Fundraising Success: Five Questions on Virtual Data Rooms for Startups

In the intricate dance of startup fundraising, the use of Virtual Data Rooms (VDRs) holds the key to success. Here, we explore five critical questions startups often ask about VDRs.

What is a Virtual Data Room Used for?

Secure Document Sharing

Data Rooms were started to ensure that sensitive documents aren’t shared. Hence the term Data “Room”, as they would be physical rooms (typically in a law office) where documents pertinent to a M&A deal would be kept. People involved in the deal could review the documents in the room but they couldn’t be removed from the room.

Today in the digital world these Data “Rooms” are now virtual, hence the term Virtual Data Room. Although they are modernized they serve the same purpose, to secure sensitive documents. Products like Orangedox provide features to ensure that documents can be digitally delivered to room participants but can’t be shared with others. To learn more on you can check our article on What are Virtual Data Rooms?

If I'm in a Startup that's Fundraising, what’s the Value of Using a Virtual Data Room Versus just Emailing Documents?

If you’re a startup that’s fundraising you’re going to have to go through a virtual enema of due diligence to prove that you have the financials, customers, technology and usage that you say you have. This will usually include confidential information, like who your customers are, how much money you make (or lose), how your technology works. The last thing you’re going to want to do is email that as an attachment and just hope that it doesn't get shared.

Email attachments are probably the worst way to send confidential information. Whoever downloads the attachment can share it with whomever they want, or, post it on something like social media and have it go viral. Also, most email is still not encrypted so attachments are prone to “man in the middle” attacks, where a hacker can simply just pluck your attachment out without you ever knowing.

Virtual data rooms, like the ones we offer at Orangedox, help keep confidential documents safe. They prevent document downloading and help to ensure that only the intended recipient can view your document. You’ll be able to retain control of your document at all times, this way if you feel that your “investor” is just trying to fish for information (yes that actually happens) then you can revoke access. Plus you’ll get the added benefit of being able to know exactly which investor is interested since you’ll be able to see how many times they’ve viewed your pitch deck etc.

What are the Pros and Cons of Using Virtual Data Rooms for Fundraising?

Pros

Ease of use 

Easy to use most data rooms now plug right into your cloud data providers (like Google Drive) making it easy set up since with your existing files

Security 

Security is essentially why you’re using a data room in the first place. Virtual Data Rooms protect your sensitive documents during the fundraising process.

Access Control 

Access Control controlling each participant's access in real-time

Tracking 

Tracking knowing exactly who is interested is key to help to close your round

Cons

Cost 

Cost lots of Virtual Data Rooms are still quite pricey, but using a product like Orangedox you’ll be able to get unlimited full functional data rooms for your Google Drive for $45/month.

What is the Most Secure Data/Deal Room Software?

Can’t speak to which is the most secure, but here are a few things to look for

Email Authentication 

Sharing with a password is never secure, passwords are easily shared with others, instead look for a service that secures using email authentication (only accessed by the specified email recipient). This way you can ensure that only the intended recipient can read your documents.

Tracking 

Make sure that all access within the room is tracked (audit log), including what documents were accessed and for how long.

Restrict Downloading 

Allowing files to be downloaded means that they can then be shared with anyone without your knowledge. Make sure the service allows files to be viewed online without having to download them first.

Revoking Access

Make sure the service allows for access to be revoked after it’s been sent. Ensuring that you keep control over your documents at all times.

What is the Virtual Data Room Pricing Model?

Over the past 10 years virtual data rooms have changed dramatically, and I think the most noticeable difference has been a significant drop in pricing. Traditional pricing models have been based around a Per-Page or Storage Size for documents in rooms, which typically are great for very small rooms but can be ultra expensive for larger rooms. It seems that most data rooms are moving to a per user or monthly flat fee which has helped reduce the cost of rooms.

One of the main reasons why virtual data rooms have come down dramatically in price is due to the introduction of free cloud services (Google Drive, Dropbox etc..). These services are secure and provide some of the core functions of virtual data rooms for free. In order for virtual data rooms to compete they’ve needed to drop their pricing to stay competitive and continue to add value with specialized integrations (e.g. document signing) and functionality (e.g. detailed analytics for auditing).

Using a service like Orangedox you’ll be able to share as many documents as you like for one low flat fee of $55 / month.

Conclusion:

In the dynamic landscape of startup fundraising, leveraging Virtual Data Rooms not only ensures security but also streamlines the due diligence process. As pricing models evolve, startups can explore affordable yet robust solutions, paving the way for a secure and successful fundraising round.

Start your 14-day free trial of Orangedox Virtual Data Rooms and see what Orangedox can do for your business.

Orangedox provides one-click create virtual data rooms that are directly synced with your Google Drive folders.