Is there a Funding round or a Sale of the company Investors are demanding – within the framework of the Due Diligence – one structured presentation the key documents and information in what is known as a data room. For the company, the data room offers the opportunity to present itself as a well-organised and well-run business. If the requested documents are made available quickly and in full, the data room becomes the company’s flagship. However, setting up a data room is a time-consuming process and is frequently underestimated. Here you can find out the best way to go about it – with a Data room folder structure Available to download for free.
Start early, gain a lot
Even if all the documents are available in full, they first need to be sorted out, scanned, given meaningful file names and filed in the correct location within the data room. That alone takes time – and, whilst you’re at it, the phone might ring from time to time. Data rooms containing 500 or more files are not uncommon, even for smaller companies – so the time involved is enormous
Staff are unavailable to help
In the run-up to a funding round or an exit, the task of setting up the data room can rarely be delegated to staff, as they, in particular, are not supposed to know anything about the planned – and often still uncertain – transaction at this stage. The task therefore falls to management, who are already involved in overseeing the transaction alongside their day-to-day business.
The tiresome hunt for documents and contracts
It takes even longer if documents are missing or incomplete. For the purposes of due diligence, only signed contracts – including all annexes – count. Often, however, only the latest drafts are stored in the system, and these are of little value. The search for the originals – signed by all parties – begins.
Other documents may need to be requested from third parties if they are not available from the company. For example, in the case of previous transfers of shares, the transfer agreements must first be obtained from the shareholders concerned, as the company was not directly involved in the transfer of shares. This can be particularly time-consuming if these shareholders have already left the company or are currently on holiday.
Finally, it very often transpires when compiling the data room that no contractual provisions exist or have been documented for certain matters. Unfortunately, this occurs all too often in relation to the company’s (alleged) intellectual property – the review of which is of paramount importance during due diligence. For example, the company may be using a trade mark registered in the name of a shareholder, or it may have commissioned freelancers to carry out software development without formalising the transfer of rights to the company. The transfer or granting of sufficient rights of use to the company must then be rectified. It’s all well and good if all rights holders are cooperative and available …
This means that valuable time is lost setting up the data room. Time that is particularly scarce and precious in the run-up to a funding round or even an exit.
Ongoing structured archiving
The good news is that management has full control over the creation of the data room. Even the structure of the data room is not bound by the investor’s specifications. It simply needs to be systematic, clear and well-organised. Therefore, work on setting up the data room can and should begin even before discussions with investors have started.
It is even more efficient to archive all the company’s relevant documents digitally in a structured manner on an ongoing basis – regardless of whether an exit or a funding round is on the cards. If a data room then needs to be set up, the folder structure simply needs to be prepared for third parties, for example by deleting drafts, converting files to PDFs, and so on.
For day-to-day archiving, it has proved effective to organise the relevant documents into a folder structure modelled on the typical structure of a data room. This has the key advantage that all staff can help to compile the relevant documents – not in the run-up to a transaction that must be kept confidential, but as part of ongoing document management.
You can download a suggested folder structure free of charge via the link below. The empty folders are packed into a ZIP file. The folder structure is modelled on standard data room structures. It is, of course, only a general suggestion and should be adapted to the specific circumstances of your organisation as required.
Download the free folder structure (ZIP file)
Tips for making efficient use of the folder structure:
- Scan the signed documents as PDF files in their original form.
- The (final) drafts should also be saved.
- Always use descriptive file names and perhaps add „draft“ or „signed“ to them
- If a document fits into several folders in terms of subject matter, link it using references.
Maintaining a consistent folder structure naturally requires a certain amount of discipline and clear communication with the staff responsible for the individual areas. It is also all too easy for the folder structure to become a jumble of data. However, compared with the laborious task of tracking down documents, deleting irrelevant files is far easier.
Conclusion
Funding rounds and exits place a heavy strain on management resources. During this period, avoid the additional burden caused by the laborious task of setting up a data room. Start preparing the data room well in advance. To do this, use a folder system that is continuously updated and modelled on the typical structures of data rooms.
We would be happy to assist with setting up a data room. Please get in touch with us.
Contact at GWGL:
Dr Conrad Grau (grau@gwgl-hamburg.de)