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What is an Investor Data Room?

An investor data room is where startups store due diligence documents for investors during a funding round or for acquirers in an M&A transaction. These are documents that do not fit into a pitch deck or a slideshare presentation, and that prospective financial backers need to check before investing or sign off on terms sheets.

Investors want to see these documents as they will help them make a decision faster and easier and reduce the amount of time investment managers spend on the deal. They also allow investors to feel like they’re part of the startup’s team which helps build trust and leads to more informed feedback.

The most effective investor data rooms also give startups visibility into who is accessing which data, ensuring that sensitive information doesn’t fall in the improper hands. Transparency lets startups customize their interactions with investors and enhance the outcomes of any transaction.

A shared folder can serve as an investor dataroom for seed or angel investors. However, specifically designed software is a better option particularly for Series A rounds or higher. A cost-effective, professional grade virtual data room solution offers more features than the consumer-grade tools with advanced file search capabilities as well as advanced security structures. Some even provide digital rights management (DRM), which protects files by encrypting them so that they cannot be edited, copied, or printed by anyone else outside the platform. CapLinked’s investor data room, for example, provides this feature, among others.

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