What goes in a startup data room?

Once an investor moves past interest, they will ask for access to a data room. What they mean is a single organised place holding the evidence for everything you have told them. Not a folder of whatever you had to hand.

The work is rarely difficult. It is just longer than founders expect, and it tends to happen at the worst possible time, in parallel with negotiating terms and running the company.

What a data room is actually for

It exists so that someone who has never met you can verify your business without asking you a hundred questions one at a time. Every question they have to ask you directly is a delay, and every delay costs you leverage.

That gives you a useful test for completeness. Hand it to someone who knows nothing about your company and see how far they get before they need you.

What goes in it

Indian diligence processes generally cover the same ground: corporate structure, financials, cap table, tax and regulatory compliance, intellectual property, employment, and commercial validation.

Corporate and statutory

• ·Certificate of Incorporation, Memorandum and Articles of Association
• ·All board resolutions and shareholder resolutions
• ·Statutory registers, kept current
• ·Prior investment agreements, term sheets and side letters

Financial

• ·Audited financial statements, usually three years where they exist
• ·Management accounts for the current year
• ·Bank statements, commonly twelve months, sometimes twenty four
• ·Form AOC-4 filings with the MCA
• ·GST return history

Cap table and ESOP

The cap table is where diligence most often stalls, and the reason is usually the same: the cap table in the data room does not reconcile to the board resolutions, because ESOP grants were made without the shareholder approval to support them.

This is worth checking before anyone else does. It is fixable, but fixing it mid-process means going back to shareholders under time pressure.

Tax, regulatory and IP

• ·Tax filings and any open assessments or notices
• ·DPIIT recognition, if you hold it
• ·Trademark and patent filings, and evidence that IP created by founders, employees and contractors is actually assigned to the company
• ·Material customer and supplier contracts
• ·Employment agreements and contractor agreements

How big does it need to be?

Larger than most founders expect and smaller than the phrase suggests. A seed round data room commonly runs to around 40 documents. A Series A or Series B is closer to 90 to 120.

The number matters less than the organisation. A hundred documents in a clear structure is easier to work through than forty scattered across three drives and an email thread.

The gaps that actually cost time

In practice, delay comes from a short list of recurring problems:

• ·The cap table does not reconcile to the resolutions, usually over ESOP grants.
• ·Management accounts and the numbers in the deck were built from different sources and never reconciled.
• ·IP created by a contractor was never formally assigned to the company.
• ·Statutory registers were not maintained and have to be reconstructed.
• ·Contracts exist as scanned signatures in inboxes rather than as a complete executed set.

None of these say anything bad about the business. All of them take time to resolve, and time is the one thing a live process does not give you.

How to organise it

Structure matters more than completeness, because an investor working through a well-ordered set of ninety documents moves faster than one hunting through forty.

1. 01One numbered top-level folder per diligence area: corporate, financial, cap table, tax, IP, people, commercial.
2. 02Consistent file naming that includes the date, so versions are obvious without opening anything.
3. 03A single index document at the root listing what is in each folder and what is deliberately not included.
4. 04Executed versions only. Drafts and unsigned copies create questions you will have to answer.
5. 05Access control per investor, so you can see who has looked at what, and revoke it if a process ends.

That index document is worth more than it sounds. It signals that the set is deliberate rather than assembled, and it gives you a place to pre-empt questions instead of waiting for them.

What not to put in

A data room is not a document dump. Personal information about employees beyond what is necessary, unrelated internal discussion, and half-finished analysis all create work without adding evidence. If a document raises a question you would rather answer in conversation, answer it in the index instead of hiding it.

When to build it

Before you need it. The commonly given guidance is to run a self-audit against a diligence checklist three to six months ahead of approaching investors, and it is sound, because the fixes that take longest are the ones involving other people: shareholders, contractors, auditors.

Investors are not looking for a company with no gaps. They are looking for founders who already know where theirs are.

There is also a second argument for doing it early. A maintained data room is useful whether or not you raise. It is the same set of documents you need for an audit, a bank facility, or an acquisition conversation, and keeping it current is far cheaper than assembling it twice.

Who wrote this

Shafneed is the founder of Simplify, a finance clarity and investment readiness practice working with founders across India. He writes about the questions founders bring before a decision, not after it.