Chapter 7: Data Room

Introduction

In today’s business environment, data rooms are essential. In fact, companies produce a large amount of data every day. Storing and organizing this information in a safe place and in such a way that it can be easily consulted has consequently become essential for every company, regardless of its business sector.

The significance and structure of a data room

First of all, it is necessary to distinguish between physical and virtual data rooms: a data room is a physical room, monitored and with limited access, inside which there are confidential and highly important documents and data, whereas a virtual data room (VDR) is a web portal with controlled access, within which confidential data and documents are stored in digital format. Users who have the credentials to access the VDR will be able to consult documents, ask questions and discuss them, while the download of the documents can only take place in a secure manner and with the certainty that the files can not be subsequently “forged”.

The VDRs, therefore, have the same effective and strict rules of conventional data rooms but do not inherit the disadvantages from the latter: couriers who have to introduce new and updated documents, time-consuming and cost-intensive journeys, waste of time to reach the location and reunite the team, loss of interest from counterparts further away geographically et cetera.

Virtual data rooms are necessary in the event of due diligence and on all those occasions in which two or more companies or entities must exchange data, information and documents with each other confidentially and securely.

At the basis of the operation of a virtual data room, we find a cloud environment accessible from any device with an internet connection. Like any other service on the cloud, therefore, a VDR can be used indifferently from computers (desktops and laptops), tablets or smartphones and wherever you are.

The operation of this cloud environment, however, differs from that of other applications that we usually use. Compared to cloud storage tools, the data rooms are characterized by high-security standards, both at the entrance and within the platform’s operating environment.

The creator of the VDR will have the ability to manage access through a set of tools that allows employers to assign each user a different role and specific privileges. However, this is only one of the aspects related to protecting users’ privacy and the data hosted in a virtual data room. Whoever creates the room has the right to control the actions performed by users, analyze the documents they have viewed, the downloaded files and monitor their stay within the VDR.

In case of anomalous behaviour, it will be possible to immediately revoke the privileges and thus prevent a user (or a group of users) from continuing to view the data. The ability to manage the privileges of each individual user in a granular way allows the creators of the virtual data room to choose who can see what.

How to choose your own data room

Creating a virtual data room from zero requires skills that not all companies can have. For this reason, it is recommended to contact software houses that offer virtual “as-a-service” data rooms, which can be customized, according to the needs and requirements of the company.

The integration of a Virtual data room into the corporate infrastructure is not complex: it is a new “module” to be added to the cloud infrastructure and which does not involve incompatibility problems with other solutions already used.

Here, we will give you some suggestions on how to choose the virtual data room that best suits your business needs and properly integrates it within the existing corporate IT infrastructure.

Security tools and measures

The most important aspect to consider when choosing a VDR is that of security. It must be ensured that the solution guarantees a valid tool for managing access and accounts and that allows employers to control in a granular way the privileges and activities of each of the people connected to the data room. An aspect not to be underestimated, then, is the possession of certifications, which certify compliance with safety standards recognized worldwide.

File Management

A good quality virtual data room is also recognized by the file management system. Obviously, the “data room” must be able to support any type of file, from text documents to graphic rendering of projects, passing through photos, videos and compressed folders. Furthermore, the file management tool must be equipped with an extremely powerful indexing engine, so that the search among the files hosted in the Virtual data room is simple and immediate.

Ease of use

The Virtual data room must also be easy to use. Not all users, in fact, may have advanced computer skills and a user interface that is too complex to manage could make it difficult to search and consult files in the cloud. Therefore, it is necessary to choose a VDR with an optimized user interface.

The different sections of a data room

The data room should be divided into different sections. Each of them should contain all the necessary documents in relation to the context.

• Basic Corporate Documents: this section should include all the necessary documents for the corporate and the operational information about the company. The most important ones are the list of subsidiaries and ownership percentage, list of current officers and directors, list of jurisdictions where the Company is qualified to do business, owns or leases real property, or is otherwise operating.

• Capital Stock and Other Securities: this section should include the shareholder list containing all their information, the option holder list, the cap table, the convertible notes register, the voting agreements and securities law filing and permits.

• Financial and Tax Matters: this section includes the audited financial statements, monthly/quarterly financials, projections and assumptions, inventories, cash flow and working capital analysis.

• Property and Assets: this section includes the summary of all owned and leased real property and fixed asset policy including depreciation methods and lives used for book and tax purposes.

• Intellectual Property (IP): this section includes a summary of patents and their applications, a summary of the contract where company IP is licensed to a third party, a software license summary, the trademarks, the technology license agreements and a list of registered copyrights.

• Customers, Sales, and Marketing: this section should include the list of the customers and their key information, the sales projections and assumptions for the future, the list of products and services and the industry and analyst reports.

• Litigations, Investigations and Other Disputes: this section should include all the schedule and description of pending or threatened litigation, claims and Schedule and description of government, regulatory or administrative proceedings, inquiries or investigations.

• Regulatory Matters: this section should include all the Filings, registrations, reports and correspondence filed with local, state or federal regulatory agencies and any reports issued by such agencies.

• Insurance: this section should include a summary of all insurance policies.

• HR/Employees/Consultants: this section should include health & safety policies, resumes of employees, policies regarding sick days/paid holidays/overtime, details about training programs, appraisal policies, terms & conditions of company-sponsored benefits and every other document which can be useful for HR programmes.

• Press and PR: this section should include press releases, newspaper articles and analyst reviews.

• Related Party Transactions: this section should include written agreements between the company and any current or former stockholder.

File Management per Investment stage

In the first stage of the investment, it is cardinal to share with the potential investors the pitch deck of the company and a first draft of the business plan. This will help the investor to get familiar not only with the startup and with its goal, vision and mission but also with the figures and the numbers of the business model.

Once the relationship is established and the investor shows clear interest towards the business, provide him or her a copy of the full business plan. This should provide in-depth information about the way the business is organized. Investors are also expecting to examine at this stage financial statements such as the balance sheet, the statement of stockholders’ equity and the capital requirements.

Finally, when the investor has analyzed the main financial documents, the startup shall hand over forecasts and milestones planning for the next 3 to 5 years. These documents include mainly financial calculations – i.e. showing cost prediction for the launch of a new product – and sales & revenue estimations (it should be inspected on a monthly, quarterly and annual basis and compared with past estimations).

How will GründerAtelier help?

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