How to Build a Data Room that Closes the Round
Veteran operator and investor Susan Su shares insights and tricks on building the greatest data room of all time to get that round closed.
While a sexy pitch and knowing the right people can get you far, much of the success of strong fundraisers stems from time-tested tactics; often simple strategies that, if employed savvily and consistently, will deliver financial results.
Chief among these tactics is constructing a best-in-class data room. These digital databases, which contain financial, product, customer, market, and general company information, can be a founder’s silver bullet, the type of shareable resource that, once in an investor’s hands, can turn a skeptical VC into a committed advocate who sells to other investors for you.
To understand what comprises a standout data room, Enduring Planet spoke to Susan Su. Susan is a Partner at Toba Capital, an early-stage investment firm that counts climate tech amongst its focus areas. Susan, who leads the firm’s climate efforts and is a passionate advocate for climate entrepreneurs, has reviewed countless data rooms over the course of her career and has a tremendous sense for what works and what doesn’t. Below, we dig into her top data room tips.
One file does not fit all 🚫
Any founder that is actively fundraising will interface with a plethora of potential investors, many of whom will be sent data rooms that are more or less identical. Many entrepreneurs will take a shortcut and share the same Google Drive/Dropbox folder with every prospect. While this is certainly convenient, there could be unintended consequences.
Consider a Google Doc. If an investor pops open your A+ file, only to discover that she is one of ten anonymous narwhals poking around the same pages that were last edited — gulp — six months ago, what message does that send? Does this communicate a hot deal or a stale raise?
To counter this, create personalized file packages and links for every investor (name the folder “Company Data Room - Investor Name”), typically on the day they’re requested. Small task, big impact.
The executive summary AKA your ambassador kit
While it may seem like a big time commitment, consider building an executive summary for your company and the deal. Remember, typically VCs don’t make decisions alone. Their process usually involves multiple decision makers (several or even all of the other partners, maybe some LPs, etc). This process revolves around an internal memo, which spells out the case for the investment, the risks, and prospective returns.
An executive summary therefore gives you a chance to serve an investor your complete in-depth narrative on a silver platter, giving them the materials to craft their memo, and empowering them to be your champion inside their firm. This can also shorten your diligence process by covering major areas like competition, market size, business risk, etc, with fewer Zoom calls and less back-and-forth.
PRO TIP: If you already have a particularly passionate investor on board, you can ask them if they’d be willing to share the memo that they sent to their team about your venture. If they’re game, you can, in turn, either (a) draft your Exec Summary based on the memo or (b) share that memo with prospective investors.
Financials: Don’t *%!$ around
When it comes to financial models in a data room, climate entrepreneurs shouldn’t play games.
- Don’t build an overly complex financial model. Excessive complexity is the enemy (unless you’re in financial services and pitching fintech investors). Make it as simple as possible, even as you’re aiming for completeness across the fundamentals. If you’re unsure, share with a few trusted advisors and ask them what can be cut.
- Do provide a rock solid pro forma financial statement with clearly-stated assumptions that are organized in a separate, color-coded tab. The transparency will inspire confidence and the thoroughness will allow investors to manipulate your assumptions and dig into the data behind your baseline.
- Do add a front page and/or a Loom video that walks investors through the inner workings of your model. Explaining it up front means that you won’t have to explain it later.
Talk about (and show) your product — and invite others to do the same
You need to devote a specific section of your data room to your actual product. Getting into the nitty gritty behind the tech isn’t always necessary but, at a minimum, creating a personalized video demo that gives an investor a top secret look under the hood will surely only pique their interest further.
Don’t forget that happy customers can be a founder’s best product ambassador. Instead of repeatedly asking a customer to sing a product’s praises to potential investors, record a Zoom with them that will serve as their de-facto testimonial and drop it in your data room. That way, when an investor inquires about product outcomes, you’ll have a shareable, real-life win in your back pocket.
⚡️ Bonus Tips ⚡️
- Build an FAQ: want to save time in diligence? Put together an FAQ with all of your anticipated questions (even the rough ones). No fairy tale narrative needed, just rapid fire nuggets of information that help answer the questions bouncing around in your potential investor’s head.
- Don’t overlook the Team section in your data room. The best Team sections are incredibly detailed and layer qualitative narratives — who this person is and why they’re on our team — upon standard CV information. Include a bio, headshot, and relevant links (LinkedIn, Twitter, etc) for all key employees.
- The best investors will ask the most questions and seek the most information so, when in doubt, err on the side of completeness in your data room. Their money is hard to get, but it's worth the price of admission.
Susan Su is a climate VC and a partner at Toba Capital, where she leads the climate technology practice. Prior to Toba, Susan worked at Sound Ventures and led growth, marketing, and product teams at Stripe, Reforge, and 500 Startups.
Toba Capital is an early-stage venture capital firm the invests broadly across high-growth software and climate tech.