When asked what challenges startups face during fundraising, the first thing to be mentioned is invariably getting on investors’ radars. Rarely do they consider anything else until that point is crossed.
But once they have to deal with the legalities, a lack of due diligence can become a problem that nips at a founder’s ankles while they try to raise cash.
After all the excitement of networking and pitching comes the more tedious yet equally important aspect of fundraising: due diligence.
Most startups do it on their own (a lack of manpower being the core reason). It is a tiresome, time-consuming process, especially if the founder is talking to more than one possible investor.
Startups will need to provide investors with the correct information, which is why unorganised data may cause deals to stall or, under more severe circumstances, fall through.
Ultimately, one of the sneaky ‘most important’ parts of fundraising is being able to quickly provide accurate documentation.
Different forms, different information
When STORM Technologies was raising their Series A funding, the founders were talking to six different potential investors from different countries. While that answered any worries that the Philippine-based HR technology firm might have about generating investor interest, it also gave rise to a new problem.
“Each investor asks for different things. We just had to prepare whatever report they needed to see,” says Paolo de la Fuente, Co-Founder of STORM Technologies.
A good problem, but a problem nonetheless.
As data and report requests from investors piled up, STORM found itself sitting on a lot of documentation made according to investor requests, meaning the startup was reactive, not proactive.
While there are standard reports investors require to get a deeper understanding of the business, they also often ask for reports that are unique. Sometimes, these reports are dictated by the standards and requirements of the country or by the specific criteria of the investors themselves. There are also instances when they are simply testing the founder’s ability to produce the information, along with a myriad of other reasons for investors’ requests.
Short of wishing that investors stick to the standard reports, there is only so much that startups can do to make this part of the process easier.
One of them is to streamline the process of sharing. Another is to anticipate investors.
“We prepared a virtual locker – Google Drive – then we’d just share the folder with each investor,” de la Fuente said. “And whenever one would ask for a specific report and we thought the others would appreciate receiving it too, we’d send it to them.”
This is a reality that a lot of startups face when then begin fundraising: relying on readily available online tools to aid in making the whole process faster and more efficient.
But that opens a whole new can of worms, especially if you take into account security issues. There is also the issue of only being reactive to investors’ requests – especially if it is the founder’s’ first foray into fundraising – that also causes delays.
More than just online folders
One issue when dealing with fundraising is that a lot of sensitive information gets passed between multiple parties. If reports are sent through email, startups have no control over who gets to see them; as anything sent over email can easily be forwarded to someone else.
Davy Lassagne, the CFO of IoT solutions provider UnaBiz, explains that securing sensitive information is the reason they sought out a better, more secure way of sharing their documents.
“In the beginning we hired a corporate adviser and all they came up with, and no offense to Dropbox, is [a product] similar to the structure of Dropbox, whereby people can come in and collect the data. That’s it – a folder. They didn’t have other tools.”
The problem with most virtual lockers is that while they allow users to manage and limit access, once the data is taken out or downloaded, they no longer have control over where it goes.
On top of that, they are merely storage facilities; there are no guides or suggestions as to which documents startups in the middle of the fundraising process would need to provide.
Structure, simplicity, and security
For UnaBiz, discovering Merrill DataSite was born out of necessity. When they needed the proper documents for a specific purpose, Lassagne turned to the virtual data room.
“I’m not a very ‘tech’ person…but just a call from them to discuss how it can be used and it’s ready,” says Lassagne. “That really made it easy. Documentation wasn’t an issue because it took me half a day to structure them the way I want to. It’s super simple.“
This is one thing that startups would greatly benefit from: a tool that would allow them to structure the reports they need easily, and have access to a team that is knowledgeable about the composition and stylisation of key information.
Through Merrill DataSite, UnaBiz was able to not only easily prepare and arrange their documentation but also seamlessly and securely share it. Once all the documentation is structured, Lassagne simply gives investors access to the data they required.
In this case, access means being able to view the documents and data that UnaBiz has stored. While there are some investors who prefer being able to download reports, monitoring viewing access is the way to go for startups to secure their sensitive information.
Merrill DataSite gives UnaBiz total control over who gets to see their reports, as well as track who has viewed what, and even see who’s viewing in real time, right down to the page level. This is significant in legal terms, as if some time down the line you need to prove not only that you disclosed information but that and when the investor actually saw it, you can.
“It streamlines everything. It makes the documentation really simple, makes sharing easier, all in a secure virtual space,” adds Lassagne.
As more and more startups begin fundraising, having a tool like the Merrill DataSite is clearly becoming imperative, as the inability to muddle through the tediousness to meet requirements can become a cause for delays or, worse, dwindling investor interest.
It takes time and a lot of effort to get to the point where investors are seriously studying the viability and potential of putting money into a startup. It would be a waste for it to fall through because of missteps in information sharing.
Merrill DataSite is a virtual data room that streamlines collaboration, accelerates due diligence, creates critical document repositories, and manages intellectual property and assets. It has tracking and reporting tools that let the user monitor who has access to the data, which data they have access to, and tells them whether or not they are currently viewing it in real-time, right down to the page level.
DataSite users also have access to an experienced project management team with the expertise to suggest best practices in major markets.
Disclosure: This article was produced by the e27 content marketing team, sponsored by Merrill Corporation
Featured image credit: kostsov / 123RF Stock Photo