360 views on tech #46: Data Room 101

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The insider’s guide to data rooms: what to know before you raise

a16z — Justine Moore

It’s time for your startup to fundraise. You prepare a deck, practice your pitch, and reach out to VCs. After a successful first meeting, investors may ask you to share your “data room”. But what is a data room, and what should you include in it?

A data room is a collection of documents to help investors have a comprehensive view of your business. It helps speed up their due diligence or keep track of your company’s progress if they want to reconnect in a few months. Simply put, data rooms minimize the back-and-forth emails and gets to the point.

Here are the top 5 things we recommend putting in your data room:

1. Pitch deck. The deck should include your company’s thesis, product vision, market size, traction, competitive landscape, team and equity story with how you plan to use the funds. If you are pre-revenue but have a beta or tested a pilot of the product, data is helpful on the matter. 10–15 slides are enough; the goal is to be concise.

2. Cap table if you have fundraised in the past. This is a summary of the current investors in your company, how much they’ve invested, and how much ownership they have.

3. P&L and burn. The best option is a summarized P&L followed by detailed views if needed. Classifying different types of revenue (if applicable) and all of your major costs is essential for clarity. It’s also helpful to add your cash balance, if you’re not including a balance sheet and cash flow statement. If you are pre-revenue and have projections for now be sure to include a tab with all hypotheses.

4. Usage data. Key metrics will vary depending on the business model, but here’s a general outline for what the data should illustrate:

• Growth: How is your user base scaling over time, both in terms of sign ups and active users?
• Acquisition channels: How are you acquiring users? How much does each of these channels cost you?
• Engagement: How often are users engaging with the product, for how much time and for which purpose ?
• Retention: How are users retaining over time, resulting in how much recurring revenue? Social or gaming apps require further analysis here, usually through the form of monthly cohorts and look at both number of users and spend.

5. LTV / CAC and payback period. Most investors want to know if you are making money on the average customer considering their acquisition cost. This is where LTV (lifetime value)/CAC (customer acquisition cost) comes into play. LTV is how much the customer generates money over its lifetime on the product in terms of contribution profit. Contribution profit differs from gross margin as it includes variable costs such as sales and marketing which aren’t in COGS. LTV/CAC > 1 indicates that for each euro you spend on a customer, the customer earns you back more than 1 euro.

Most investors recommend using blended CAC, accounting for all different types of marketing channels including the ones you don’t pay for directly for e.g. content marketing. If you are an early stage startup, it’s also interesting to look at paid CAC, as it gives you a sense of whether your paid marketing efforts are profitable at the beginning of your journey.

LTV is often trickier to calculate. We recommend using historical data to estimate how long and how much a customer spends on your product, and clearly laying out your assumptions for investors to understand.

VCs also look at payback period, which measures how long it takes for the profit generated by the customer to “pay back” the cost of acquisition. The numerator here will be customer acquisition cost. The denominator will be a measure of profit: either gross margin, assuming you have no indirect variable costs aside from sales and marketing, or contribution margin excluding sales and marketing.

Data rooms by category

The specific metrics that investors want to see will vary based on your business model. Below, we’ve outlined the key metrics we like to see for the categories of startups we typically look at. Keep in mind that for each of these items, investors generally want to get a sense of how they’ve changed over time (if at all), not just the current state.

You will want to showcase specific metrics in your data room depending on your business model. Below are some examples from our portfolio at 360 Capital 🔴🟠🟡 regarding subscriptions, e-commerce and marketplaces.

Subscriptions (e.g. Regate, Surfe)

• Monthly active free users and paid subscribers
• MRR and gross margin
• Conversion rates for each step in the flow: registration to trial to paying user
• Acquisition split between organic and paid users on a monthly basis, and paid CAC
• % of users on each type of plan (e.g. monthly vs. annual)
• Monthly retention cohorts — paid user retention (% of users still paying for a subscription at X month), and active user retention (% of users still using the app at X month)

E-commerce (e.g. Le Slip Français, The Socialite Family)

• Monthly web traffic, number of buyers, number of purchases, and transaction volume. (Sub-metrics can come out of this, such as conversion rate and AOV)
• Return rate
• Customer repeat rate and frequency of re-purchases
• Gross margin and contribution margin
• % of new customers by acquisition channel
• CAC, estimated LTV, and payback period

Marketplaces (e.g. Everli, Kampaay)

• Transactions, GMV, and net revenue
• Monthly new sellers and buyers added to the platform
• Active sellers and buyers
• CAC on both sides of the marketplace
• GMV retention and user retention for both buyer and seller cohorts
• GMV concentration each month in the top buyers and sellers

What are some red flags I should be aware of?

VCs don’t expect data rooms to be perfect, but here a few things which makes them frown:

• Numbers that aren’t consistent with what’s in the deck. For example, your deck says $2M in ARR, but your business plan shows $1.5M.
• Numbers that aren’t consistent across tabs or spreadsheets. Building one comprehensive model (instead of many different spreadsheets) and linking across tabs will update all the cells as needed if you change a metric.
• Selectively presented financials. If you founded your company three years ago but hide your past revenue and only show revenue projections, that is a red flag. The delimitation between historicals and future projections shouldn’t be fuzzy, too.
• Selectively presented metrics. Although you should definitely highlight your key achievements, please be sure to include the full data in the big picture.

Having a data room ready in advance will keep your fundraising process moving. Consider it a work-in-progress, as you’ll likely add more as you get questions from investors !

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Check out our website for more info on 360 Capital. Any comment or feedback ?=> nami@360cap.vc