Despite the devastation caused by Covid-19, the last few years have been filled with new ventures. The first step in launching a startup is idea generation, market research, feasibility reports, and planning. However, the second and most challenging aspect is fundraising. Modern startups are using virtual data rooms to increase their chances of attracting large investors.
But how can a virtual data room help with faster fundraising? VDR software is no longer limited to mergers and acquisitions; it is also an essential component of modern fundraising methods.
Sounds intriguing. Continue reading if you want to learn more about the advantages of a data room for startups.
Definition of a Virtual Data Room
A virtual or electronic data room is a cloud data storage facility used to store corporate or personal documents and any other type of data. Businesses of all sizes widely use virtual data rooms; they are dependable solutions for storing and sharing business data, collaborating online, dealing directly with clients, and completing business transactions.
A secure data room is also essential for significant business transactions such as fundraising, auditing, initial public offerings, due diligence in mergers or acquisitions, capital investment, etc.
The 5 Most Important Advantages of Using a Virtual Data Room for Startups
1. One increased security
How confident are you that your months of hard work will not be stolen or shared with others while pitching your idea to investors? The truth is that your potential investor can easily steal your idea, feasibility report, and business plan, leaving you helpless. Yes, bad guys can be found anywhere.
A virtual data room, on the other hand, can ensure that your data stays yours. For example, as the administrator of your data room, you can decide who has access to your documents and who does not. You can limit document access with a data room as you see fit.
You can enable “fence view” mode if you don’t want your investors to copy your documents. It safeguards your documents against screenshots and snaps. Furthermore, investors will be unable to download or print those documents.
If you are still unhappy, you can use built-in, customizable NDA templates to legally prevent investors from using your documents. Furthermore, you can use the screen recording feature to record the entire process and use it as evidence in the worst-case scenario.
2. Data storage in a central location
Consider pitching your idea to potential investors via email and then waiting for a response. What if they repeatedly request additional documents before agreeing to a presentation? Don’t you think it’s unprofessional to frustrate a potential investor before you’ve even won a presentation?
You can avoid this issue by utilizing a data room. Organize all of the necessary documents in the VDR and grant access to the investors. They will be able to analyze the records more quickly once the data is centralized.
3. Faster communication
Virtual data room software ensures maximum communication between you and the investors. You can communicate via email, one-on-one private messaging, Q&A sessions, and audio and video calls.
One of the most significant benefits of using VDR software is that virtual data rooms keep everything transparent. You can create detailed audit reports that include every detail about data room activities. For example, you can see which documents your investor viewed, the communication between both parties, the queries raised and answered, and so on. Data room audit reports provide transparency and aid in gaining the trust of investors.
5. Faster transactions and more opportunities
Multiple investors can be added to the data room and dealt with separately. You can keep your communication private, schedule separate presentations and Q&A sessions, share documents, and give investors customized access based on your needs.
Aside from that, even if an investor disagrees with your proposal, you can solicit private feedback and make changes before pitching to other investors. Furthermore, having multiple investors increases your chances of getting the best possible outcome.
You can also use the electronic signature feature to have contracts signed within the data room.
When everything, including documentation and communication, is kept in one place, the likelihood of a deal increases. Investors prefer to conduct such transactions online to save time.
Fundraising for startups entails more than just pitching your ideas to investors. You must also ensure that your sensitive data does not fall into the hands of unscrupulous investors. A virtual data room is the best way to protect your data. Remember that quicker communication and remote access to documents can help you persuade investors.