{"id":7889,"date":"2020-09-30T15:56:44","date_gmt":"2020-09-30T15:56:44","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/?p=7889"},"modified":"2021-03-05T06:54:28","modified_gmt":"2021-03-05T06:54:28","slug":"https-cartastaging-wpengine-com-blog-build-an-effective-data-room","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/build-an-effective-data-room\/","title":{"rendered":"Build an effective data room with 5 key documents"},"content":{"rendered":"<p><span style=\"font-weight: 400\">In an increasingly competitive venture capital environment, emerging fund managers need an effective way to stand out and close their funds. If your venture firm is raising your first or second fund, you\u2019ve likely already built your network of prospective limited partners (LPs), generated pitch materials, refined your story, chosen a law firm, and selected your <a href=\"http:\/\/www-staging.carta.com\/investors\/fund-administration\/\">fund administrator<\/a>. But, an unsung hero of the fundraising process is the data room.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">The demand from institutional investors for access to the venture capital asset class continues to rise. According to a <\/span><a href=\"https:\/\/docs.preqin.com\/reports\/Preqin-Investor-Outlook-Alternative-Assets-H1-2020.pdf\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400\">2020 report from Preqin<\/span><\/a><span style=\"font-weight: 400\">, over three-quarters of institutional investors will maintain or increase their commitments to alternative assets this year. <\/span><span style=\"font-weight: 400\">On the supply side of the market, venture capital investors collectively closed 267 funds and raised more than $60 billion in the first half of 2020, according to a <\/span><a href=\"https:\/\/files.pitchbook.com\/website\/files\/pdf\/PitchBook_Q2_2020_Private_Fund_Strategies_Report.pdf\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400\">Q2 Pitchbook report<\/span><\/a><span style=\"font-weight: 400\">. Meanwhile, emerging managers and small funds raising less than $50 million raised a total of only $3 billion during this period.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Despite the current numbers, over <\/span><a href=\"https:\/\/www.svb.com\/blogs\/barry-obrien\/the-rise-of-the-family-office\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400\">60% of family offices surveyed by Silicon Valley Bank<\/span><\/a><span style=\"font-weight: 400\"> believe the highest returns in the next decade will come from emerging managers instead of established firms.<\/span><\/p>\n<p><span style=\"font-weight: 400\">How can emerging managers compete?\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">It comes down to a solid fundraising strategy. Your prospective LPs need as much information about a fund as possible\u2014and a data room can help you tell your fund\u2019s story more effectively. Not only can a quality data room demonstrate your professionalism and save LPs time, but it also helps you successfully move prospects through the funnel and get existing LPs to continue investing.<\/span><\/p>\n<p><span style=\"font-weight: 400\">We\u2019ve put together our framework for building a data room that showcases your team and your fund\u2019s potential. Focus on the following three factors when building out your data room: strategy, storytelling, and standardization.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Strategy\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Without support or a clear direction, a data room is just a series of documents. Before you release it:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Create two different versions of your data room: one with general information and one that includes more proprietary information to stage-gate your prospective limited partners&#8217; access to information.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Ensure your previous firms and\/or co-investors will verify your investment track record.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Reach out to the companies you\u2019ve invested in to ensure they\u2019re ready to discuss your role as an investor.\u00a0<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">Storytelling<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Your data room is an opportunity to control the story surrounding your fund. Make sure you:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Describe important aspects of your firm\u2019s history, including why you formed the firm and your partnership, investment thesis, portfolio construction, investments, and portfolio company support.<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Provide context for each data point you include. Don\u2019t simply provide a spreadsheet of your investments. Instead, contextualize which investments are outperforming, which are neutral, and which need additional support.\u00a0\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Highlight your accomplishments and any challenges you\u2019ve overcome individually and as a team. LPs want to understand details about who you are as much as what you\u2019ll do.\u00a0<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">Standardization\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400\">A good data room should leverage industry-accepted templates and documents whenever possible. Standardization ensures your data room is aligned to industry expectations and easy to read. To make that happen:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Embrace industry-accepted templates used by the LP community, including the Institutional Limited Partners Association (ILPA) <\/span><a href=\"https:\/\/ilpa.org\/due-diligence-questionnaire\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400\">due diligence questionnaire template<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Always run your data room materials by your fund lawyer to ensure you\u2019re following industry protocols.\u00a0<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">What to include in your data room<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Here are five items to prioritize:<\/span><\/p>\n<h2><span style=\"font-weight: 400\">1. Pitch deck<\/span><\/h2>\n<p><span style=\"font-weight: 400\">A pitch deck provides an overview of your fund and gives prospective LPs a better idea of what to expect when investing with you. Your pitch deck should be digestible\u2014between 5-10 slides\u2014and explain the following:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><b>People:<\/b><span style=\"font-weight: 400\"> Who\u2019s on your team? What are their backgrounds?\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><b>Performance:<\/b><span style=\"font-weight: 400\"> What\u2019s your investment strategy? How has your fund performed so far? If you\u2019re a first-time fund, how have the individual investments of your team members performed?<\/span><\/li>\n<li style=\"font-weight: 400\"><b>Company or individual case studies:<\/b><span style=\"font-weight: 400\"> What are your strongest examples of success?\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><b>A summary slide:<\/b><span style=\"font-weight: 400\"> Consider including a single multipurpose slide that has an overview of your team, new fund, investment strategy, total portfolio companies, key co-investors, and key LPs if applicable. This slide can come in handy, especially if you don\u2019t have time to show LPs the entire deck. <\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">Remember: your pitch deck is a chance to differentiate your fund. A potential investor should walk away knowing what your qualifications are, what makes your fund unique, and how they\u2019ll benefit from investing.<\/span><\/p>\n<h3 style=\"text-align: center\">Download our free VC pitch deck template<\/h3>\n<p><img loading=\"lazy\" class=\"aligncenter wp-image-1944\" src=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2019\/06\/centered.png\" alt=\"\" width=\"400\" height=\"266\" srcset=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2019\/06\/centered.png 1200w, https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2019\/06\/centered-768x511.png 768w\" sizes=\"(max-width: 400px) 100vw, 400px\" title=\"\"><\/p>\n<p><span style=\"font-weight: 400\"><br \/>\n[marketo-form form_id=&#8221;6782&#8243;]<\/span><\/p>\n<p><em>The VC pitch deck template was developed in partnership with <a href=\"https:\/\/www.kauffmanfellows.org\/\" target=\"_blank\" rel=\"noreferrer noopener\">Kauffman Fellows<\/a>.<\/em><\/p>\n<h2><span style=\"font-weight: 400\">2. Track record\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Before they invest in your fund, LPs will want to understand your investment track record. Even if you do not have an existing investment track record, be prepared to show the portfolio construction of the fund.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">When presenting your track record, aim to be upfront, clear, and thorough. You don\u2019t want to send prospective investors on a fact-finding mission. Your track record should show the details and performance of your investments at the company-level, as well as the performance of your fund.\u00a0 <\/span><\/p>\n<p><span style=\"font-weight: 400\">Show the value of your unrealized investments by including your co-investors, your ownership of each investment, multiple on invested capital, the current value of the company, and the value of your holdings. <\/span><span style=\"font-weight: 400\">If you&#8217;re raising your first fund, highlight angel deals, SPVs, or deals from your prior firm you can reference. Overall, your investment track record and portfolio construction model needs to tell a story that aligns with your investment thesis.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">3. Audited returns<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Audited tax returns give prospective LPs insight into your firm\u2019s finances. By looking at your fund\u2019s tax returns, a potential investor can see your profits and losses, assets and liabilities, cash flow, operating expenses, and liquidity.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">If you don\u2019t yet have audited financials, it\u2019s still a good idea to speak to the subject. Include your current financials, then work on explaining how your firm plans on addressing the need to audit. For example, you may need to get an <\/span><a href=\"http:\/\/www-staging.carta.com\/blog\/what-is-asc-820\/\"><span style=\"font-weight: 400\">ASC 820<\/span><\/a><span style=\"font-weight: 400\"> valuation to determine the fair market value of your investments.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Carta can help. When you use our self-service <\/span><a href=\"http:\/\/www-staging.carta.com\/investors\/asc-820\/\"><span style=\"font-weight: 400\">ASC 820 valuations<\/span><\/a><span style=\"font-weight: 400\"> tool, we\u2019ll assign you an experienced analyst to help you make sense of the results.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">4. Due diligence questionnaire<\/span><\/h2>\n<p><span style=\"font-weight: 400\">A due diligence questionnaire (DDQ) gives investors answers to frequently asked questions about your fund. The information included in the DDQ will vary depending on your fund, but in general it\u2019s helpful to describe your fund\u2019s journey, explain your investment objectives, and disclose any risks\u2014internal or external\u2014your fund faces.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Answering such a long list of questions about yourself and your work can be tedious, but when a prospective LP starts their due diligence, you\u2019ll be ahead of the game. You will have developed a new asset for your fundraising process in the form of an index of information for investors.<\/span><\/p>\n<p><span style=\"font-weight: 400\">ILPA has a great <\/span><a href=\"https:\/\/ilpa.org\/due-diligence-questionnaire\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400\">DDQ template<\/span><\/a><span style=\"font-weight: 400\"> you can use as a starting point, and it\u2019s also a good idea to ask your lawyer what to include.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">5. Previous investment memos<\/span><\/h2>\n<p><span style=\"font-weight: 400\">To round out your data room, consider including your team\u2019s previous investment memos. Even if you\u2019re investing in the fund together for the first time, prospective LPs will be curious about your approach to underwriting a deal.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">You may even want to include a deal attribution analysis for each of your fund managers. These analyses, which measure the performance of certain portfolios, can help reassure LPs and demonstrate your team\u2019s expertise.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Fundraise with Carta<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Fundraising as an emerging manager takes time, strategy, and paperwork. Fortunately, a comprehensive, accessible data room can help you distinguish yourself and land investments easier. Instead of sharing your data room through email, try using an online hosting platform. If you\u2019re raising a new fund, you can get a free, secure <\/span><a href=\"https:\/\/support.carta.com\/s\/article\/deal-room-overview\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400\">data room<\/span><\/a><span style=\"font-weight: 400\"> from Carta.<\/span><\/p>\n<p><span style=\"font-weight: 400\">With every item in one location, your prospective LPs won\u2019t have to dig through their inboxes to read documents or forward attachments to their attorneys. Plus, managing a data room on Carta is easy. As a fund manager, you can customize your data room controls, track who views the data room, and enable or disable settings to allow downloads, require NDAs, or watermark documents.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Carta also offers <\/span><a href=\"https:\/\/support.carta.com\/s\/article\/pre-close-standard-scope-of-services\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400\">pre-close services<\/span><\/a><span style=\"font-weight: 400\"> and <\/span><a href=\"http:\/\/www-staging.carta.com\/investors\/fund-administration\/\"><span style=\"font-weight: 400\">fund administration solutions<\/span><\/a><span style=\"font-weight: 400\"> so you can close deals faster and with less hassle. If you need to build a new data room, <\/span><a href=\"http:\/\/www-staging.carta.com\/requestdemo\/?organization=Investor%20Services\"><span style=\"font-weight: 400\">fill out this form<\/span><\/a><span style=\"font-weight: 400\"> and we\u2019ll reach out to schedule a demo.\u00a0<\/span><\/p>\n<h6><span style=\"font-weight: 400\">DISCLOSURE: This communication is on behalf of Carta Investor Services, Inc. (\u201cCarta\u201d). This communication is not to be construed as legal, financial, accounting or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.<\/span><\/h6>\n","protected":false},"excerpt":{"rendered":"<p>In an increasingly competitive venture capital environment, emerging fund managers need an effective way to stand out and close their funds. If your venture firm is raising your first or second fund, you\u2019ve likely already built your network of prospective limited partners (LPs), generated pitch materials, refined your story, chosen a law firm, and selected &hellip;<\/p>\n<p class=\"read-more\"> <a class=\"\" href=\"https:\/\/www-staging.carta.com\/sg\/blog\/build-an-effective-data-room\/\"> <span class=\"screen-reader-text\">Build an effective data room with 5 key documents<\/span> Read More &raquo;<\/a><\/p>\n","protected":false},"author":121,"featured_media":7890,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[24,66],"tags":[410,411,106,129,413,382,412,104],"acf":[],"_links":{"self":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/7889"}],"collection":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/users\/121"}],"replies":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/comments?post=7889"}],"version-history":[{"count":0,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/7889\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media\/7890"}],"wp:attachment":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media?parent=7889"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/categories?post=7889"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/tags?post=7889"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}