A data room for investors is a virtual location where startups store all their pertinent information for investors who are interested in an investment round or potential acquirers in an M&A transaction. They’re usually used to help answer questions and conduct due diligence from prospective investors during the process of fundraising however, they can be beneficial in streamlining a funding round by giving investors access to all of the documents and data they require in one location.

Startups can include different items in their investor’s rooms, based on their stage and the scope. A stage 1 dataroom will typically only contain the pitch deck and publicly accessible information. The idea is to provide investors a brief overview of the company and its business. A stage 2 data room, however is typically shared once an organization has received a term sheet and is attempting to close an investment. The data room needs to be designed to allow for an easier due diligence process with more specific documents and data.

For instance an investor stage 2 data room could include things like historical financial information and projections based on your current business model. This provides investors with an accurate picture of the company’s financial health and provides them with more precise information to evaluate and evaluate against your competition. Investor updates should be part of this phase of fundraising so investors know how the company is performing and can verify that the company is still on track.