You’ve had a successful pitch with an angel group or venture firm. Congratulations!

Now we’re ready for the next step — the deep dive. We ask to see the dataroom. Gulp. What’s that?

There’s a surprising amount of confusion among early-stage startups about what a dataroom is and what needs to be inside.

Fortunately, the dataroom is pretty straightforward. It’s a shared drive investors can access that contains all the information we want to see.

Ah, but what do we want to see, you ask. The simple answer: everything. The longer answer: everything we need to evaluate the company.

In summary, that means all the corporate, legal, and investment documents the lawyers will review; financial reports and projections for the finance guys to dig into; market information to evaluate the company’s prospects; patents and tech stack for the product geeks. And, well…everything else.

Many early-stage startups simply send us the pitch deck and investment documents. As investors, that gives us pause. That gives the same impression as a half-assed pitch deck — that the founders don’t know how to build a venture-backed startup. In contrast, the more comprehensive your dataroom is, the more confidence we’ll have in your ability to build a product and business.

What is the Point of the Dataroom?

As investors, we’re looking to answer 3 questions during the diligence process which starts with the dataroom:

1. At the most fundamental, is the company completely legit?
2. Are there red flags we didn’t anticipate, like the company not owning the IP or threatened lawsuits?
3. Can we answer all the other questions we have about the company, product, and prospects without having to ask a million questions one-by-one?

The lawyers will review the legal documents, but the rest of the investment team will look over the other materials. Typically, different people on the diligence team will be assigned to investigate different aspects of the business such as market size, finance, tech stack, etc. That makes good organization of the materials helpful.

How to best organize the information? It doesn’t really matter. As long as the information is there and easy to find is fine by us. It’s usually compiled into a shared drive on Dropbox, Google, or Carta.

Ensuring Confidentiality Without an NDA

The dataroom contains key information your competitors would kill to get their hands on. But investors refuse to sign an NDA. How do you deal with that?

While most investors won’t sign an NDA, there is an expectation of confidentiality. We understand this is critical information. We’re looking to invest in you, not steal your ideas to build a competitor. (A full article on why investors won’t sign NDAs and what to do about it here.)

If you’re not comfortable with me having access to this information, then you shouldn’t be considering me as an investor. This is the start of a long-term relationship. If you don’t trust my integrity, my signature on a piece of paper that you won’t have the money to enforce won’t make any difference.

If I’ve invested in a competitor or I’m sitting on the board of another company in the space, it’s fair to quiz me on my relationship with that company and question whether I can keep the information confidential. If you don’t like the answer or don’t trust me, then tell me goodbye.

That said, strategic investors (other companies in the space, usually potential suppliers or customers) are a trickier situation. They can potentially build a competing product. You should have an NDA in place that protects both companies, and you may need to consider what information you can share with them without giving away the game.

In addition, anything that you consider the keys to the kingdom should be left out of the dataroom. The secret formula for Coke or the Colonel’s exact mixture of 11 herbs and spices should be in a vault, not in a dataroom, with or without an NDA. Most of the information in the dataroom, while sensitive, is not the secret sauce that would immediately allow someone to copy the product.

If there is anything, such as a customer contract or patent application that isn’t public yet and is absolutely critical to protect, it’s okay to put that into a separately protected folder that’s only made available to one specific person on the diligence team who’s signed an NDA. But that process adds considerable friction. At best, that will slow down the diligence process, or just as likely, cause us to throw up our hands and pass on the opportunity, so only do that if absolutely necessary.

Documents to Include in the Dataroom

Here is my list of documents we expect to find in the dataroom. Obviously, not all will apply to every startup.

Corporate Documents

• articles of incorporation
• bylaws
• operating agreement
• state registrations
• certificate of good standing
• board meeting and shareholder meeting minutes
• investor updates
• any legal notices or letters received or sent

Ownership

• cap table
• all stock documents, SAFEs, convertible notes
• options agreements

Financial Data

• financial reports (P&L, balance sheet, cash flows)
• 3 years of tax filings
• detailed 5-year financial and cash flow projections
• current bank statements
• loan and credit agreements
• lease agreement
• insurance policies (liability, D&O, E&O, health)

Team

• resumes for all founders, officers, management team, and other key employees
• board of directors
• all key employee employment agreements
• all key consulting agreements
• proprietary rights assignment agreements with all employees and contractors

Investor Materials

• current investor pitch decks
• all supporting data such as industry reports and market sizing analysis
• diligence reports

Patents & IP

• list of patent applications and status
• issued patents
• patent applications
• freedom to operate report
• patent license agreements
• any claims of infringement
• trademarks
• list of key copyrights

Customers

• spreadsheet of customers and prospects
• major customer contracts
• customer test reports
• distributor and reseller contracts
• letters of intent, letters of support, memorandums of understanding

Marketing

• sales presentation
• product literature
• published articles
• customer reports

Regulatory

• summary of regulatory approvals required (FDA, UL, FCC, etc.) and progress
• regulatory approval certifications
• testing reports

Tech Stack & Supply Chain

• list of suppliers
• summary of tech stack in use
• technical studies and publications
• bill of materials
• major supplier contracts
• software agreements

Dataroom Grows With the Company

The above list looks daunting, but it really isn’t. You should have most of these documents already at hand in your corporate folders, so it shouldn’t take long to organize. Anything you don’t have, you don’t need at this stage (except fundamental documents like articles of incorporation and a cap table.)

We don’t expect you to be creating a detailed financial analysis for the due diligence process — we expect you to have completed that for your own strategic planning and just letting us review the spreadsheet. There’s no need to create new documents for this exercise.

At the earliest stages, the dataroom may be quite small. There may be no customers yet, few financial documents, not even a sales presentation.

But continue to keep the dataroom current even after the investment round is closed. You’ll be surprised how useful it is to have all those documents in one place that you can give access to lawyers, board members, or new strategic investors.

Then keep the dataroom up to date with new materials. As the company grows and prepares to raise future rounds, though the collection of documents may be quite large, the dataroom will be ready to go.

More articles from DC Palter for startup founders: Pitching Angels