Virtual Data Room for Due Diligence During Fundraising 
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Virtual Data Room for Due Diligence During Fundraising 

Published on April 17, 2024
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Introduction

Fundraising, whether for startups, non-profits, or established businesses, can be a challenging endeavor. The challenges include market conditions, competition, access to investors, valuation challenges, due diligence requirements, legal and regulatory compliance, timing and timing risks, managing investor expectations, quality of founder/management team, and external factors beyond an organization’s control. 

Building strong relationships with investors, maintaining transparency, and demonstrating traction and potential for growth are the keys to successful fundraising. In this blog we will focus on due diligence and how a quality Virtual Data Room can make the entire process seamless.

Fundraising Due Diligence

Investors conduct thorough due diligence to assess the risks and potential returns of an investment opportunity. Meeting due diligence requirements, providing requested documentation, and addressing investor concerns can be time-consuming and resource intensive. Typically, the investor would come up with a detailed due diligence checklist for major business functions. The table below provides a sense of the level of information that would be required and their categories. The list will grow more detailed as the funding stages progress, such as Pre-seed, Seed, Series A, Series B, Series C, and beyond, aligning with the rising complexity and importance of the investment.

Areas Sample Information Category 
Founder background 
  • Founder’s professional & educational background
  • Relevant skills, and industry experience
  • Exit strategy, including potential acquirers or IPO plans
  • PII
  • Internal business metrics
Finance
  • Balance sheet
  • Cash flow
  • Booking history and projections
  • Cap table
  • Contracts
  • Margin analysis
All financial information
Tax
  • Federal tax returns
  • Correspondence with tax authorities
  • 409A valuations
  • R&D tax credit reports
All compliance records
HR
  • Salary schedule for all employees
  • Projected hiring plans
  • Insurance
  • Workers’ compensation and unemployment claims history
Detailed employment information including PII
Customer and market insights
  • Market size and growth potential
  • Key competitors and their strengths and weaknesses
  • Marketing strategy and cost to execute
  • Sales cycle analysis
Company’s Business model
Business operations
  • Vendor and supplier contracts
  • Vendor risk management
  • Insurance coverage, including liability
Includes sharing of 3rd party information
Intellectual property
  • Patents, trademarks, copyrights, and other intellectual property (IP)
  • Licensing agreements or IP-related partnerships
  • IP protection strategy, including non-disclosure agreements (NDAs)
  • Any pending or potential IP litigation
Core assets of the organization
Legal and compliance
  • BOD/shareholder meeting minutes and actions
  • Regulatory and environmental compliance, including industry-specific requirements
  • State certificate of good standing
  • Licenses and permits
All statutory documents
Assets
  • Real estate
  • Equipment
  • Schedule of fixed assets
Material value of the organization
Information technology
  • Inventory of all software
  • Data management and data security practices
  • Agreements with external IT companies
  • Disaster recovery plan
  • Cybersecurity breaches, if any
IT investments, usage, and resilience

For your fundraising efforts to be fruitful, ensure that the above information is readily available and transmittable in a secure manner. It is crucial to use solutions that are not only easy to use and highly flexible, but also provide a level of security that would be appropriate for highly confidential, sensitive, legally binding information. Along with storing this highly sensitive information, it is equally important for the stakeholders to be able to collaborate and communicate with the granularity of a group or a specific person. Therefore, a right tool would be able to secure the data using access mechanisms and encryption wherever it rests at any point in time. 

In summary, the requirement of the tool really hinges upon the following

  • Structured document repository 
  • Secure collaboration and sharing 
  • Global accessibility 
  • Fine grained control on access and permission 
  • Document usage tracking and monitoring 
  • Efficient and secured communication 
  • Easy generation of operational metrics 
  • Reliability and cost effectiveness 
  • Ease of use 

For Microsoft customers, the choice is clear. Use your existing Microsoft environment and optimize your investment using Govern 365. It satisfies the requirements listed above and does so at a fraction of the cost of traditional VDR solutions that provide limited storage capacity and functionality. 

Govern 365 VDR Whitepaper

Conclusion

Fundraising is never a cake walk and a VDR does not raise funds all by itself! 

As a crucial part of the system, it gives investors confidence in securely storing and transmitting sensitive data, ensuring secure communication, meeting due diligence standards, and complying with regulations.  

Netwoven’s Govern 365 offers the above and more using an integrated platform harnessing the power of Microsoft security and collaboration tools. Reach out to our team for a demo! 

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