Private Placements: Why not use a Virtual Data Room?

Private Placements: Why not use a Virtual Data Room?

Recently, I have been talking to professionals that specialize in issuing private placements. A private placement is a funding round of securities that are issued to a select group of targeted, private investors. In my discussions, it has become apparent that there is an opportunity for professionals in this space to leverage the capabilities of a virtual data room, particularly if they manage more than one of these transactions annually.

The existing trend in managing the distribution of documents to investors is email, which is unsecure and unable to provide intelligence. There are multiple opportunities throughout the private placement process where a virtual data room can be used in place of email to provide a faster, more secure method of delivering documents while also unlocking valuable data points that can accelerate the transaction and improve the efficiency of locating qualified and accredited investors that want to participate. The following points demonstrate the opportunities at each stage of the Private Placement process:

Strategic Assessment: Financial professionals first must analyze a business in order to make recommendations on financing alternatives that may include PP. The documents that must be shared can be large in quantity and confidential. A virtual data room is an attractive alternative to email for collecting and sharing this information in an organized fashion while keeping the data safe.

PPM Preparation: If a PP is the right way to go, the next step in the process is to prepare the Private Placement Memorandum (PPM), the legal documentation and the “road show” materials that will be used to attract investors. Again, these documents are confidential and may require access by multiple parties in different locations. A virtual data room can provide a shared space for easy access throughout this collaborative process.

Targeting Investors: Most professionals already have access to a database of accredited investors, qualified investors and qualified purchasers. Once the PPM and related material are ready, they are distributed to the list via email. However, once the email is sent, there is little else you can do but wait for people to contact you or follow-up with the entire list. Virtual data rooms would allow you to run detailed reports showing all of the documents being opened by each potential investor and the frequency of the opens so you can prioritize efforts on those who are showing interest.

Negotiations: This process involves coordinating due diligence and negotiating transaction structures, terms sheets, purchase agreements etc. Virtual data rooms have been used for over a decade to accelerate and effectively manage the distribution of documents for due diligence – enough said!

Deal Closing: Once the process is complete there is often a need to provide information to investors and there may also be a requirement for intermittent reports. Instead of emailing these documents; why not post them to an online virtual deal room?  The documents will be organized and secure, and accompanied by a detailed archive of who accessed what and when – not to mention the convenience for investors. This process has been common practice at Private Equity Firms who use online virtual deal rooms for investor relations and reporting.

At the end of the day, most professionals will evaluate the potential of any technology in terms of ROI. In this case, it is necessary to take a look at your existing process and ask yourself the following questions:

  1. How do I distribute documents today? Snail mail? Email? How much time is wasted waiting for documents to arrive or looking for documents that are not organized and easy to find?
  2. What would be the impact to me and my business if I mistakenly divulged confidential information?
  3. How much time do I spend waiting to hear from potential investors or following up with investors who are not interested? What if I only focused my efforts on the select few who are pre-qualified as interested?
  4. How much time and resources do I expend sending information to my existing investor group?

If any one of these points resonates with you, I encourage you to look into virtual data rooms as a way to accelerate your business and reduce any potential risk. An unlimited use virtual data room can provide an ROI impact on the first transaction and the benefits will increase exponentially with multiple transactions. Managing business processes online in a secure environment is the way of the future.