Electronic Data Room (EDR) or Virtual Data Room (VDR)

When it comes time for the due diligence phase, having all the supporting evidence behind your pitch neatly organised into a set of electronic folders makes it very easy for an investor to do their investigations.

There are a number of free file-sharing options (Drop-box, Onedrive, G-drive etc.) and there are subscription services that offer more security and file management features. Some companies use a verification gateway to an FTP site within their own website. Most of these solutions will be completely adequate for startup companies with B2B or B2C products.

There are purpose-built data room platforms, which can verify users, limit downloads, log usage, watermark documents with the user ID, and suit a market where confidentiality or discretion is required – such as when dealing with a defence-related project.

It is not advisable to use a highly secure system which requires multi-step verification, early in negotiations with investors. They will not appreciate the additional time, the difficulty in accessing the information they may need to share amongst an investment committee, and the reduced readability caused by watermarking. Investors are not interested in stealing ideas from entrepreneurs, so this security (alongside companies that insist on signed NDA’s) can be a negative factor and is usually indicative of an inexperienced founder.

Another option is to consider an investment management platform which combines a marketplace for investors and companies, with query handling, data storage, and a structure for the deal process.