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Raising a pre-seed round – 10 things to include in your data room

21 Sep 2022 By Maria Rotilu

Approaching prospective investors for funding during your pre-seed round can be daunting, but the more organised you are, the more straightforward the process will be. We’ve already explored some of the things to consider before fundraising in a previous blog. In this one, we’ll run through a vital element that goes a long way towards demonstrating your preparedness to investors: your data room.

Before signing off on any investment, investors will need to do their due diligence. It’s typically the last stage before an investment is confirmed. A data room doesn’t just boost confidence by demonstrating to investors that you know what you’re doing — it should also supply important information relevant to investors’ due diligence. This will help streamline the fundraising process and get investors over the line towards a decision.

Our focus at Octopus Ventures has historically been on later-stage start ups. But we’ve launched a new, pre-seed team to extend our support for pioneering founders to their very first cheque. Our pre-seed team has years of experience in the space, and we’ve drawn on it to come up with this list of the ten things we think you should be including in your data room for your pre-seed fundraise — and why.

1.Incorporation documents

These confirm that your entity exists in the right structure for a technology company — incorporation, as opposed to limited partnership. It also shows critical information, such as your start up’s trading name — which could be different from company legal name — incorporation location, shareholder information, and so on. Some VCs carry out checks using the company registration at Companies House, and the incorporation documents are a handy source of information for them.

2. Cap table

At the early stage it is likely that the only people on the cap table (i.e. shareholders in the business) are the founders themselves. However, it’s always possible that other angels or institutional investors have already given you their support. Typically, investors will be looking to see that the equity is split across founders in a way that incentivises the right behaviour. A non-active founder with large shareholding, for example, could be a red flag.

3. Detail team bios

You’ll already have shared a slide about the team in your pitch deck, and the investors may very well have already checked your LinkedIn profile (so do make sure to keep this up to date). But it’s still a good idea to include detailed team bios in the data room, to give more colour and depth to the experience of the founding team. Through detailing individuals’ experience, you can further clarify that the team has the skills, network and expertise to build the venture you’re fundraising for.

4. Draft legal agreement

In early-stage investments different instruments could be used by investors. These could range from an actual shares purchase equity round to other more nuanced instruments, such as the SAFE (Simple Agreement for Future Equity), Convertible Loan Note and Advanced Shares Subscription, amongst others. Some VC funds will commission an independent legal review of your legal agreement or send their own standard copies. Either way it helps to have something in your data room to pre-empt the review process and show investor readiness.

5. Relevant market research

This can really help to add colour to the business case for your start up. Presenting comprehensive and independent data that demonstrates market gap and readiness, illustrates how compelling the opportunity for your solution in the market is, and the potential to scale, will help persuade investors that your start up is the one they should be backing. By building conviction in this way, you’ll help them move towards making an investment commitment.

6. Product demo

Often, early-stage pitches don’t leave sufficient time to go into detailed product demonstration. But some people are visual learners, and a demo could go a long way to explaining how your product works — and the value it provides. Including this in your data room will enhance investors’ understanding of your value proposition, and the potential value add it offers to users. At the pre-seed stage, it’s always possible that a product hasn’t been built yet. If this is the case, mockups and process flows can stand in to paint a picture of the solution.

7. Partner/customer testimonials

Independent references demonstrate that you’re solving a real problem with your start up, by confirming that you’re building something customers / partners want and need. Including, for example, Twitter feedback, customer app reviews and ratings, and general customer feedback is a strong way to build credibility and confidence in the value add of your solution.

8. Employee agreement

This is often required by auditors of VC funds to show that the founders have signed an employee agreement, and that any IP generated is transferred to, and owned by, the company — which is what they are ultimately investing in. You could also include a founder’s agreement here to show that there is some vesting clause in the agreement to align the incentives amongst founders and the business.

9. Partnership/pilot agreements of letters of interest (LOIs)

Showing a strong pipeline of potential large customers for your product is a strong signal that any funding you receive will be impactful in unlocking the next stage of growth. Partnership agreements and LOIs show that you have kicked off existing commercial agreement discussions which funding will help you fulfil.

10. Legal opinions/IP contracts

Some products tend to be sensitive from a regulatory standpoint; anything involving minors, for example, or IP patented USP (Unique Selling Proposition). An independent opinion from a trusted and relevant professional which demonstrates that all the legal risks associated with the investment have been assessed, considered, and mitigated, will significantly boost investor confidence.

When it comes to the tools you can use to best manage your data room, there’s a bounty of options. I’ve highlighted some of the ones I’ve had most success with — and seen used with best success by founders — in another blog.

And if you’re building a business with a world-changing proposition at its heart, and you think you’re ready to start raising your pre-seed or first funding round, you can get in touch to tell us all about your business here.


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