As the global economic landscape undergoes rapid shifts, Canadian ventures and founders must strategically position themselves to secure investment. A central component to successfully raising investment is a robust data room–a meticulous data management and record keeping system that accurately reflects information about your venture. A strong data room supports investors in their due diligence process and provides essential information, including details about intangible assets, that primarily drive today’s business valuations. Recognizing this need, TechAlliance hosted a Masterclass with Natalie Raffoul, a world-renowned IP lawyer and partner at Brion Raffoul LLP, a law firm specializing in intellectual property (IP) law. Natalie also co-founded the software company, FortressIAM, which helps small and medium-sized companies manage their IP, contracts, and corporate data to unlock value and drive growth.
During the Masterclass, Natalie presented ways in which innovative ventures manage their intangible assets, define a strong IP strategy, and develop a comprehensive and detailed data room to maximize their growth potential.
Welcome to the intangibles economy
Today, an overwhelming 91% of company value on the S&P 500 is driven by intangible assets. “How we value companies today is not based on the number of cars that are sitting in the lot or the barrels of oil or the number of products on shelves. We are looking at the intangible assets of the company – their trade secrets, goodwill, brand value, trademarks, patents,” adds Raffoul. The recent World Intellectual Property Indicators Report showcases global patent activity reaching new heights in 2023 with applications surpassing $3.5M for the first time. IP has also emerged as a leading asset class and plays an important component in valuation metrics. As competition rises across the globe and intangible stock assets reshape investment landscapes, the necessity for SMEs to clearly articulate and protect their intangible assets is more important than ever.
The foundation of a data room lies in a strong IP strategy
“A strong IP strategy provides clarity and depth to your company’s intangible assets, making them easier to accurately represent and leverage. Showcasing these intangible stock assets leads to a robust IP foundation that significantly enhances the quality and transparency of your data room. This, in turn, offers investors and auditors deeper insights into your operational processes, reducing risks and strengthening confidence in your business,” explains Raffoul.
With regards to public disclosure, Raffoul asks companies to be careful with the information displayed in marketing materials, on websites, and information that has been made public. “I always ask companies to consider if the materials that they have in a public fashion should really be maintained in the confines of the company,” adds Raffoul, and this consideration extends to building your data room. Are you disclosing sensitive details before having the appropriate confidentiality measures established? Thoughtfully planning how you protect your confidential information ensures that everything shared is safeguarded effectively.
When evaluating IP strategy pitfalls, Raffoul asks companies to consider company policies around public disclosure, Non-Disclosure Agreements (NDAs), employee agreements and contracts, and trade secrets.
Non-disclosure agreements (NDAs) are frequently overlooked during due diligence, often using inconsistent or inadequate templates. “Issues arise when NDAs lack clear IP ownership provisions, fail to properly include affiliated parties, or aren’t genuinely mutual,” says Raffoul. All of these missing components result in potential IP disputes and heightened risk exposure during investor due diligence.
“When your employee leaves, are they walking away with confidential information that’s related to your copyright or patents? What happens when a key inventor on your team works for a competitor?” asks Raffoul. For companies with patents, trade secrets, and copyrights in their name, it’s important to draft strong employee and contractor agreements to address ongoing confidentiality obligations and emphasize any future IP-related confidentiality duties too.
Considering trade secrets and their protection, Raffoul asks companies to consider protocols around access to information on a company’s trade secrets. “Everyone in the company need not necessarily have access to everything, including your trade secrets,” says Raffoul. Reviewing company policies on a regular basis will help ventures, especially SMEs, in accurately determining the right strategy, and help them be better prepared in case of future trade secrets, patent filings and trademark protection.
Building a data room
Avoiding the above-mentioned IP pitfalls is often dependent on a company’s intangible asset management strategy. This is where a data room comes into effect. While a data room is primarily used for due diligence for investors or auditors, Raffoul emphasizes that it’s a great tool for general intangible asset management. “I would argue that a data room is something that you should always have live and running. It should be a part of your corporate dashboard.” She further emphasizes how maintaining a data room regularly with accurate information provides a good picture of the financial health of the company to the executive leadership and keeps the company prepared for accurate valuation and government funding opportunities.
There are numerous advantages of having a strong data room, and when it’s clear and well-organized, it can help investors to easily orient themselves, building trust and confidence in your operational processes and business brand. Another unique advantage comes from deploying a virtual data room, is that it can offer analytics on engagement. “This helps companies in understanding investor behaviour in their data room, highlighting documents or information that could have raised some red flags for the investor,” adds Raffoul. Virtual data rooms also make it easier for businesses to organize their information with confidentiality – initial virtual access can demonstrate high-level summaries, basic financials, and an overview of the IP strategy. However, as investors gain more interest, companies can progressively share more sensitive information.
What should your data room have?
“Your setup should be intuitive and straight-forward,” says Raffoul. While Raffoul recommends using folders and subfolders for organization purposes, she also warn founders not to overcomplicate the structure. “I also highly recommend ventures to personalize the data room – use your colours and branding,” adds Raffoul.
Considering the information that needs to be included in a data room, Raffoul starts with the basic – company overview. “A one-page executive summary about your company, your pitch deck, and a SWOT analysis helps the investor in understanding more about your business before they dive into the financials, employee agreements, and other information,” adds Raffoul. When it comes to financials, she emphasizes providing a full picture, including your assets owned, operating budgets over a three-to-five-year period, financial projections, debts owed, and investment raised.
Your team is one of your biggest assets, and this stands true in a data room as well. “It’s critically important that you showcase your entire team including technical, sales, marketing, and leadership along with their job titles, descriptions, and salaries,” says Raffoul. All these metrics help investors determine retention rate, skillset, and talent on the team, and the organizational structure.
Finally, highlighting your investment strategy that includes your cap table investment chart, voting agreements, and future investment plans also helps investors in determining the value of your company. Another great way to showcase this is by providing competitor analysis. “Including market research reports further adds credibility to your valuation” says Raffoul.
While virtual data rooms do provide features that make it easier to progressively share sensitive information about your venture, companies often get creative and make provisions compelling investors to sign an NDA. “Some virtual data rooms prompt users coming into the data room to sign an NDA, so that they agree that despite accessing this information, they will be maintaining confidentiality,” says Raffoul. It never hurts to add multiple layers of confidentiality for more protection and assurances.
Throughout the Masterclass, one thing was clear – an intuitive, comprehensive, and secure data room not only accelerates the fundraising process but also positions your company for optimal valuation and strategic flexibility. Companies that start early, stay organized, and continuously refine their data room ensure that they effectively meet investor expectations, that they are always prepared for funding opportunities, and that their company’s long-term growth is continuously monitored to take advantage of future development opportunities.