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3 Reasons Early Stage Startups Should Care About Virtual Data Rooms

    
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Virtual data rooms (VDRs) often go hand-in-hand with M&A transactions and the due diligence process, so many startups put off investing in a VDR solution until the possibility of a deal comes into focus. But having a data room solution in place from the very early stages of your business can prevent issues from arising as your company grows and matures, and can put you in the best position to take advantage of opportunities as soon as they arise.

Here are 3 reasons early stage startups should start thinking about virtual data room solutions and best practices long before you start planning your pitch to investors or potential buyers.

Staying (and appearing) organized and prepared

Early on, you’re likely focusing all of your energy and resources on building your product, service, business model, or whatever it is that separates you from the competition and will hopefully appeal to investors at the appropriate time. However, it’s never too early in the lifecycle of your business to start putting tools and processes in place that will become necessary as your company continues to grow. 

While only 16 percent of startups are ever acquired, and the majority of those acquisitions take place after multiple rounds of fundraising, you can’t predict when a life-changing opportunity will present itself. Ensuring all of your critical documentation is in one centralized location is one thing you can do to start preparing for that opportunity. Having a virtual data room in place helps you stay organized and prepared to take action as soon as an opportunity arises, and demonstrates to investors or potential buyers that you’ve been planning for this moment and are serious about growing your business or completing a transaction. 

Taking a disciplined approach to managing your most important business documents could ultimately play a role in determining how successful your next fundraising round is or how seamlessly you navigate the M&A process down the road. As you likely know, any potential buyer will want to conduct a detailed audit of your business before agreeing to a deal, and maintaining a well-organized virtual data room can help significantly expedite that process. 

Protecting your business

Once you get to the point where you have a true value proposition that differentiates your business from your larger, more established rivals, whether that’s a patent, a customer database, or something else, you want to be sure you protect that information. 

Virtual data rooms are built specifically to allow companies to store and share sensitive information with outside parties, and therefore offer far greater security measures than basic online file storage and sharing options. Other features like permission-based user roles also make it simple for startups to determine who has access to individual folders and files within the data room, so third-party users only see the information relevant to their role in the process.

Setting the precedent early

If your startup is moving in the right direction and you continue to grow and add to your team, establishing adequate business processes and procedures will soon become a necessity. But if you take a proactive approach and start with a disciplined document management strategy early, you won’t have to spend valuable time later on trying to locate and organize months or years of important business documents.

It can be challenging to allocate time and the financial resources to purchasing and maintaining a virtual data room when your startup is just getting off the ground, but if you can make it work, it will undoubtedly save you in the long run as your business gets more and more complex. Look for a virtual data room solution that addresses your specific business needs and can serve as a valuable resource for you and your team throughout every stage of your startup’s journey.

Final Thoughts

The odds are stacked against early stage startups, but preparing for a successful outcome from day one can help put your business in a better position to reach its long term goals. Today’s virtual data rooms present an affordable way to protect your critical business documents and organize and prepare for fundraising and M&A activity.

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