
  • Existing products (for safety, you can present these with screenshots)
  • Integrations

As you can see, the list can be lengthy but don't feel intimidated by it. You can create an investor data room step by step. Plus, even if you can see that the list is quite long, there are some things that you shouldn't include. 

What shouldn't include in your investor data room?

This section stands as a warning, as there is a balance that you must achieve with the investor data room. So, there isn't a defined list of documents that you shouldn't include. Instead, consider the data inside as valuable (or not) for your investor. If certain documents aren't necessary for decision-making at that moment, then you can omit them. 

Then, there's the aspect of safety. Don't include people that you wouldn't want seeing your data. While this sounds logical, it's a step that some founders overlook. The best practice is to perform routine checkups on who has access to the data room. This way, you can include or exclude those no longer pertinent. 

Finally, another good practice is to withhold information according to stages. For example, let's say you've found that an investor is interested in your company but hasn't committed. You might consider excluding certain documents until the next stage. That's why some founders create different investor data rooms for other moments in time. This isn't mandatory and could be time-consuming, but it offers the advantage of providing information in stages. 

What are some benefits to having an investor data room?

We've seen what you need to include in your investor data room. Now, let's discuss some of the clear benefits that it can provide for you. These aren't all the benefits, of course, and what we've done is list those most important. 

Due diligence

It's okay to admit it: due diligence isn't fun. 

It's a time-consuming process that's vital for investors. In summary, due diligence is when investors thoroughly investigate your company, usually at an early stage. With this investigation, they can value whether your company is suitable for investing or not. 

As you can imagine, it's a long process that can consume a founder's time. So, an investor data room helps speed up this process. First of all, all the information is in one place. Then, an organized data room can help investors find what they need faster. Third, if your data room is secure, you are confident that you won't lose valuable information. 

Faster fundraising

The investor data room allows for more organization and easier access. Plus, it can make for faster fundraising processes. Now, we know that some people out there believe that it's the opposite. They feel that an investor data room could actually slow down the process. 

Is that so? It depends on how organized your investor data room is. The clearer the information, the more it will help speed up the fundraising process. Plus, it can help you with one essential aspect. 

Organization

To have an organized investor data room, you need to manage your data. It's logical, right? As you go along in this process, you will also learn a lot about your own company. Plus, going through all these documents further readies you for more fundraising processes. 

Having that information fresh in your mind is vital. In fact, this might be one of the most underrated yet essential parts of an investor data room. 

We've discussed much of the benefits of an investor data room. So, now, there's a big question to answer. What do I use to create an investor data room? We'll explain all the details in the following section. 

How to choose data room software?

We're overlooking a critical aspect of an investor data room. What if you want to have a physical data room? In that case, the room should have the necessary security and strict access procedures. 

The reality is that you should opt for a digital investor data room. There are many software options out there, and for most budgets as well. You can find mainstream options such as Google Workspace and Dropbox. There is also more specialized software, such as CapLinked and Contract Zen. Before choosing one, you should check reviews. Also, be sure to inquire about safety features and backups. 

Another vital aspect that you should research is the support team. Don't be afraid to ask, as the team should explain how it handles issues such as access and permissions. 

Privacy and security are vital in an investor data room. After all, you're holding the information crucial to your company and your competition. The more you understand your software, the better, because something unpleasant can happen. 

What happens if someone leaks information from my Investor Data Room? 


Your company should have established processes in case of a security breach. For example, the software should trace those who have had access to sensitive documents. Still, leaks can happen. If your company goes through the unfortunate event of having a data leak, there's not much that you can do to recover it. Instead, your actions include filing a complaint to authorities and pursuing legal actions. 

Closing thoughts: 

It's common for founders to ask whether they should have an investor data room or not. As we migrate to digital, these have become much more accessible, both in cost and ease of use. So, in this article, we cover the essential aspects that you need to know of investor data rooms. 

We've also provided a detailed list of what you should include in your investor data room. Founders can feel overwhelmed when starting one, but they can prove vital. Also, creating an investor data room can be a great learning experience for you as a founder. So, we hope that you have enough information to make the right decision about your investor data room.

What is an Investor Data Room and What to Include
Bernardo Montes de Oca
Content creator in love with writing in all its forms, from scripts to short stories to investigative journalism, and about almost every topic imaginable. From start-ups to nature, from literature to aviation. Hearing impaired, so let’s talk loud and clear.
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