Chapter 18Get Your (Data) Room in Order

Perhaps the most important set of documents you need to get ready before engaging with interested parties is your data room. It is a fairly mechanical artifact that contains all of your capitalization table, incorporation documents, material contracts, employment letters, financial statements, debts, etc. Things could move quickly, and you don’t want to be caught flat-footed when the buyer wants to move quickly and you don’t have a complete data room for review. Perhaps the most important piece of document they want to see is your cap table along with the waterfall for liquidation. This would dictate who gets how much in the event of a liquidation and the buyer needs to make sure that the considerations and retention are designed so that all the decision makers for the deal can sign off the transaction and also use it as a proxy to understand the relative importance of employees in the company. Perhaps the second most important folder which in the ideal case is empty is legal proceedings or litigations. Ongoing legal disputes with any company or individual could be the number one reason to derail a deal. The best case scenario is to settle these before you begin the process. Or in any case, make sure you include anything and everything in those matters in your data room. It’s always better to disclose upfront than to have the acquiring team discover on their own later.

The other thing to call out here is that you don’t need anything fancy or dedicated software for your data room. Dropbox or Google Drive is sufficient. Put all the documents in the appropriate folder structure, and when you get into actual due diligence with a company that shows interest who asks for your data room, create a copy and send the copy over. This way, if there are any acquirer specific items that this particular company asks for, you can simply put it in the copied folder.

See appendix for a list of items to be included in your data room.