What is a virtual data room?
A virtual data room is a business tool for storing and sharing corporate information online and collaborating. This software allows companies around the world to upload their data to a secure cloud, share it safely with other organizations regardless of their location, and communicate with each other quickly and securely.
A data room is not a groundbreaking invention. Physical data rooms existed for quite a long time and were used for storing, disclosing, and sharing documents. They’ve required certain dedicated space, and participants of the business process had to travel to this place.
As the internet emerged and changed our lives forever, we began digitalizing everything we can since it simplified things a lot. And then the cloud technology was born allowing us to store information online and share it with others in a couple of clicks. That’s how data room software was created — developers simply combined the concept of a physical data room with the cloud technology. The result is quite impressive — easy to use, available from any location and device, and highly secure electronic data room.
At first, data room service providers offered solutions for due diligence and Mergers and Acquisitions — two most frequently held business processes. Since these activities involve large volumes of papers, it was rather logical to focus on them. With an online deal room entrepreneurs finally could exchange information with each other without traveling to another location. This technology began saving companies a lot of time and money.
A typical VDR (data room) at that time would offer a quite limited set of features allowing business owners to merely store and share files online. And that was rather enough for due diligence and M&A. However, over time the best data room providers began implementing more functions that allowed users to communicate with each other. Also, vendors started working on enhanced security. Nowadays, the best data rooms are not just protected with the most reliable encryption, but as well offer users a lot of additional functions that give businesses control over the safety of their data.
As the set of features was getting expanded, businesses found more use cases for the virtual data room software. They’ve started using this tool for IPO, fundraising, and other processes that involved papers. Of course, data room providers were left with the only option to follow their customers and improve the services to make them more suitable for the needs of organizations. That’s why now the best virtual data room will be useful for different processes offering clients a wide variety of features.
Secure Data Room Services
Virtual data room providers take security more seriously understanding the consequences of a data leak. They usually protect not just the storage itself but data transfer ways too with the strongest encryption. Thus, they ensure that hackers don’t intercept the connection.
Additionally, a good VDR provider will offer more features in its secure data room to give users control over the safety of their corporate information. Here are examples of such functions:
● Watermarks — use them to protect files from unauthorized use
● Fence View — this feature will cover most of the file to protect the information from prying eyes
● Granular permissions — control who can access, edit, print, and share files
● Real-time reports — see the activity of users to spot suspicious behavior
● Remote shred — wipe all the data from a stolen or lost device
● Access with an expiration date — make sure invited parties lose their access once the project is over
Moreover, a secure virtual data room will be compliant with all the safety regulations government has. This makes such a service suitable for organizations that operate in life science, pharmaceuticals, and other fields that require more protection.
Most data rooms have Q&A feature that allows a business to answer all the important and frequently asked questions in advance for third-parties to have ready-to-use information. Also, users can add questions there and receive answers as quickly as possible. Another useful feature would be an electronic signature that allows entrepreneurs to sign documents without leaving their offices.
Additionally, let’s not forget that most data room services make it easy to upload and organize files with bulk uploading, automatic indexing, and preserving the existing structure of folders. Considering that you’ll likely be able to create different workspaces for each project, it will be easy for you to manage all those papers.
Reports are also quite useful. Entrepreneurs can use them to track the activity of third-parties — this might give interesting insights on what actions to take next. Also, statistics will show you the weak points of your workflow so that you can improve it for future deals.
The best thing about data rooms is that invited parties don’t see each other. It’s especially useful for Mergers and Acquisitions or fundraising. Business owners will have much more room to play since third-parties think they’re the only buyers or investors.
When are data rooms used?
As we’ve mentioned, initially this tool was used for due diligence. But since this process lies in the core of many business activities, the use of data rooms has expanded. Let’s take a look at the situations when this instrument will be very handy.
Mergers and Acquisitions
Of course, it’s the main reason for businesses to use virtual data rooms. M&A is based on due diligence and involves quite a lot of confidential papers and sensitive information. Also, this process includes negotiation, so the fact that third-parties are unaware of each other in the data room gives the business much more freedom to set its own rules.
It’s easy to assemble and set up a virtual data room in a way that will let you close the deal successfully. And as third-parties will review the documents, you’ll see the detailed information about their activity. Thus, you can make better decisions to bring your company to the desired outcome.
Auditing
This activity happens quite frequently and is quite cumbersome for companies since they need to prepare a lot of papers for the audition. Virtual data rooms make this process very simple. You can assemble all the documents usually needed for the auditing and just give external regulators and adjusters access to these papers when required. Thus, you’ll spend much less time and effort for this activity.
Fundraising
Virtual data rooms let businesses present themselves in the best way possible to interest investors in the collaboration. All you need to do is to gather the required papers and organize them neatly. Then just give investors access to the data room and let them study the information conveniently and at the pace they like. Experiencing less pressure and having more time to familiarize themselves with your assets, investors will more likely find reasons to work with your business.
Initial public offering
IPO is quite tricky. This complex process requires you to disclose a lot of sensitive information about your business. Data rooms will let you do that without the risk of a data leak. You will control who can access the files, and you will see the activity of third-parties. Thus, while offering potential shareholders a complete view of your business you can be sure no unauthorized users are accessing your information.
Internal document management
Of course, a data room can be used even if you’re not anticipating deals any time soon. You’ll find this tool useful for everyday document maintenance, especially if some of your employees are remote. Also, data rooms make onboarding of new team members much easier for everyone. Simply give a new employee access to the required documents and let them study the current situation. Thus, no one will waste time on getting a new person familiarized with the business.
Temporary collaborations
Some organizations have to cooperate with third-parties for some projects. For example, a pharmaceutical company might want to collaborate with another organization to create a new product. Then they will need to exchange information safely — a secure virtual data room will be perfect for this purpose. And as the project is over, it will be easy to withdraw the access to the repository for a third-party.
Top 5 business fields that use VDRs
Any company can benefit from using virtual data rooms. However, businesses from certain fields are implementing this tool more often than others. If you read almost any virtual data room review, you’ll see that some providers are more suitable for certain types of businesses. Yet, most vendors make their software useful for all these five fields.
Corporate
The larger the company is, the more papers it needs to handle. As the number of processes, departments, partners, and so on increases, new documents are generated. And all this information needs to be managed properly, organized, protected from data leaks, and, quite importantly, made accessible for authorized parties. These are precisely the tasks data rooms were created for.
With a VDR it’s much easier for corporations to keep all the documents intact, easily find the required one, and share papers with third-parties. Additionally, considering that usually, corporations have multiple offices, a data room will simplify the exchange of information between them.
Investment Banking
Such companies work with lots of sensitive information, and the biggest part of it belongs to the customers of this firm. Thus, safety should be the primary concern for investment banking businesses. And data rooms can provide them with the level of protection they need.
Also, this tool will make it easy for the company to exchange sensitive information with its clients. And, since usually investment banking customers are aware of data rooms, they will trust the firm that utilizes such a tool.
Law firms
Just like in the case with investment banking companies, law firms deal with a lot of sensitive customer information. So data rooms will make it easy for them to protect the privacy of their clients while not creating issues when it comes to the exchange of the information.
Moreover, law firms can store the data on past cases in a VDR to access it when required. And if needed, they can give third-parties access to this data. It’s very useful if some controversy happens to a client or a law firm itself.
Auditing
Organizations that control and audit businesses can use data rooms for the inspected companies to share their documents. Thus, it will be easy to keep all the information in one place to access it conveniently.
Obviously, the security of data rooms plays a huge role here. They allow businesses to disclose the information without facing a data leak thus lifting the responsibility for the safety of data from the shoulders of an auditor.
Startups
It’s easy for startups to fall into the belief that generic cloud storage is sufficient, especially considering that they often lack budget. Yet, startups should consider that some data room providers offer either affordable pricing plans for smaller teams, or simpler software that might lack some features yet is enough for a new company.
If a startup adopts a data room from the very beginning, it will not just protect its information but save time and efforts in the long run. It’s easier to build an online repository gradually in the data room instead of gathering the documents and uploading them later. A startup that’s using a VDR is always ready for anything — whether it’s an IPO, auditing, or fundraising.