What NOT to share in your data room

Concluding a transaction is a very delicate and multi-step affair that requires patience and thoughtful steps. Previously, both parties had to meet in person to conduct a transaction, and the due diligence took place in a designated location. But the advent of the virtual data room has simplified this process and reduced transaction time several times. Almost all procedures can be done remotely, but a lot still depends on you. This article will look at what documents you shouldn’t include in VDRs during due diligence.

What is an investor data room?

A virtual investor data room is an online repository that holds all the important information for due diligence. Investors or potential buyers need to ensure that your documents are in order before they start doing business with you. The documents you upload to the data room can answer most of the second party’s questions. Companies upload organizational, financial, legal, marketing, employee data, projected documents, intellectual property, and other information that may become useful depending on the type of transaction they are involved in. All of the data you upload to the VDR is securely protected by several layers of security, and you can adjust the level of access to the documents yourself. But the data room isn’t just about protection; it’s also a way to influence your partners, to create a good impression of yourself. You need to know what documents to include in the space and which ones not to load because too many documents will only slow down the vetting process and tire the vetters.

What doesn’t need to be included in the data room?

A certain balance in the data room makes you look organized in the eyes of others, so you should know that not all company documentation is required to be viewed during due diligence. There is no specific list of documents that needn’t be entered into the space, but you need to do some diagnostics and determine which papers will be most valuable to your investor or buyer. If the documents don’t provide decisive information – you can set them aside.

In addition, you need to keep the security aspect in mind. Although it may sound obvious, don’t give access to documents to users who don’t want to see them. That is, remove access from those users for whom it is no longer relevant, for this constantly conduct a check on who has access to the data.

Another good practice would be to hide the information in stages. Divide the document into several data rooms containing data of different importance, starting with the most insignificant. The investor will move to the more important parts step by step, determining whether he wants to cooperate. You won’t have to disclose important information to every potential partner.

When should you start setting up your data room?

Get your data room ready for investors or buyers as early as possible. But, of course, it’s never “too early” to set up your VDR space. Regardless of your plans, having a data room in today’s business is a sound practice that protects your data and allows you to manage workflows. In addition, your business doesn’t stand still, and you’re constantly adding new things to your list of existing documents. So, your data room is ready when you decide to fundraise or merge and acquisitions. Then, you can immediately start looking for potential partners and inviting them into the space.