The fundraising process
For most start-up companies seed funding is essential to their existence and ability to grow, but trying to raise funds can be a long, arduous, complex and often frustrating process. The fundraising process is not even guaranteed to end in success; of the 20% of small businesses that fail in their first year, 38% run out of cash or fail to raise capital. A lot of effort and time goes into attempting to secure funds so start-up companies need to give themselves the best chances of success.
The fundraising process is a series of stages. Creating and perfecting the pitch-deck is often viewed as the most important stage but experienced investment professionals rightly recognise the equal importance of the due diligence stage; misunderstandings or lack of transparency at this stage will result in delays or failure in attracting funds.
At a time when company executives are extremely busy making their companies attractive for investment, many forward-thinking start-ups use a Data Room. A Data Room saves considerable time in managing due diligence and enables efficient and productive engagement with investors.
How will a Data Room help you raise funds?
An investor is not going to provide funding without a thorough appraisal of a company’s current situation and chances of success. In deciding whether to risk investing their money the investor will want to scrutinise the company’s documented information. A Data Room provides a secure, online central space where you can store, organise, update, and manage all the information an investor will want to inspect as part of their due diligence.
Virtual Data Rooms have mostly replaced physical due diligence rooms for practical and cost reasons. Virtual Data Room technology provides far superior security and operational efficiencies than generic file-sharing software and removes the risk and uncertainty of sending highly confidential information by email. Additionally, the secure environment of a Data Room enables you to communicate and engage with multiple investors in a controlled way.
Benefits of a Data Room in the fundraising process
There are several benefits to using a Data Room for companies seeking to raise funds. The benefits don’t end with fundraising; Data Room technology facilitates the company’s future growth and development. We will look at some of these benefits below.
Security: the documents investors want to inspect are your company’s crown jewels. They detail your company’s competitive advantage over competitors and plans for future growth. They need to be kept safe and secure. A Data Room provides enhanced security to reduce the risk of data leaking: only pre-approved individuals with granular permissions can access the information with limits to how they can interact with it. Permissions are augmented by tools such as digital watermarking of documents, ring-fencing documents to prevent downloading, sharing and copying, individual activity reporting, and built-in NDA agreements to legally restrict your documents from being used without your consent.
Saving time: time is of the essence in fundraising decisions. Investors are busy and often have several investment opportunities to consider, and you will want to know quickly whether you have found an investor or, if not, to receive valuable feedback about their decision. Making relevant information readily and easily available in one central place that an investor can access and search from anywhere and at any time is a huge help. A Q&A section in the Data Room enables commonly asked questions to be answered swiftly and alerts your team to respond when more specific questions are asked by an investor.
Transparency: the transparency of presenting information clearly and efficiently from the outset can avoid frustrating delays and potentially deal-killing misunderstandings further down the line.
Making a good impression: fundraising is a beauty parade. Investors are asked to consider lots of companies with good ideas. As well as providing the information an investor needs, a Data Room enables you to showcase your company’s knowledge in an organised, professional manner, thereby creating a good impression of your company. Everything counts in the race to show an investor yours is a good company to do business with.
Mental outlook: the process of preparing documents for inspection in a Data Room will help you to prepare mentally for engaging with investors. Making sure documents are relevant, accurate, up-to-date and compliant, and that contracts are signed, can help you to see your company from an investor’s point of view, and puts you in the right frame of mind for engaging with investors.
Engagement: engaging investors is key to successful fundraising and a Data Room provides secure channels to facilitate quick communication with permitted investors. You can add multiple investors into the Data Room and engage with them separately in private spaces where presentations, Q&A sessions and negotiations can be conducted, further information can be given, documents shared, and valuable feedback received. Investors find the ability to annotate documents extremely useful during the negotiating process.
Keeping control: tracking functionality provides reports and analytics about investors’ activities in your Data Room: who has entered the room and how often, what they have looked at and for how long. This will show you who is really serious about investing in your company, thereby alerting you to respond efficiently and positively to an investor’s interest. You will also know if an investor you would like to engage with your documents hasn’t yet done so, perhaps, prompting you to remind them to access the Data Room. Task management tools can help your team maximise each fundraising opportunity.
Future proof: A well-structured Data Room is essential for impressing and engaging with investors at the fundraising stage of the company’s life. But its versatility and efficiencies are perfect for providing secure communications with investors, customers, and other stakeholders throughout your company’s life, and can be instrumental in its future growth. A Data Room’s advanced security and communication capabilities make it a prerequisite for any M&A activity and other future initiatives your company may undertake that rely on due diligence. A Data Room can also be used as the central platform for storing and sharing your company’s critical documents, and for efficient communication between departments.
The high risk of not using a Data Room
A Data Room will improve your prospects of securing funding and will enhance your company’s capability for future growth. If your competitors are using a Data Room and you’re not, you are handing them a huge advantage in the race for investment funds. Investors increasingly expect that a company will use a Data Room to progress their fundraising process.
You can visit our website to learn more about Perivan’s market-leading Data Room, Engage. If you would like to see how Engage can solve your Data Room needs, contact the Perivan team who can arrange a demo and answer your questions.