by Lionesses of Africa Operations Department
In our article last week on the power that is Momentum, we wrote that you must be prepared at all times to move fast when you see or even just feel any opportunity, especially when it comes to investors. Something quite obvious we felt you answer, but then we actually asked the question as to who among you even had a half decent Data Room ready just in case, to pull out of the hat when needed? That was a bit mean of us to put you on the spot like that, but hey, that’s why you pay the big bucks for membership [Still all for free and always will be - Ed!], - we ask the difficult questions.
But why is this difficult? We know that access to our Data Room is the first requirement from a potential investor once they have realized that we could be onto something big.
Why are we not prepared? Yes, we know - there are simply not enough hours in the day for all that a CEO has to do, especially as a Founder wearing many different hats within the business!
So what are Data Rooms, how do we produce one and of course what do we stuff into it, so that the investor will join us on our journey? Most importantly, see that we are a professional outfit that takes Corporate Governance, Finance, etc, seriously and by assumption, all other things as well.
Simply put a Data Room is a box where you put all your essential information so it is all ready for an investor sitting in the ‘cloud’ somewhere, so that there is easy sharing and access. A Dropbox account or Google Drive will do, and although these don’t have all the bells and whistles of more professional virtual Data Rooms, they are excellent starting points. So sign up and create your ‘Master Room’ from which later you can create separate rooms allowing access only to particular investors.
Why this extra work with separate rooms? Simply put, you do not want an investor to see your Master Pitch Deck of over 40-50 pages when you have presented your latest cool, short, sharp one to them, or a Pitch Deck you last updated a century ago, or one with another investor’s name on the front cover…yes, that happens! By getting into the habit of creating separate rooms (Folders) for each new investor three things happen. You can see what needs updating, you see who you have pitched to (will only contain the Pitch Deck) and by giving specific access to an investor who wants to take it further, you fill it from the Master Room and then (as if by magic) you will see when they actually open that folder, so at least you know there is some actual interest - we don’t have to tell you there is a whole load of talk out there, with very little walk! In the more advanced Data Rooms you can even see which files they open within the folders and how long they spend on them!
This is why it is useful to label the folders with the investor’s name. So for example ‘XYZ Investor created 02 Aug 2023’. Advanced ones even allow you to white-label with your company logo and so look extremely professional!
So you have set up your Master Data Room and there it sits, empty, bored, twiddling its thumbs. What to put into it? And what order?
Just because we are getting serious, that does not mean your purpose and story get thrown out of the window.
So start with a folder: Business Summary and Company Overview.
For those of you who are long term readers of our articles, you will be well aware of how we build Pitch Decks and Business Plans - we start with our PURPOSE which is our Problem, Solution and Competition that becomes the hub of the wheel that then becomes these decks and plans (see here our guide from 2020).
In goes a 1-page business overview where your Purpose is central.
Then a .pdf copy of your current master Pitch Deck (from which all the slides you use for specific investors flow - your Master copy may well be 30-50 pages long, but when sent out (via the investor’s Data Room (folder) we are looking short and sweet is better)
…and also your latest Business Plan.
(please, please, please - always .pdf your documents for security, so no ‘word’, no ‘powerpoint’, always .pdf and if ‘excel’, lock the editing function, e.g. ‘File’ then ‘Passwords’. An investor will ask if they want to edit in some way - perhaps to do scenario testing with your numbers - but then you will know and it’s another chance to discuss and show how professional you are.)
Next folder. Show this Purpose actually has legs…Traction.
Are people or companies actually willing to pay cash for your product? Remember a product no matter how many problems it solves - if it doesn’t produce hard cash in sales, it’s just a hobby.
Customer data gets dropped into this folder - how many customers do you currently have, how engaged are they? Are they repeat performers - has this list grown past and beyond your loyal Friends and Family?…and so on.
Just how expensive is each customer to acquire (marketing and advertising, incentives and discounts, the staff costs etc), your CAC.
Of course you can spend decades filling this folder with little bits of info, but bring out the main ones. There is a very good list here to choose from. Most of these will be in your Business Plan, but nothing beats highlighting them in an easy to reach format.
Then we start moving into the heavy stuff…
Legal is the next folder. How does the investor know what they are buying is ‘kosher’? Errrr, do you actually own the company?!
All of your company documents must go in there. Articles of Association; Memorandum; Incorporation Certificate; If you have shareholders, then the Shareholders agreement, including Uncle George’s Shareholder’s agreement for that $5k he slapped into your account to start you off…their Subscription and Deed of Accessions if needed, i.e. what time did they join - were they founding members or late shareholders who bought their way in? Now is not the time to get cute, list all shareholders, even those behind offshore companies - the investor will ask, far better to be open, upfront and honest.
Are these are all signed - yes, it has been known to happen! You send around all the formal docs, and ‘he’ll do it later…’! Did they come in under a SAFE agreement? (see here our guide)
Have you entered into any jv’s or distributor agreements - the last thing an investor wants is to have surprises, that certainly includes any court cases and judgements against you/your company. Good or bad, surprises don’t make investors happy.
Knowledge brings discussion and understanding, and respect.
Remember, you are not just providing the information to the investor, you are also showing:
that you take corporate governance seriously,
that you are the kind of well organised person the investor will want to work and partner with. If in doubt, think how Hermione Granger would organise and present this…!
…Or if it is actually possible that you have lived in a darkened room for the past 28 years and have no idea who HG is, the Dutch Government’s FMO helpfully state (here):
“From a governance point of view, you simply have to do what is right, right from the start, rather than wait until much later.”
(You can almost hear Hermione’s voice…) This is all part of the essential good governance requirements. Have you kept good records from the start? You have to show it. Essential.
Next - Financials. (you knew it was coming)…
Copies of all audited financial statements go here. Please make sure that you have an authorised auditor that has a decent name as this does make a difference.
No surprise, in go the P&L / Income Statement; Balance Sheet; Cashflow Statement; Financial Projections 1-3 years into the future.
A sub file of this should be all your Tax confirmations of payments and any Tax Audits that have been done, plus findings of course.
HR.
All employment contracts go in here, plus any associated contracts such as confidentiality, non-compete, nondisclosure, and so on.
Intellectual Property
You have a patent? That must go in here.
Do you have any rights over other’s IP? For that matter, does a third party have any rights over your IP (‘No surprises’ remember!)?
Environmental, Health & Safety issues?
As we keep on saying - surprises for an investor are bad. If you have had issues with these areas, far better to come clean, but also say how they were handled and how they have been mitigated for the future.
So that’s it! All you need to do is update it as and when you have something new, like your monthly accounts, or new employees etc. The heavy lifting has been done. Congratulations.
Now you are ready as if by magic to pounce instantly when the opportunity arises…and won’t you feel smug, something that we know Hermione was accused of being on more than a few occasions!
Stay safe.