Even if initial interest among investors is quickly aroused, after getting to know each other, a more or less extensive examination of the start-up follows. This check is also called due diligence. Investors screen the company for financial, legal and technical risks and verify the statements made. The necessary documents are made available in the so-called data room. So what belongs in the data room?
Company and Shareholders
The corporate documents give the investor a clear picture of the company’s control. For example, participation agreements can contain far-reaching co-determination rights that conflict with future votes.
The data room includes: the deed of incorporation, the current version of the articles of association and list of shareholders, a current excerpt from the commercial register (not older than six months) and participation agreements, which usually regulate relevant co-determination rights.
The investor gets an insight into the current figures and thus also the burn rate. So if you played poker, you now have to put your cards on the table. Therefore, the earlier a round of financing is prepared, the more room and negotiating leeway the start-up has and thus a better negotiating position.
The data room includes: At least the last three annual financial statements, the current business evaluation for the current financial year (if no annual financial statements from the previous year are available, then also the evaluation for the previous year), a list of existing, long-term contracts (rents, leasing, etc.) ), loan agreements and credit agreements such as overdrafts and the tax returns and assessments submitted for the past three years. For the sake of completeness, all degrees and notices can of course be stored.
Personnel is usually one of the largest cost pools. This applies above all to digital topics, where product development and sales can be linked directly to the number of people. This raises the question of what future growth could cost and what human resources are still available.
The data room includes: A complete list of personnel with an organizational chart (gross salary, starting date, activity, periods of notice), if available, sample employment contracts and notices of any tax audit.
Everything belongs here that makes the addressed market and the developed technology/product verifiable and objectively describes it. These can be relevant studies, conference papers or journal articles, for example. This also includes evidence of the respective product or technology from third parties, such as expert opinions as part of research or funding applications. The same applies to funding decisions, which are mostly granted for innovative research and development projects. If available, a list of the patent applications made or patents granted is also required.
The data room includes: documents on the market (presentations, specialist articles, studies), expert opinions and funding notifications, a list of patent applications made or patents granted.
Even if the current business plan with a complete financial planning is usually already available to the investors, additional information such as offers for the planned costs can be found here if possible. The sales page provides an overview of the
The data room includes: The current business plan including complete financial planning (profit and loss account, liquidity plan, planned balance sheet), offers for future costs such as investments, an overview of the expected sales, which are supported by submitted offers and declarations of intent if possible.
So if you keep the data room up-to-date at all times, you not only save time at the decisive moment, but also a lot of work. An up-to-date data room is definitely a big advantage for the next round of financing. A PDF with the relevant documents can be found here for download.
Do I need VDR for Startups to handle more stakeholders?
One can theoretically manage multiple stakeholders through a series of emails, additional file management tools and integrate each stakeholder’s feedback / input separately, but it’s a disaster waiting to happen. Even the cheapest solutions that integrate all these capabilities into one VDR will cost around $ 500 / month, while the average market price is almost $ 2000. It’s a fortune in fixed costs, especially for startups at an early stage! With Folder It you can have everything you need for due diligence, and VDR for Startups in a nicely linked, affordable package.
Folder It raises a complicated e-mail, cloud, manual tracking-based mechanism, which is at best a stop solution, to give you access to:
- permissions at user level / user group with expiration of automatic access;
- approval workflow (in serial or parallel);
- roles and sub-accounts for unlimited hierarchy;
- automatic storage;
- alerts and audit trail;
- available anywhere with internet access.