What is the Purpose of a Data Room?


A data room is an electronic space that allows sensitive information to be shared during due diligence and other business transactions. It is used across multiple industries such as finance, healthcare IT, IT, and capital markets to allow businesses to share information securely with potential investors and other stakeholders. Due diligence was traditionally performed in physical rooms however, nowadays it is done digitally. It involves a large number of documents.

Investors have many questions when they review the documentation of a startup, and it’s the responsibility of founders to answer those questions in a way that attracts investors and speeds the process. The best place to begin is by creating an organized and clear folder structure, with clearly defined documents grouped by categories (e.g. legal, financial, contracts). The clearly labeled folders and documents makes it easier for people to find the information they need. It is also beneficial to add metadata to the data room in order to provide additional context to each document.

Other useful sections that founders can include in their data room include a competitive analysis, a list of current customers and referrals, as well as a customer references/testimonials section. Lastly, a company organisation/formation section includes any documents that show how the startup is legally registered and operated. This could be a list of articles that include, business certificates, information regarding tax and an audited Financial Statement. This will help prove that the startup is a legitimate and credible entity for consideration by investors.