The Essential Startup Data Room: Key Documents, Tools, and Best Practices

I wrote the ultimate guide to creating an outstanding data room for your startup.

What is a data room? It's a collection of documents crucial for investors when evaluating a startup. This article outlines why startups need a data room at all stages and what structure and documents should be included. I'll also explain why having a killer data room is essential.

I remember pitching my company, Next Games, in 2013. We were just getting started, and investors asked for a data room. It felt odd because we had barely anything to show. But the nuances matter. Even experienced founders might not grasp what VCs look for. When investors show interest, having a ready data room makes their next steps more accessible, helping them quickly dig deeper into your company's details.

Investors can move faster if all information is readily available, building confidence more swiftly. As an investor now, I often jump from one company to another without dedicating half a day to each. The main reason? The information I need isn't usually there, leading to back-and-forth emails with founders. A comprehensive data room speeds up the process and could get you quicker decisions from investors.

First off, let's discuss tools for hosting your data room. Many use DocSend for its flexibility in tracking usage and investor interest in specific documents. Another favorite is Notion, which even offers templates (linked here). Convenience is critical; investors juggle numerous tasks every day. Making it easy for them to access what they need can lead to faster decisions.

For added convenience, I prefer Google Drive folders containing all necessary documents under folders. Transparency is crucial—enable the "Anyone with the link can view" option in Google Drive to avoid constant access requests from investors. If certain documents are sensitive, inform investors that additional permissions are required for an additional set of folders.

Would NDAs add more protection here? They would, but there's a challenge here. I personally wouldn't ask investors to sign an NDA because if they decide not to invest, it could make it difficult for them to have open discussions with other companies in your sector without worrying about potential legal risks.

Now, let's talk about essential folders for every startup:

1. Corporate Documents

Incorporation Documents: Include signed documents or plans for incorporation is still to be done.

Bank Account Details: Share where you bank and the currency used.

Shareholder’s Agreement: Include this if it exists, along with any share vesting details.

Cap Table: Share this as a separate document if it's not part of the shareholder's agreement. Why not use my template.

Past Fundraising Documents: Include signed SAFE notes, convertible notes, or priced round documentation.

2. Resumes

Include founders' resumes, early employees, collaborators, consultants, and advisors. Use a readily available online template, like VisualCV. Preferably, all resumes, especially founders' ones, would follow the same formatting.

Highlight roles in file names (e.g., "Joakim Achren [Founder]") to make things easier for the VCs.

3. Traction

The traction folder should contain all the details on interactions with actual customers. Maybe you haven't yet launched your product but have done customer interviews. This is the folder to place all such documents; the investor will want to review everything you have.

If you have already shipped a product to users, it's good to prepare documents that contain data on what the users are doing with or in your product.

You can take screenshots of metric charts and put them into a PDF. You can also bring in CSV files with the raw data. The raw data is sometimes useful, as investors might want to know specific questions you've yet to encounter.

4. Past investor updates

New investors will want to see past investor updates highlighting a few things: a) how you communicate with investors, and b) what your focus has been and steps taken over the past months to get to where you are now.

If you don't have investor updates in the data room but have already had investors involved for years, it can signal that you are not very communicative, or at least not consistently. I have some articles on investor updates; take a look here and here.

5. FAQ

This is a good one to have as it helps new investors understand the questions that people often want to ask and the answers that have been prepared. Then, the investor will not need to spend time emailing you all sorts of questions.

It's also easier for them to dig deeper and ask follow-up questions.

I've shared my "Top 20 Questions Investors Ask" ebook here so you can use it as a template to create your FAQ based on these questions.

Final words

Did I miss something? Please share it in the comments.