When contemplating financial, corporate, or M&A transactions, it is important to have a comprehensive data room in place. Any potential partners, whether investors, merger partners, or strategic partners will want to review all of the company’s documentation relating to their corporate structure, operations, and financings.
Step 1: Find a Data Room Provider
There are many data room providers out there. Some of the important differentiating attributes to consider are:
- Permissioning: most data room providers allow permissioning, with which you can grant different file access to different individuals. This can be useful if you have multiple types of potential partners accessing the data room at the same time. Most platforms can also limit file downloads so that certain people can only view files on the web, not download.
- Auditability: it can be very helpful to know who is looking at what files, for how long, and how often. This can help you gauge the interest of potential partners. For example, partner A may tell you they are interested in pursuing a relationship but they’ve only looked at three files and only logged in once, while partner B may have logged in numerous times and looked at every file in the data room.
- Pricing: pricing can vary dramatically between platforms. Some platforms charge flat fees while others charge per user.
- User Interface: the user interface can affect how potential partners view the process of conducting due diligence on your company. If the interface is slow, it may cause potential partners to fatigue of the process. Additionally, it may be important to choose a platform where users granted access to the data room cannot see who else has been granted access.
- Storage/File Size/File Type Limitations:some data room providers have very strict limitations on the file types and file sizes allowed as well as the total amount of storage available. It is important to understand these limitations prior to selecting a platform.
Here’s a list of some of the top rated data room providers from G2 Crowd.
Step 2: Determine Data Room Structure
Having a cohesive data room folder structure can make the process of conducing due diligence much easier. This is the structure we use for our clients’ data rooms:
- Corporate Documents and Corporate Matters
- Securities and Securities Matters
- Financing Documents
- Intellectual Property; Rights and Permits
- Other Contracts/Agreements
- Products and Inventories
- Regulatory Documents/Litigation
- Employees and Consultants
- Financial Information
- Environmental Matters
Building a data room? Download our full due diligence list.
This due diligence list is in the form generally used by investment banks, private equity firms, venture capital firms, family offices, strategic partners, and M&A partners.
Step 3: Upload and Organize Files
When uploading files, you should rename files so the user knows what the file is without having to review it. For example, documents with names like “scan” and dates should be renamed to the actual file type. Additionally, consistent filing nomenclature and format should be used.
Text-based documents should be uploaded as PDFs which makes them easier to view. Financial documents should be uploaded as Excel files when applicable. This allows data room users to manipulate numbers to see how changing variables affects financials.
Step 4: Grant and Monitor Access
Once your data room is built, you are ready to grant access to users. Make sure you pay close attention to the permission settings for each user.
If your platform has auditability features, check frequently to see how active users are and what files they are viewing most. If you see that many users are accessing the same files multiple times, these may be critical files or they may have issues.
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