How to Use a Data Room for the Due Diligence Process

Whenever business professionals hear the phrase “due diligence” what immediately comes to mind is a lot of headache and paperwork. This is because the due diligence process requires collecting a lot of information, analyzing it, making conclusions and recommendations and then reporting all of the findings. While all of this does entail a lot of paperwork, a virtual data room can help you keep all of these processes manageable and help you stay organized so you can focus on doing the best job possible.

Before you get into comparing and contrasting all of the data room providers out there, start by analyzing the scope of your project. Think about how much data you will be needing (1 GB of storage is about 10,000 pages), how many participants will be involved as well as some of the features that the data room must have. If you have all of this information, it will allow you to eliminate some of the data rooms right away.

Why You Need Virtual Data Room for Due Diligence Process

Virtual Data Room for Due Diligence Process

One of the biggest reasons companies consider using data rooms for such transactions is the peace of mind they bring knowing that all of the information will be secure. There are all kinds of threats, both internal and external, that constantly appear and the data room will always be one step ahead of them. This is why it is not a good idea to use cloud services such as Google Drive or Dropbox to store your information. They do not contain some of the basic security features found in pretty much all of the data rooms and they are prime targets for hackers and corporate espionage.

Most data rooms meet international security standards such as ISO/IEC 27001:2013, SOC 2, HIPPA and other standards. On top of this, they help with protecting your information with watermarks, two-factor authentication, real-time data backups, and many other features. Some data rooms offer more innovative features such as “Fence View” which serves as a physical barrier between the user and the document. This helps guard against camera based attacks since it is not a problem to simply take a picture of the computer screen.

If you have a lot of documents that need to be analyzed, you will be able to bulk upload them into the data room. All of your documents will then be indexed and page numbered. You can upload your files in any format and you can then organize them in any way you wish. The data room gives you a lot of flexibility in this regard. If you need to find a certain document, it will be very quick and simple since the data room offers full-text search and the best ones will offer optical character recognition, which will allow you to find something if it was handwritten. 

Once all of the documents are uploaded, you can set granular access permissions to determine what each user can do with certain documents. For example, you might allow some users to only view the documents while others will be able to edit, print download, etc. What separates the good data rooms from the rest is the level of granularity that you are able to achieve. For example, let’s say you uploaded an Excel spreadsheet into the data room. While you would like all of the participants to study the information contained in the spreadsheet, you do not want them to see the formulas that were used for calculation purposes. Some data rooms allow you to get that deep as far as granular access goes.

Find the Best VDR for Due Diligence Process

In order get to the type of data room that you are looking for, you must try it out for yourself before buying it. A lot of data room providers nowadays offer free demos, which will give you some idea of you can do inside and what innovative features they offer. You will also have the opportunity to input your own data and play around inside the data room since they usually offer a free trial period as well. If a data room provider does not offer a free demo or a trial period, you can confidently cross them off the list right away. If they do not give you the respect you deserve before you become a customer, do not expect them to treat with respect afterward either.

Best VDR for Due Diligence

Look at how the data room [promotes communication. Given the sheer volume of information that is involved in due diligence, team members are bound to have a question about certain information or findings. This is why they should be able to ask questions inside the data room and mark the question statuses. Otherwise, people will be asking the same questions over and over again which will become increasingly frustrating. The data room can also help you with this by creating an FAQ sheet and offering real-time discussions.

Data rooms allow you to mitigate some of the legal fallouts that may ensue as a result of information leaks. By offering such a wide array of security features, it can virtually eliminate external threats to your information. As far as internal threats are concerned, the watermarks will allow you to determine who leaked the data since they will contain information such as the user’s name who accessed the information, date of access, IP address and additional information that you would like to appear. This will make it easy to determine who leaked the information thus discourage such actions in the first place. As a worst case scenario, you will always have the possibility to remotely shred the document.