What is a data room?
A data room is a private digital space used to share confidential files with external parties. Data rooms allow you to monitor who accesses your files and when. Key features include the ability to block downloads or screenshots to avoid confidential data from falling into the wrong hands. An average data room license will cost in the mid-to-high hundreds of dollars per month, often with an annual or multi-year contract.
When do I need a data room?
Data rooms are typically used during fundraising, during merger or acquisition discussions, or when seeking capital from LPs—but “need” is a strong word.
You might choose to use a data room:
- When you can afford the cost
- To impress an investor or LP (really)
Beyond your pre-seed “friends and family” round, many investors will expect you to have a data room simply because it’s what’s done. A data room is essentially window dressing around a shared folder, and it can signal to investors that you’re a mature business ready for the next step.
Which data room provider should I choose?
There are many data room providers, large and small. In our experience, there isn’t one provider that leads the pack.
Most, if not all, data room providers will give you the basic functionality that you need to keep your sensitive data safe: role-based access, logging, watermarking, and the ability to restrict downloads and screenshots.
If cost is an issue, look for a solution that allows you to subscribe month-to-month. Most businesses do not need to have an active data room at all times.
What if I can’t afford a data room?
If a data room platform is entirely outside of your budget, you can build a DIY data room using your existing file storage solution. While this workaround lacks the showmanship of a data room, it can fulfill your need to safely share sensitive and confidential documents.
