Irrespective of whether you are a startup going through a fundraising venture, or a firm exploring mergers and acquisitions, you would undoubtedly need to set up a due diligence data room.
What Is A Due Diligence Data Room?
A due diligence data room is essentially a repurposed virtual data room that can be used by organizations to safely store and share confidential documents. Without a due diligence data room, the firm wouldn’t have access to a safe avenue to share their data files and documents across.
During the process of due diligence, the acquiring or investing party requests the other firm to provide all financial and legal documents. These documents may include financial statements, a list of owners, intellectual property, and management boards. The acquiring or investing party then goes over these documents to fully make up their mind about this new venture.
How To Set Up A Due Diligence Data Room?
Setting up a due diligence room is a simple five-step process as described below:
Step 1: Choose A Data Room
The very first step in creating a due diligence room is of choosing one that suits your needs. You need to choose a data room that not only fits your price point but also provides you with the features and functionality you need. Learn more at Firmex which is a world-renowned virtual data room provider that is suitable for all industries, company sizes, and operations.
Step 2: Follow The Provided Checklist
The party that you are creating the due diligence data room for should have undoubtedly provided you with a checklist. In the next step of creating a due diligence room, you would have to essentially follow that checklist and gather all listed data. This may include gathering data about your assets, liabilities, contracts, suppliers, clients, and employees.
Step 3: Create, Organize And Upload
In the third step of creating a due diligence data room, you would be creating the actual room and uploading all your documents. The key here is to firstly create a structure in the data room that allows you to rightly organize all files, and then upload each file to its respective destination. You should ideally follow a file-naming convention, categorize files according to date, and index all files to organize the data room. It is also a good idea to add watermarks to all your documents during upload to limit misuse.
Step 4: Set Permission Levels And Access
Once you have uploaded all your required documents, the next logical step is to set permission and access levels for the other party. Depending upon the confidentiality of files and importance of the other party’s members, you may have to offer access to only limited individuals for certain documents. Whereas most of the other documents can simply be open to view by all. You should also be mindful of whether or not you should provide printing and downloading access to the other party for your data room.
Step 5: Send Out Invitations
Once you have your due diligence room ready, you can invite all investors and their colleagues to the room to conduct due diligence. The permission settings shall be linked to their respective email addresses or logins that you create for them, and you will also be able to set up expiry on the respective permissions.