In my last newsletter issue I took you through the 7 sections which VCs expect to see in your data room.

Today, I’m sharing with you the most common mistakes which I and investors I talk to see founders make across their data rooms.

Let’s dive in!

In preparation of Fundraise Ready’s new product (a Data Room System), I talked to a bunch of VCs about their current data room review process. 

One of them said: “We just backed off of a deal with a company, because during due diligence we caught 12 misalignments of data and claims between the deck, the data room and what the founders actually said to us.”

It is unthinkable to have your pitch deck say €80K MRR, the financial model show €73K, and the KPI dashboard report €76K, with no further explanation. This is valid for any other number, fact or claim.

What does “too early on” mean - it means you don’t share these before signing a term sheet. Signing a term sheet is considered a moment of commitment by the VC and respectively your commitment to their proposed terms (although most provisions are not legally binding).

So what does “confidential documents” mean? Here’s some examples of the docs I’d consider confidential:

In my view it’s anything which contains sensitive personal or client information, deep technical specifications, financial and legal information which could be misused.

Right when you finish up your first investor meeting is most likely when the VC would request data room documents from you - they are excited and ready to dive deeper.

You will totally kill the vibe if all of a sudden you delay the process, because you spend the next several weeks piecing out a below-average data room from scratch.

Meanwhile, your relationship with the investor cools down and they’ve moved on to the next deal. They are no longer excited about your startup and you’ve lost the initial momentum.

Back when I was reviewing deals as a VC, if I talk to a founder who’s fundraising in October and I see that some materials were last updated in April this was an instant red flag.

The same is valid for outdated market information, being unaware of new competitors, outdated financial models, missing metrics for the last couple of months.

The data room, as well as the pitch deck, should be kept fully up to date!

Bold claims without any evidence are some of my favorite mistakes - because it’s just funny.

“We have a massive market opportunity.” - good, show me your market sizing methodology.

“We have an efficient acquisition engine.” - show me your acquisition pipeline breakdown with conversion rates and the CAC evolution.

“We’ve found product-market fit.” - I want to see your cohort analysis, current and historical churn and I want to talk to your power users.

Focus your data room more on the evidence than the bold claims.

Your data room should be used strategically.

Don’t push it immediately into the hands of every investor you speak to. If after the first call they request more information on a certain aspect - lets say financials or your key metrics, send just this piece of info.

Otherwise you’re risking to overwhelm them with information, which they haven’t requested and which will slow them down in processing.

Think of it this way - if they request the full data room, this means they’re ready for it - share it. If they request bits and pieces of it - share only these.

If I open your data room and find 40 files in one folder, with names like “Financials_final_v3_NEW”, I already know this will take longer than it should.

Use clear folders and file names. Make it obvious which document is current and what period it covers. Don’t include multiple versions of the same file - I’d like to see only the final one.

An investor should be able to find your cap table without messaging you to ask where it is.

Your data room is another opportunity to make a stronger case for your business. Put some thought into how an investor will actually read it.

For example: a spreadsheet with 15 tabs and no explanation takes lots of effort to understand. But on the other side, a clear chart with a few lines of context can help them see how your business is performing in seconds.

And you can actually make it beautiful. Use graphics and colors to draw attention to the important information. If you’re building it in Notion, organise it into sub-pages with clear titles and an obvious path through the materials.

The materials should be brain-friendly and easy to follow.

This one is very sad. And it’s valid for pitch decks as well.

VCs go through a lot of companies every week, so it’s very easy for them to spot patterns. The AI-generated materials pattern becomes more and more obvious.

And it’s a major red flag. Nowadays every pitch deck or market sizing sounds exactly the same.

I’m not saying “Don’t use AI”. Exactly the opposite - do use it, but use it to help you in the process, not to do everything “instead” of you.

Two rules: 1. Your materials should sound like a human (ideally you) and 2. You should be able to explain every single part of them yourself.

These were the 9 most common mistakes I see founders make with their data rooms. I hope you found some useful bits and pieces.

That's all for this week.

See you again on a Thursday (or Friday 😉) soon.