As an entrepreneur, you often have more control over investment timelines than you know in the early stages. You can drive the discussions and the timing by being prepared, anticipating commonly asked questions, and managing the investment process as professionally and strategically as you manage your business. Specifically, by actively preparing for a fundraise before it happens and creating a diligence data room in advance, you can accelerate your investment timeline.
At Hyde Park Angels, the number one hurdle in conducting diligence in a timely manner is simply that our entrepreneurs aren’t fully prepared with all of the information we need. The back-and-forth and wait time can drag out the timeline for a final investment decision and close, not only for us, but for our syndicate partners. Entrepreneurs who have been around the block and raised capital before are more likely to avoid this slow down by having every ready from the start.
So, what exactly do you need to have in your diligence data room?
Pitch Deck: This should be your most up-to-date version.
Business Documents: This group of documents includes your Go-to-Market Strategy, Marketing Plan, and Product Roadmap. You should also have your sales pipeline information and any contracts, whether pending or executed, with customers readily available, if applicable.
Financial & Funding Documents: Think Financial Projections, your up-to-date Cap Table, Prior and Existing Investor information, and any contracts on loans you may have.
Legal Documents: You should have any charters, operating agreements, and formation documents readily available.
Raw Data: As we have stressed time and time again, understanding your key metrics and having the data to back them up is an essential component of receiving investment. For all of the metrics you defined and represented in your pitch deck, you should have raw data that can be shared with a diligence team.
Granted, building a diligence data room isn’t the only part of taking care of your own due diligence responsibilities. You will need to have the right legal counsel in place, a well-prepared team willing and able to meet with your investors, technology that will stand testing, and a number of other elements in place. However, the diligence data room is the biggest piece of the puzzle. Look out for future posts focused on the other critical ways to prepare for investor due diligence.