Fundraising Tip of the Week

📂 Michael B., Founder of Bee Partners, Shares Why Data Rooms Are a Missed Opportunity

PomJuice Exclusive: When it comes to fundraising, data rooms are often treated as an afterthought; a tedious obligation founders have to complete to start due diligence. However, some investors disagree with this idea and instead believe data rooms are an underutilized tool in a founder’s fundraising strategy.

In a sit-down interview with PomJuice, Michael Berolzheimer, Founder and Managing Partner of Bee Partners, gives his thoughts on how early-stage founders should approach data rooms and how they can turn this overlooked “obligation” into a powerful tool for raising their first round of capital.

Below are a few select highlights from our conversation; you can read the full article on LinkedIn.

🗂️ Keep Your Data Room Organized & Update it Over Time

Arjay: …I'll often have founders come to me and say: "We're so early, we're pre-seed. I feel like it's not clean. It's not perfect." Do you feel like that's something founders just need to get out of their head and just get something in there or do you think there is there is a certain format they should try to follow?

Michael: I don't think there's a specific format. I think it's just like legal docs; make folders. Financials can have one document in it, the deck could have one, maybe two documents. Just demonstrate some degree of organization. Second, you're gonna do this again. Chances are if you're raising capital now, you're gonna raise capital later. So better to start the process and add to the data room over time in the lead-up to the next fundraise. That saves you an inordinate amount of time in the future because your data room is kind of already built. If you have contracts you should put contracts in there. If you've got non-dilutive financing, an LOI or a demonstration that somebody has a willingness to purchase, a letter of support, or an IP Transfer; those are the kind of things that really do need to be in the data room. Those are the basics.

🏃 The Commonly Missed Opportunity with Data Rooms

Arjay: Earlier you said that data rooms are a missed opportunity. Can you explain what you mean by that?

Michael: So here's the missed opportunity: you have the opportunity to shape how an investor is looking at your business. Often times we're looking at a variety of companies at any given time and we're kind of looking at "what is the biggest and brightest object out there?"

As a result of that, we only have so much time to go deep into each particular area; we're using our own basis and knowledge. However, the data room provides the founder with the opportunity to shape the orientation by providing articles, research reports, and risk attributes; it's okay to say "Here's why you shouldn't invest."

The reason for that paradox is that you want to find the investors that fit with you, so they should know what risks they're getting into and then you have a very good partnership going forward for the next decade.

Those are some opportunities to add more to a data room that further shapes and orients the investor's mindset as they continue to do that diligence.

⌚️Don’t Offer Your Data Room; Wait for the Investor to Request It

Arjay: So when is the appropriate time to share your data room?

Michael: I recommend to all of our Founders that they don't offer it. That instead they wait for it to be asked. Because it's a buy signal. And so if you miss the opportunity for that buy signal to come your way, then you might be overestimating the likelihood of that investor actually closing. You might come out of the first meeting and say "Oh that meeting was awesome, that investor loved me. We're they're going to invest."

And then you say "We have a data room, you want the data room?" and the investor says sure. Well, then you think they're in the same bucket as another investor who said "Oh by the way, do you have a data room? Please send it to me."

That's a micro commitment that the investor has made to potentially look at the data room because they've asked for it and you've said yes. It's a little bit of a nuance. I would highly recommend that founders actually don't provide it up front, that instead they wait and provide it upon request.

Founder Resources, News, & Events

🔗 Links to Share & Save

• Michael Berolzheimer (Bee Partners): An Inception-Stage Guide to Fundraising

• Peter Walker (Carta): How Ownership in Your Startup Changes Over Time

• Dan Gray (Crunchbase): How to Raise Your Series A in a Challenging Environment

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