@Peter: Thx for tip on Firmex.

One other thing I’ll add: 1099 contractors raise huge flags and you’ll find yourself explaining over and over why Dan or Nancy or Tim is 1099 and not a regular PT or FT employee. There may be great reasons that your company uses 1099 contractors, and I’m not going to go into the complicated rules and pros/cons of one way or the other, but just be ready to get a lot of skeptical questions and provide lots of explanations for why you’ve chosen a 1099 labor designation.

* When something couldn’t be located, we disclosed that and attested to what we thought the core follow-up question might be, basically trying to reassure the lawyers that there’s nothing to worry about. This sometimes required a bit of back and forth explanation but it was generally sufficient. For example:
-> “we are unable to locate the personal invention form for intern Jane Smith from the summer of 2008. Note that her sole tasks were routine data entry, she had no access to proprietary information or systems, and she did not contribute any intellectual property of any kind.”

* A few items were scrutinized the most:
-> IP-related items (including patent filings, use of open-source code, employee PIIA forms)
-> Cap table info. They wanted to see what I’d describe as both the cap table ‘balance sheet’ (exactly where things stand now) and also the full transaction-level history of how it got there. That meant supporting documentation and dates for every stock grant, options issue, dilution event, option exercise or forfeiture, etc.
-> Financials: Lots of detailed follow-up questions on everything from depreciation schedules to tax treatment to timing of revenue recognition.

* Financials: They dug deep into historical financials and we scheduled several calls between the acquiring company and our accounting firm to go through details. For projections, I basically took our trailing 12 month income statement, and next to each line item provided a semi-quantitative assessment (ex: trending +10%/quarter, trending towards zero, increasing proportionate to revenue) of how the item was trending on an as-is basis (assuming no acquisition) and then assuming the acquisition closed. They then used that to build their own forward-looking model.

* Data rooms: I didn’t compare others; I had used Merrill so was comfortable with them. As you note, they are pricey. I will say that their customer service is outstanding. From the time I first contacted them I was up and running in 2 hours, and they have well-informed customer service people ready 24/7. Any request I had was taken care of immediately. I guess they’re used to having stressed-out investment bankers call them at 2am expecting quick service!

+What did you do in the event a file or contract could not be located or a request could not be filled? (I assume with 400-500 requests, a handful were not do-able)

+What items were scrutinized the most, or had the most (potential) to cause heartburn? IP? Employee agreements? Cap table stuff?

+Also, how closely did they review or pick apart your financials– both historical, and projected? Any tips on “managing” forward-looking parts of the discussion?

+Finally– did you compare any other data rooms? (I ask because it seems there are a ton out there now, and Merrill is on the pricier side if I’m not mistaken…wondering if anyone’s got equivalent bang for less buck)

Thanks! Awesome post. Nathan