Every startup has unique data storage needs, and having the right solution is critical to growing your business. Thus, modern companies set up data room software to organize a secure collaborative workspace and data management. Here is more about it.
The place of a data room in a startup?
Before an investor participates in a startup, he has the startup’s legal, economic, and tax situation checked as part of due diligence. Such a review gives the investor a detailed picture of the startup. If the results of this procedure, this risk assessment, are not satisfactory for the investor, they can have a negative impact on the purchase price and other provisions of the subsequent participation agreement. So, how do negotiations between startups and investors occur, and what are their contents?
Essentially, such a transaction requires management to devote time to three areas:
- First, the investment documentation or sale agreement must be negotiated. It is intensive and consequently takes time.
- Secondly, due diligence inquiries from investors must be answered simultaneously or beforehand. As a rule, the investor asks a list of questions on various topics and expects the company to provide the documents/contracts relating to these inquiries for review by the investor and his advisors. It can be a time waster if the documents are not ready for download, i.e., available in digital form and an order specified by the investors.
- Thirdly, the management still has to take care of the current business with the highest priority. Therefore, the investment documentation and the diligence negotiation are added to the operative business.
Today customers set up virtual data rooms to avoid all these issues. Data rooms are used to manage your database and, at the same time to make the cross-company exchange of information flexible and secure.
In startup due diligence, all necessary and confidential documents are made available digitally in a virtual data room. A data room is a physical or digital place where all relevant company data is collected. Then, the information is made available to the prospective buyer for verification.
The data room offers numerous advantages in corporate transactions, which are beneficial for the seller and the customer. This screening process, known as “due diligence” in technical jargon, is accelerated by a full-text search. There is no need to “dig through” files, thanks to intelligent search options.
Tips on how to choose the best data room provider
Today’s startups require a truly distributed data room management architecture, for example, one that meets the following requirements:
- Functionality and flexibility of the system.
- Possibility of further modernization and capacity building of the system.
- Integration with other corporate systems – the data room cannot and should not exist in isolation from other systems; for example, sometimes, it is necessary to integrate the system with an accounting application. Then the software should have open interfaces for possible refinement and integration with other systems.
- The possibility of distributed remote work and interaction with other branches – the main problems when working with documents arise in geographically distributed organizations, so the architecture of document management systems must support the exchange of distributed places.
- Scalability – it is desirable that the data room could support both five and five thousand users, and the ability of the system to increase its capacity was determined only by the capacity of the corresponding hardware.