Data Room Design

Whether you have raised money or sold a business in the past, chances are you have had to go through the laborious process of creating a data room at the request of your investor or investment banker. While new AI-first solutions, like Hebbia, make data rooms easier to synthesize, it can be a daunting process to gather and digitize 7+ years of historical documentation to close a deal.

Data Room Basics

A data room is a centralized and secure repository of documents and information about a business that's organized for due diligence purposes. It contains all copies of critical company documents and information that potential investors, acquirers, or other relevant parties need to evaluate when considering an investment or acquisition including but not limited to:

Corporate documents and legal structure
Financial statements and projections
Commercial contracts and customer relationships
Intellectual property documentation
Product and technical information
HR documents and organizational structure
Legal and compliance records
Market research and competitive positioning
Previous investment history

Data Room Advantages

Data rooms are particularly important during fundraising rounds, mergers, acquisitions, or any transaction where comprehensive due diligence is required:

Due Diligence Efficiency – It centralizes all critical documentation that investors or acquirers need to evaluate your business thoroughly.
Professionalism – A well-organized data room signals that your company is methodical and transparent, building investor confidence.
Information Security – It provides a controlled environment where sensitive documents can be shared securely with appropriate access controls.
Negotiation Readiness – Having all documents prepared and organized can accelerate the deal process and potentially improve valuation.
Institutional Memory – It serves as a single source of truth for your company's history, agreements, and intellectual property.

For startups, we recommend creating the data room on day-one and developing the practice within your leadership team to maintain it as the company’s source of truth and historical artifact of its journey. The moment a new sales or vendor agreement is signed, send a PDF copy to data-room@your-company.com. Be mindful that even within your leadership team, certain content should be reserved for board and/or founders-only like detailed cap tables or compensation agreement between executives and the board.

Data Room Design for Startups

Today, most data rooms are virtual (VDRs or Virtual Data Rooms); secure online repositories hosted on platforms like Google Drive, Dropbox, Microsoft SharePoint, or specialized data room providers like Datasite (formerly Merrill), Intralinks, or SecureDocs. We use Google Drive for our intenral data room due to ease-of-use and enterprise-grade access controls. When implementing a folder structure, establish clear naming conventions for files and create an index document that explains the organization and contents of your data room. It's also critical to maintain consistent access controls to ensure sensitive information is only available to authorized parties.

1. Corporate

1.1 Formation Documents
- Articles of Incorporation/Organization
- Bylaws/Operating Agreements
- Board Resolutions
1.2 Cap Table & Equity
- Capitalization Table
- Stock Option Plans
- Equity Grant History
1.3 Board Materials
- Meeting Minutes
- Board Presentations
- Board Committees
1.4 Compliance & Governance
- Corporate Policies
- Regulatory Filings
- Corporate Calendar

2. Financial

2.1 Financial Statements
- Annual Financials
- Quarterly Financials
- Monthly Management Reports
2.2 Audits & Tax
- Audit Reports
- Tax Returns
- Tax Correspondence
2.3 Financial Projections
- Financial Models
- Assumptions Documentation
- Historical Projections
2.4 Banking & Treasury
- Banking Relationships
- Debt Documents
- Cash Management

3. Commercial

3.1 Customer Contracts
- Top Customers
- Contract Templates
- Customer Metrics
3.2 Vendor & Supplier Agreements
- Key Suppliers
- Service Providers
- Contract Terms
3.3 Sales & Marketing
- Sales Analytics
- Marketing Materials
- Sales Processes
3.4 Partnerships & Distribution
- Partner Agreements
- Channel Strategy
- Joint Ventures

4. Intellectual Property

4.1 Patents
- Filed Patents
- Granted Patents
- Patent Strategy‍
4.2 Trademarks & Copyrights
- Registered Trademarks
- Copyright Registrations
- Brand Guidelines
‍4.3 Trade Secrets
- Documented Know-How
- Proprietary Processes
- Confidentiality Agreements‍
4.4 IP Licenses‍
- Inbound Licenses
- Outbound Licenses
- Open Source Usage

5. Product & Technology

5.1 Product Documentation
- Product Roadmap
- Feature Specifications
- User Documentation
5.2 Technical Architecture
- System Architecture
- Infrastructure Documentation
- Technical Stack
5.3 Development Process
- Development Methodology
- Release Notes
- Quality Assurance
5.4 Data & Security
- Security Audits
- Data Management
- Privacy Documentation

6. Human Resources

6.1 Organization
- Org Charts
- Team Bios
- Hiring Plans
6.2 Employment
- Employment Agreements
- Contractor Agreements
- Compensation Plans
6.3 Policies & Handbooks
- Employee Handbook
- HR Policies
- Benefits Documentation
6.4 Performance & Development
- Performance Review Process
- Training Programs
- Succession Planning

7. Legal & Risk

7.1 Material Agreements
- Key Contracts
- Amendments
- Termination Notices
7.2 Litigation
- Active Lawsuits
- Settled Disputes
- Legal Correspondence
7.3 Insurance
- Insurance Policies
- Claims History
- Coverage Summary
7.4 Regulatory Compliance
- Industry Regulations
- Compliance Reports
- Correspondence with Regulators

8. Market & Industry

8.1 Market Research
- Market Studies
- Industry Analysis
- Competitive Intelligence
8.2 Customer Insights
- Customer Surveys
- User Feedback
- Use Cases
8.3 Industry Recognition
- Awards
- Press Coverage
- Analyst Reports

9. Investment History

9.1 Previous Rounds
- Term Sheets
- Investment Agreements
- Investor Updates
9.2 Investor Relations
- Investor Presentations
- Quarterly Updates
- Investor Communications
9.3 Valuation
- Valuation Reports
- Comparable Analysis
- Exit Scenarios

When transacting with publicly traded companies as a more mature startup or business, the data room can be more exhaustive and itemized. Contact us to get a copy of our entire white paper on data room designs which includes a secondary template for large-cap data rooms.

Data Staging Strategies

When managing data room access during a transaction, it's strategically important to release information in stages that align with buyer interest and negotiation progress. By controlling the flow of information, you maintain leverage in negotiations while still providing buyers with the information they need to move forward at each stage aka “stage gating”.

Additional Considerations

Document Tracking: Monitor which documents are being accessed most frequently to gauge buyer interest and concerns.
Progressive Access Rights: Consider granting different access levels to different members of the buyer's team (e.g., their legal team gets access to legal documents, financial team to financials).
Watermarking: Apply watermarks to sensitive documents to discourage unauthorized sharing.
Time-Limited Access: Set expiration dates for access that align with your deal timeline.
Competitive Bidding: If you have multiple potential buyers, consider customizing access based on the stage of each relationship.
Clean Rooms: For highly sensitive competitive information, consider setting up "clean rooms" where only certain advisors can access the information, not the competitive buyer directly.

A professional investment banker is paid to run this process as a part of their work and success fees which can average 1-5% on the total transaction value using a waterfall or "Lehman" model. Depending on the deal size, you can run the process yourself following our general playbook based on milestones achieved during the negotiation process.

‍Contact us to get a copy of our full white paper on data room design and stage gating strategies.