Many data room vendors want you to believe that a data room is the only thing standing between you and greatness. “Your catalyst for success.” “Achieve critical business outcomes.” “Where deals get done.” “Unlock productivity.”

There isn’t anything inherently wrong with data rooms, but they aren’t a dealbreaker. Having a beautiful data room won’t guarantee you a term sheet. Not using a data room platform won’t prevent you from getting funded.

At the end of the day, we believe that the value of a data room solution comes from what it signifies, rather than the function it actually provides.

What Is a Data Room?

Let’s rewind. A data room is a private digital space where you can securely share confidential files with external parties. Data rooms are primarily used by companies during the fundraising process, during merger or acquisition discussions, or when seeking capital from LPs.

In these situations, third parties need to review sensitive data as part of their due diligence. Data room solutions were invented to help avoid confidential data falling into the wrong hands or getting misused.

The key feature of a data room is that it gives you control of your information and who accesses it. You know who’s logging in, what they view, and when. You can enable multi-factor authentication, add watermarks, restrict the ability to download, edit, or screenshot files, and more.

Data rooms aren’t magic. No platform, no matter how sophisticated, can prevent an authorized user from pulling up a document and physically showing their screen to someone sitting next to them. Your data room won’t magically calculate how many sets of eyes looked at your file. That said, security features like these raise the barrier to unauthorized sharing. For the average use case, this is typically enough.

The (Literal) Cost of Data Rooms

Data room platforms are expensive. There’s no sugar-coating it. They cost thousands of dollars, in the ballpark of ~$700 a month. Most companies should expect to pay four figures annually for their service, and many data room vendors will lock you into a 3-year contract (or longer). 

A small startup might be paying $100 per user for licenses; a data room platform could cost as much as all their other software combined. So, if you’re a lean, bootstrapped company that’s just starting out, what are your options?

Using the Tools You Have

Good news: data rooms aren’t the only way to share your data safely. If you’re looking to replicate the features of a data room, you can get 90% of the way there using your existing file storage solution.

At Pliancy, we believe a DIY approach works best with Egnyte—even though they also have an official data room product—but you can also make it happen in other major storage providers that you may already be using, like Dropbox, Box, and SharePoint. (Approximating a data room in Google Drive is possible, but slightly more difficult due to Drive’s architecture.)

DIY Data Rooms

Going the DIY route essentially boils down to creating a folder that will act as your data room and adding the necessary files. It’s safest to build a DIY data room with the help of an IT professional. But if you are going it alone, keep these points in mind:

→ Permissions

Pay close attention to what invited users are able to do. In almost all data room use cases, invited users should be able to view files only. (No adding, editing, deleting, or downloading.)

→ Viewer Visibility

Depending on the provider, some file storage solutions allow you to see whether others are viewing a file. Google’s collaboration settings, for example, will show you which users (if logged into a Google account) and how many users are active in a document at any given time. For this reason, we suggest creating separate “data room” folders for each investment team you’re in discussions with.

→ Revoking Access

Check whether your storage solution has expiring permission settings. If that option is available, establishing an expiration date is an important failsafe. Depending on the speed of your fundraising conversations, anywhere from one to six months can be appropriate.

If your solution does not provide this option, you’re responsible for manually revoking access for users who should no longer have it. To make sure an investor you spoke with once isn’t able to lurk years down the line, we suggest scheduling a regular audit of user permissions or revoking all access to your data room once your fundraising round has closed.

For more details on homebrewing a data room, read Packit’s Field Guide to Data Rooms, a resource from our new self-service IT offering for early-stage startups.

The Last Mile

If BYO-data room gets you 90% of the way there, let’s outline the remaining 10%. Here’s what you’ll be missing if you decide to DIY your data room instead of paying for a platform:

→ NDAs

With a data room solution, you can require that visitors agree to the terms of an NDA before they’re allowed to access your files.

→ Watermarking

Many data room platforms include the ability to add watermarks (including the user info and access date/time) to documents when previewing a file or, if allowed, when downloading it. Not only does the watermark act as an extra deterrent to distribution, but it also makes it easier to determine the source of unauthorized sharing if a document finds its way into the wrong hands.

→ Aesthetics

You can brand your data room portal with your logo and brand colors. While aesthetics have no impact on the security of your data, this finishing touch makes accessing your data room feel like a cohesive, high-value experience.

What Data Rooms Say About Your Business

Looking at the numbers, it seems like a no-brainer: $700+ per month on a long-term contract versus no extra cost and some elbow grease. Why, then, does anyone pay for a data room?

→ Convenience

For companies with sufficient resources, the convenience of a data room can be worth the cost. The primary pitfall of a DIY solution is its integration with your existing file storage environment. Because your “data room” is just another folder in a system you use daily, you increase the chances of someone accidentally adding files you don’t want to share.

Using a true data room solution means a separate platform with a separate login—not someplace you’re likely to find yourself without meaning to.

→ Professionalism

Even more than convenience, using a data room boils down to looking professional. If you’re a sole founder raising a pre-seed “friends and family” round, sharing a PDF by email could be fine. Past that stage, many investors and LPs will expect you to use a data room, and there is value in meeting that expectation.

A data room is something we regularly recommend to clients solely for the purpose of looking more mature and looking better in the eyes of an investor—even though it might not deliver meaningful value beyond that. Maybe it upgrades your security posture by 1%, sure; but it absolutely looks good on a due diligence questionnaire.

The Final Word on Data Rooms

Ultimately, there is no hard-and-fast milestone when it comes to data rooms. There is no rubicon you will cross and then suddenly find that having one becomes non-negotiable.

How you choose to share your data is a personal decision based on the investors you’re speaking with, the maturity of your company, your available resources, and how you want to use them. Your needs will change over time, as will the expectations of your investors. Do your best to find the balance, and know that data rooms are just one piece of a much larger puzzle.