The Complete Guide to Building an LP Data Room

What is an LP Data Room in Venture Capital?

In the context of Venture Capital, a data room serves as a centralized repository where GPs store and manage documents related to their fund. This collection typically includes their track record, partner bios, deal memos, legal documents, and other relevant documents. When setup correctly, a data room will allow for easy and secure sharing of these documents with current and prospective LPs.

What Information Should You Include in a Data Room?

Table of Contents

When first starting, a table of contents may not be necessary as the folders should do most of the organizing. However, when there begins to be folders within folders, the addition of a table of contents will make navigation much easier for LPs.

Pitch Deck

When LPs are evaluating your fund for potential investment, especially if it's their first time considering it, your deck is likely to be their go-to resource. Understanding this, it is vital to ensure that your pitch deck is not only comprehensive but also compelling and clear.

According to Signature Block, here are the 4 must-haves when creating your pitch deck:

  • The purpose of your pitch deck is to convince LPs in your ability to make outlier investments. Making exceptional investments relies on access, sound decision-making, and an ability to win deals. Your pitch deck should breakdown how you do this effectively.
  • Your pitch deck is the place to tell the most clear, concise, and convincing version of your fund’s story. Focus on the narrative, leave out the commentary. Like any good storytelling, this requires distilling it down to the core message you want to get across. It often requires a lot of editing and re-editing.
  • Showing” is better than telling. Use examples, numbers (e.g. past performance metrics), screenshot evidence of how you’ve helped, and other visuals to add credibility to your deck. These can be very memorable and help create a more objective narrative.
  • Let others speak to your strengths and establish social credibility. As with GPs investing in startups, many LPs value social proof, consciously or subconsciously. Highlight positive quotes from founders you’ve backed, testimonials from strong references, and LPs already committed to investing in your fund.

Portfolio Companies

We recommend this section is brief but add the links to other resources within the data room, such as the deal memo.

The information to include for each company includes:

  • Company Name
  • Website
  • One sentence description
  • Entry valuation
  • Current valuation
  • MOIC

Track Record

Similar to the portfolio companies, your track record data can be presented briefly with links to additional resources. Here is the data we recommend including for each company:

  • Company name
  • Round
  • Invested Capital
  • Position Value
  • Gross Multiple
  • Current Valuation

Portfolio Construction

In the Portfolio Construction section of your data room, it is crucial to present a clear and detailed overview of your fund's investment strategy and how it translates into your actual portfolio. This should include an explanation of the criteria used for selecting investments, the diversification of assets across different sectors or geographies, and the rationale behind the allocation of resources.

Visual representations, such as graphs or charts, can effectively illustrate the balance and spread of your investments, providing a quick and clear understanding of your portfolio's composition

We recommend replacing spreadsheets and using Casual to showcase your portfolio construction.

Partner Bios

In addition to highlighting each partner's background and professional expertise, it's crucial to detail their specific roles and duties within the fund. This clear delineation of responsibilities will provide GPs with insight into who the appropriate contact is for various questions or for making intros. Each partner bio should communicate that they are accessible, including their contact information or Calendly link will go a long way.

Investment Memos

In this section, provide comprehensive investment memos for each asset in your portfolio. These memos should cover the logic underpinning each investment choice, encompassing market analysis, evaluation of potential risks, and projections of anticipated outcomes. By presenting these detailed insights, you effectively showcase the depth of your due diligence process and the strategic considerations that guide your investment decisions.

Due Diligence Questionnaire

The presence of a thoroughly completed DDQ can significantly influence an LP's decision to invest in your fund. By proactively addressing a comprehensive range of due diligence queries, you not only distinguish your fund as well-prepared and transparent but also minimize the volume of follow-up questions from potential LPs.

Service Providers

List all third-party service providers associated with your firm and include brief descriptions of their roles and which aspect(s) of the firm they are involved with.

Here is a quick checklist:

  • Pipeline Management
  • File Management
  • Fund Admin
  • Fund Formation
  • Banking
  • Tax / Accounting
  • Audit
  • Legal / Compliance

References

Provide written letters or contact information for references who can vouch for your firm's credibility and success. Ideally, these are former or current LPs but they can also be portfolio company executives or industry experts.

Prior LP Updates

Include all historical updates to LPs. This should showcase your communication style, update frequency, and transparency in communicating both successes and challenges.

What to look for when Choosing Data Room Software

Organization

Start by evaluating the software's organizational capabilities from two perspectives: yours and that of the document viewers. Key features to look for include user-friendly interfaces for adding documents (with added value if it allows uploads from other software) and efficient systems for tagging or categorizing documents. A well-organized data room facilitates smoother navigation and retrieval of information.

Sharing Access

Consider how the software facilitates sharing and providing access to the data room. The ease with which you can grant access to various stakeholders without compromising security is a critical aspect. Look for solutions that offer straightforward, secure sharing options.

Searchable Data Room

Consider how the software facilitates sharing and providing access to the data room. The ease with which you can grant access to various stakeholders without compromising security is a critical aspect. Look for solutions that offer straightforward, secure sharing options.

Best Software for Venture Capital Data Rooms

Dropbox

Dropbox stands out for its user-friendly interface that simplifies the process of adding and organizing documents. Beyond basic storage, it seamlessly integrates features such as automated workflows and in-platform document signing capabilities, enhancing efficiency and streamlining document management without the need to switch between different applications.

AngelList

AngelList Data Room offers a tailored, secure document-sharing service for investors, emphasizing custom branding, integrated investor management, and advanced analytics. Its seamless integration with AngelList Transact and Investor Portal enables a unified user experience, simplifying the investment process. With features like SOC2 certification, real-time notifications, and detailed viewer tracking, it provides a comprehensive solution for efficient and professional investor relations.

Intralinks

Intralinks' VDRPro stands out as an innovative solution for venture deals, offering a blend of advanced technology and user-focused design. The platform accelerates the deal process by utilizing AI-assisted automated setup and preconfigured workflows, coupled with real-time insights to efficiently identify and engage with interested buyers. Its intuitive user interface drives efficiency, and the added convenience of mobile capabilities allows for quick updates and presentations directly within the data room.

Automating Your LP Data Room

Implementing automation in your LP data room is key to maintaining its currency and relevance. Such systems are particularly beneficial when you have a virtual assistant tasked with managing the data room updates.

Automation #1: Adding Documents With a Form

This feature is extremely useful for swiftly adding new documents to the data room. It's also an ideal solution if you're working with a virtual assistant and wish to restrict admin access while still enabling document updates.

Tools Used

  • Airtable
  • Zapier
  • Data room of your choice

Step 1: Creating the form

We will utilize airtable for this, making a simple form and using the following fields:

  1. Document name
  2. Document Folder
  3. File to upload

When creating the "Document Folder" field, ensure this is set as "Single Select". Otherwise, you run the risk of entering the incorrect folder name and the automation not working.

Step 2: Setup The Trigger Event in Zapier

Next, we will head over to Zapier and create the automation. To do this, we will identify the trigger and in this case, the trigger is "New Record".

Step 3: Creating The Action in Zapier

With our airtable integrated into Zapier with the appropiate trigger, we will now setup the action, or what happens with the document when its submitted.

Automation #2: Adding LP updates to Data Room

In this automation, we will establish a system that effortlessly uploads LP updates directly into the "Historical LP Updates" folder in your data room. This ensures that all your communications with LPs are systematically organized and easily accessible.

Tools Used

  • Zapier

Step 1: Setting up Email by Zapier

For this automation, we will use Email by Zapier, which allows you to create a custom email and actions that take place upon that inbox receiving an email

Step 2: Setting up The Action

Next, we will outline what takes place when you send an email to the address you just created.

Given the folder will always be the same (LP Updates), there are only 2 pieces of variable data, the file name & the file to upload. For the file name, I reccomend using the email subject line

Step 3: Test Automation

Lastly, test the automation, ensuring that everything was transferred over correctly. The end result should include your document in the appropriate folder with the correct title.

Automation #3: Update DDQ

Updating the living and breathing documents, such as the DDQ, can sometime slip through the cracks. Especially as your receive ad hoc questions, you may loose track of what to update.

In this automation, we will use email by Zapier where we can forward all questions that we want to update the DDQ with. Then, the questions will be added in airtable as a task for you (or the responsible party) to update the DDQ.

Tools Used

  • Zapier
  • Airtable

Step 1: Setting up Email by Zapier

Its important to note that if you used the previous automation, be sure you create a new email address.

Step 2: Add The Airtable Action

Now we are going to create the action for what happens in Airtable when a new email is received. For this, we want to "create a new record" and use the content from the email in the new record. If desired, you can have the new record assigned to someone so that they are notified.

Step 3: Test The Automation

Finally, we are going to test the automation, ensuring it works properly. The result should include a new record in airtable that includes the question that you would like to update the DDQ with.