If you’ve been through the startup fundraising and due diligence process, you might have experienced the “diligence scramble.”  

The “diligence scramble” occurs when a potential investor initiates the due diligence process. Early-stage companies sometimes aren’t prepared with all the important documents. The team then frantically throws together the requested docs and hopes that everything is consistent and accurate. 

You’ve got enough on your plate. Let’s avoid adding a heaping helping of “diligence scramble.” Maintaining a virtual data room is a common strategy for early-stage companies to avoid inefficiency, stress and risk. 

A virtual data room is a secure, online location that houses your company’s sensitive foundational documents. When investors start the due diligence process, you’ll have everything you need in one place. Ideally, you can spend time refining your pitch and strategy, rather than hunting for important documents.

Not all virtual data rooms are fully automated

However, not all data rooms are created equal. Many companies use simple file-sharing apps such as Google Drive or DropBox to house their documents. Some may even use a secure data room provider like Share Vault.

These solutions are fine, but they require organizational discipline that’s not always feasible for busy early-stage employees. Virtual data room due diligence is taxing. You’ll have to come up with naming conventions, track final versions, and create a sub-folder structure for document management as your virtual data room expands. 

An automated data room is the next evolution of the virtual data room. An automated data room is self-organizing, automatically filing documents away in the appropriate pre-established folders, storing only the executed or latest version of a document and providing detailed tracking and reporting on who accesses your documents. 

Let’s first explore the essential elements of a data room for due diligence before examining why an automated data room is the best solution to stay fundraising-ready: 

Documents for data room due diligence

Investors will typically ask to see your data room somewhere in between the first meeting and the term sheet. Once you’ve got your data room started, what do you need to include for investors? Here are the basics: 

Clear organization 

You should have a clear “table of contents” for your data room. It’s the map that introduces investors to what’s inside your data room. 

Pitch deck

If your investors haven’t seen it already, give them a broad overview of your company. Be sure to include information on your organizational chart and eventual hiring strategy.

Up-to-date cap table

Investors will want a detailed version of yourcap table to understand who owns what and their different buying options — preferred stock, common stock, etc. 

Financial statements 

These all-important docs — income statement, balance sheet, etc — will help show the financial health of your company. Don’t forget to show financial models and forecasts as well. 

And many more….

That’s just a high-level overview. We’ve got a more detailed list of documents and informationyou’ll need to provide during virtual data room due diligence. 

Preparing your data room for investors

The most important rule of due diligence is to constantly maintain your virtual data room, rather than relying on a last-second “diligence scramble.” 

Some other best practices: 

Keep your data room tidy.

The appearance of your virtual data room will be one of your investor’s first impressions of your company. Many investors believe that a tidy data room indicates an organized, well-run business. 

Avoid adjustments during virtual data room due diligence.

Clarity and consistency are two core tenets of a data room. Try not to tinker with any forecasts, operations metrics or business plans once due diligence begins. Especially if you have multiple document versions in a traditional data room, this could lead to confusion. 

Make communication easy for your investors.

A well-kept, secure data room can make your response time quicker when questions arise. Be transparent with your existing investors and keep them in the loop if there are new items disclosed to your new crop of investors.  

The automated data room: keeping your startup fundraising-ready

You can get by with a standard virtual data room, but you’re putting yourself at risk of inaccuracies and inconsistencies across your documents. That’s why an automated data room — with more robust features for document generation, updates and permissions —  is the best-case scenario for your startup. 


Here are three benefits of an automated data room:

🗂️All completed documents are automatically stored and organized.

The automated data room works behind-the-scenes to add essential documents as they are completed. Every time you finish a workflow, the resulting docs are automatically collected and organized in the appropriate folders. Only the latest version of a document will appear, so you’re not juggling multiple updates. 

📁 Documents are auto-populated, auto-updated, and easily traceable.

Many organizations get disorganized quickly with more manual data room options. Our automated data room does the heavy lifting of due diligence for you. When you make an entry into your cap table, the new data will automatically be updated in the corresponding document.  

Documents stored in your automated data room will also contain links to attachments and back-references to allow you to easily trace supporting materials and capture the corporate legal history of your company. 

🔐Robust permissions increase security and efficiency.

It’s too confusing for every investor to have their own secure data room. However, you don’t need to share every document with each stakeholder. An automated data room lets you use advanced permissions to help each potential investor access only the documents they need for due diligence. 

Our automated data room makes due diligence easy

If it sounds like an automated data room would relieve some of your due diligence stress, Fidelity can help. 

Here’s what Jack Huntress, CEO, HomeBinder has to say about using our automated data room: 

“If your incorporation documents, employee paperwork, and shareholder agreements are scattered in some type of file directory, stop that as soon as possible. You need to move them to a specialized file vault ... where they are audit-able, trackable and organized in a way that traditional file directories simply aren’t designed for.” 

Looking to upgrade from your traditional file directory or “just-okay” virtual data room? Learn more about our automated data room.