Why and How to Choose a Virtual Data Room for Startup Fundraising?

In the last decade, most businesses have moved away from using physical documents and embraced up-to-the-minute digital solutions. One of the most popular tools employed by companies is a virtual data room, or VDR.

What is a virtual data room for fundraising? 

A virtual data room is a platform for the secure storing and sharing of sensitive corporate information. This kind of online repository is commonly applied during deals since it allows users to precisely control who can access certain data. 

Importantly, any financial transactions can be significantly facilitated with the help of virtual data rooms. So carrying out fundraising campaigns can be much more efficient thanks to VDRs that ensure quick and safe access to critical documents.

Benefits of using a VDR for fundraising

Newly-established companies can get much value from a data room. Below you can see the benefits of virtual data rooms for fundraising.

Improved security

When presenting an overview of your business to investors, you cannot be absolutely confident that they’re not going to distribute your content among their peers. This is really the worst-case scenario, but it may happen after you’ve shared your business model, given a look into your financial strategy, and introduced your team. Sometimes, business plans fall into the wrong hands, and startups lose their competitive advantage. 

However, using a virtual data room allows you to control who can see your materials. By restricting levels of access for different people, you can reduce the probability of data leaks.

Reduced costs 

Compared to physical storage, the cost of a good VDR is significantly lower. But still, for owners of cash-strapped startups, purchasing a VDR subscription may seem unnecessary. However, if you think about potential risks of other storage systems (e.g., a data leak), the expenses associated with a VDR are insignificant by comparison. 

Generally, the prices for a virtual data room vary depending on your service provider and the level of your requirements, but in any case, this solution is extremely cost-effective. 

Transparency 

Obviously, all startups seek to draw more investments. As you might know, one of the key factors considered by investors is a company’s transparency. Nothing scares them more than hidden information or lack of integrity. 

If you have all the necessary data gathered in one secure place, such as a virtual data room for investors, you can easily share it. Besides, shareholders will be able to provide you with more informed feedback, which can be valuable for your business.

How to choose a virtual data room for startups?

To make a smart choice about your VDR, take a few steps offered below.

1. Identify your needs

First of all, you should honestly realize your abilities and define your needs. Think of what kind of files you are going to store and how much storage you need. 

Next, determine your budget and decide whether the entire company will be using the VDR. Also, think about whether the virtual data room will be employed to simply store your documents or if it will also serve other purposes.

2. Specify desired features

If you follow the first step, it will organically lead you to the next one, which is creating a set of criteria for your VDR.  Outline the features that will best address your specific business goals and aim for products that offer those features. 

When selecting fundraising data room software, be sure to have the following aspects on your criteria list: security, document management, permission settings, analytics, customer support, and QA.

3. Compare and read reviews

You can find useful VDR comparison charts on the web that help to analyze different data rooms for startups. These charts contrast VDR’s features, so you can clearly see what product meets your needs best. 

It’s important to read VDR reviews prior to purchasing any service. But be aware that some reviews may be fake, so study them carefully and use logic to sift through what’s relevant. Reliable review websites include Capterra, SoftwareAdvice, Trustradius, and G2. 

Preparing your VDR for successful fundraising

First off, follow the steps below to set up your data room for fundraising:

1. After you’ve purchased a service that is compatible with your workflow, it’s time to set up your data room. 
2. Come up with a file naming scheme and organize all your documents according to that structure. 
3. Set access restrictions for team members and other authorized users. It’s important to generate a unique one-time link when sharing materials with your clients.

While preparing your VDR for fundraising, make sure that it contains a company summary, investment guide, key information about financial affairs and staff structure, market research data, important records, and legal documents. 

How much is a VDR for startups?

Prices for VDRs vary drastically depending on their features. Data rooms for startups range anywhere from $50 (Sharefile) to $1000 (DealRoom) per month. However, most products can be purchased for $200-$400 per month. You can find comparison charts on the web to help you analyze prices, features, and reviews of different providers. Virtual data room providers such as Ideals, Firmex, and Clincked offer flexible pricing for startups. Their average price is $99 per month — depending on the client’s needs.