Investors, before making a deal, evaluate the startup project, running due diligence. In this article, we will analyze how does virtual data room simplify this procedure, its basic functions, and its benefits for business.
Due diligence – the basis of any startup project
As in traditional business, so in innovative entrepreneurship, the due diligence (DD) procedure should help to understand the real state of affairs in a startup and reduce the risks of investors and creditors of the company.
The DD process is a series of actions to verify the investment object, which the investor undertakes to make a final decision on the feasibility of investing in a particular startup. The purpose of due diligence is to reduce or completely avoid the risks associated with investing, including the risk of acquiring a quota in a business at an inflated price, losing investments, defaulting on obligations assumed by the team, withholding important data, etc.
The main things that an investor should understand for himself are:
- understand how competent startup team members are in what they started, what they are strong in, and what they don’t understand at all;
- evaluate the abilities of founders and CEO of a startup;
- assess the real competitiveness of the project;
- assess how the presented facts correlate with the real state of affairs and how the founders were honest with the investor.
Classic due diligence is a complex, often lengthy process, similar to a legal and financial audit mixed with a detective investigation. The volume, duration, and complexity of this process depend on the volume and object of the investment, as well as on the desire of the investor himself.
Due diligence data room for a startup: how does it work?
Experienced entrepreneurs understand that it is necessary to start preparing for DD and investor verification from the moment of the first presentation of the startup project, even if it is still at the conceptual stage. To do this, the company will have to prepare some documents. For this, many companies use virtual data room (VDR) to automate and simplify DD procedures. Data room is a digital platform that ensures secure file-sharing, data storage, and other useful tools for productive collaboration in real-time.
In the data room, all operations are quite complex in their logic but transparent. And due to the fact that the route templates are all configured and rules and autostart are set for them, users do not have any difficulties in their work. The task of the user is simply to work on the technology. All the technical details and nuances of starting the process and selecting contractors are performed by the program itself.
The VDR software will allow your startup to solve a number of pressing issues:
- optimize the current business processes of preparation and approval of documents;
- introduce standard forms of documents and procedures for their processing;
- simplify the process of finding and processing information at all levels and create a single space for storage and processing of company documents;
- reduce the time of creation and processing of documents, as well as increase the efficiency and productivity of the company as a whole.
It also should be mentioned, that a single database of agreements for all legal entities allows you to easily and quickly find the right one for several parameters: directly by the name of the agreement, working project, contractor, type of deal, as well as status. In addition, if necessary, the system can differentiate access to various elements of the register of contracts.