a perfect virtual data room setup tailored for due diligence processes

Why we need a virtual data room setup for due diliegence? In the fast-paced realm of mergers, acquisitions, and legal audits, the importance of due diligence cannot be overstated. Virtual Data Rooms (VDRs) play a pivotal role in streamlining these processes by providing a secure platform for the exchange and review of sensitive information. This guide delves into the essentials of setting up a VDR for due diligence, offering a detailed walkthrough to ensure you harness the full potential of this digital solution.

Virtual Data Rooms for Due Diligence: What should be in a Virtual Data Room ?

In the world of important business transaction, where keeping things private and working smoothly is crucial, a virtual data room (VDR) plays a big role. It’s time to figure out the important things that should be in a virtual data room, explaining the key parts that make it a safe and easy place for sensitive data during important processes like mergers and acquisitions due diligence, and checking things thoroughly.

For today’s businesses thinking about mergers or getting money, having a data room or deal room isn’t just a choice—it’s really important for the plan. Making a special data room software for investors can help a lot when you’re doing business transaction. Investors usually want to see how your business did in the past and check some historical metrics. And the virtual data rooms allow to store and share data in a secure environment. 

Now, almost everyone involved in deals, like investors, buyers, sellers, and middlemen and online data room provides a lot confidential document management. So, the important thing is to figure out which one is best for your business and how to make it better for good outcomes.

Why do you need a virtual data room setup for due diligence ?

Let’s put it this way: The higher you need for confidential data security, the more you need a data room.

In the extremely rare situation where your business plan or pitch deck doesn’t have anything confidential, there’s nothing surprising in your financial statement, and there’s nothing in your company strategy documents that you wouldn’t want industry competitors to see, then you should be perfectly okay without a data room.

Nevertheless, utilizing an investor data room offers distinct benefits. When executed properly, a data room can address most inquiries and due diligence concerns that investors may have. In a world increasingly shifting away from face-to-face interactions, having control over how your data and startup story are presented becomes crucial. The efficiency in reaching out to and addressing queries from potential investors allows you to concentrate on other aspects of your business, beyond just fundraising.

Sure, if you have a queue of investors ready to invest, you might consider skipping the data room. However, for the majority of companies engaging with numerous investors and striving to close their funding round, adopting a structured and scalable method to share your data could be advantageous.

Benefits of using virtual instead of physical data rooms

Gaining momentum in a due dilligance can often seem like a daunting task. Consolidating your documents and assets in one location is a definite way to expedite the process as much as possible. Unfortunately, founders may encounter varying requests for documents from different investors during a fundraising effort. To effectively prepare for these individual requests, having all your materials in one place is essential to streamline the process. Here are a few advantages of using a data room:

Enhanced Efficiency and Effectiveness

Imagine an intelligent virtual data room system as a specialized office manager for M&A. Similar to a skilled office manager, a virtual data room streamlines processes, particularly administrative ones.So, it is possible for you and your investors in using data room to review documents. Yet, it achieves this at a significantly lower cost compared to having an actual office manager. 

Security Improve

Virtual data room service offers security features, empowers users to establish user hierarchies, manage entry settings (such as allowing only NDA-approved users), and prevent the copying (via screen grabs) or downloading of documents. These safeguards are not achievable when sharing physical documentation containing sensitive information.

Easy to Use

The term “intelligent virtual dataroom” might sound intimidating to certain users. However, the term “intelligent” essentially means that the latest and most effective systems have been crafted with end users as the primary focus. 

Accurate information

An efficiently arranged data room allows a user to effortlessly furnish third parties with all pertinent information with just a click. No more duplicated files, lengthy email exchanges, or unintentionally sending outdated copies. They receive the precise, up-to-date information they require when they request it.

Steps to Use a Virtual Data Room Effectively

1. Select a data room that aligns with your requirements

Numerous data rooms offer various features and functionalities across various price ranges, making it challenging to determine the best virtual data room for your specific requirements. To help you decide, consider the following key factors when evaluating VDR solutions:


When establishing a virtual data room, security feature is a critical aspect that undergoes thorough scrutiny. Opting for cloud storage might pose a compromise on security.

To guarantee the protection of your documents throughout the process, seek data room software specifically designed for security. Choosing a purpose-built data room not only enhances security but also presents a more professional image to your investors or buyers.

Workflow & Ease of use

Setting up virtual data rooms should be a swift process, with a user-friendly interface. The data room must be tailored to optimize your workflow, incorporating features like displaying NDA/Terms of Access before granting file access and auto-numbering functionalities. Before finalizing your choice, refer to reviews of data room providers to understand user feedback on functionality and overall experience with the VDR. Assess factors like the ease of inviting users, uploading and organizing documents. Additionally, ensure that the chosen data room service offers prompt notifications for document uploads and other activities.


When selecting a data room software provider, pricing is a key factor to take into account. Investigate how the pricing plans are structured based on the number of individuals allowed to create data rooms, the limit on the number of data rooms that can be created, and the maximum number of recipients who can be invited. Additionally, consider any supplementary security features included in the plan.

2. Follow the Due Diligence Checklist

During the due diligence process, your lead investor might provide you with a checklist outlining all the required documents—company assets, liabilities, contracts, benefits, and potential issues—that need preparation for the procedure.

Ideally, the checklist will offer guidance on organizing your virtual data room. Some businesses adhere to their own checklist as part of their fundraising preparation. In such cases, when investors inquire about due diligence, you can promptly provide the necessary information, expediting the overall process. Certain investors may be content with accessing a pre-prepared data room and may request supplementary information from you.

3. Establish and Structure the Data Room with an Organized File System

Utilize the due diligence checklist to formulate a file structure for organizing the data room. Ensuring accessibility for everyone, especially when dealing with a substantial number of files and multiple stakeholders, is crucial. Proper attention to file-naming conventions, categorization, ordering, and indexing is essential to uphold organization. Align this index with your checklist for coherence. 

4. Establish Access Levels, Permissions, and Security Settings

Determine the access permissions for each stakeholder by considering the following factors when configuring your data room settings:

Access Control

Decide whether to restrict file access to a select few or provide more flexibility to investors. Different data room providers offer varying features to address flexibility, such as locking access to a specific domain.

Printing and Downloading

Choose whether to permit recipients to download and print documents.

Adding Watermarks and Access Agreements

Before uploading sensitive files, explore the option to add watermarks, which can discourage recipients from sharing downloaded documents. Some data room providers also allow you to present terms of access agreements for recipients to accept before viewing documents, particularly useful for safeguarding intellectual property during due diligence.

Keep in mind that data rooms cannot control documents once they have been downloaded and printed. If you opt to allow recipients to download your documents, ensure confidence that there will be no adverse consequences if the information in these documents is disclosed. In cases of uncertainty, apply dynamic watermarks to your documents.

5. Gather the Necessary Documents and Upload

After configuring the security settings for your data room, proceed to upload your documents. In some instances, you may need to review and redact sensitive information. If so, it is advisable to notify your investors beforehand in good faith.

 What to Add in Your Data Room ?

Your due diligence data room checklist should include: 

Business Data

Investors might have seen some of these documents already, but they’re crucial, so make sure to include them. Ensure the information in these documents aligns with the rest of the data room.

  • Teaser document
  • Pitch deck
  • Business plan
  • Investment memorandum

Intellectual Property

If your company has intellectual property, it’s likely a top priority for investors. If it adds value and uniqueness to your company, include it.

  • Granted and filed patents
  • Intellectual property strategy

Financial Information 

This is vital information. Even if your company is not yet profitable, transparency in financials is key. Ensure accuracy and clarity.

  • Sources and uses of funds
  • Income statement, balance sheet, and cash flow statements (up to 3 years, unaudited)
  • Company valuation based on the above
  • Pro-forma statements for the next year
  • Details of outstanding debt
  • Tax returns (if available)
  • Cap tables, showing positions of existing shareholders and investments to date

Sales and Marketing Data

This plan is fundamental for the future success of your business. Investors seek traction, so outline all sales and marketing efforts and results.

  • Marketing research conducted
  • Current sales pipeline
  • Details of sales process
  • Customer churn (and its resolution)
  • Customer acquisition cost (if applicable)
  • (Projected) Average revenue per customer

Technology Information

In today’s business landscape, technology is a cornerstone. Share your company’s technological strengths and capabilities.

  • Overview of technology stack
  • Details of APIs, integrations, and system architecture

Human Resourses

Investors invest in people. Present your team as trustworthy and capable.

  • Detailed resumes of key management
  • Employee information (resumes, roles, remuneration)

Press Releases, Endorsements, and Testimonies

Provide evidence of your company’s credibility and success through press releases and endorsements.

Regulatory and Compliance

Demonstrate your commitment to compliance and responsibility, answering questions before they arise during due diligence.

What Shouldn’t Go into My Investor Data Room ?

As a founder, maintaining control over your narrative during a fundraising effort is crucial. To aid in this, it’s essential to carefully curate the content that investors access throughout the fundraising process. Certain data or documents, when presented without context, can pose risks to a fundraising campaign. Hence, it’s vital to monitor the contents of your data room. Here are a few things that may not be worth including in an investor data room:

  1. Documents that aren’t crucial for investors in their decision-making process.
  2. Sensitive information or data that might need additional context for proper understanding.
  3. Documents that are not pertinent to the stage the investor is at in their journey—limit sharing if they are only in the initial coffee meeting stage.

Top Due Diligence Virtual Data Room Providers

  1. LockRoom
  2. iDealsVDR
  3. Digify
  4. LockLizard
  5. OneHub

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