A short introduction to Virtual Data Rooms

Everything You Need To Know

Why use a virtual data room?

Businesses worldwide are slowly changing the way they operate. Through constant development of tools, the digitalization of many areas, there are even more reasons to fully engage in working from the cloud. This way, documents do not have to be printed, organized in a physical, accessible structure, and take up room in some faraway data room rented just for the sake of storage and occasional business dealings.

We are no longer bound by the limits of physical space, and we should capitalize on it. There are commercial solutions that make use of this boundlessness and encourage even more people to store their files in the virtual realm. And there is no reason why businesses worldwide shouldn’t do it as well. There are multiple ways they could reduce their paperwork through the use of software, but none of them are as all-encompassing as a secure online file repository. 

So, what are the main arguments behind using a virtual data room, and how does it compare to other file management systems?

Pros of virtual data rooms

Affordability and cost-efficiency

Making use of a physical space to store all of the sensitive documents a company might have is often cost heavy. By renting an archive-like room, or office, we make sure that our files are in a safe space. However, by keeping them in some remote location we are bound by additional costs like traveling or distribution of necessary meetings over a period because all of the people won’t fit into the tiny space data rooms are usually known for. 

The company might want to do their dealmaking in that space, and the bigger the space, the more costs will it incur on the business, which already heavily impacts the budget of a company. 

Virtual data rooms are a financially viable solution. The company representatives do not have to worry about the physical size of the space, as all of the documents fill the cloud storage space, which can store many more files in comparison to a traditional archive.

Digitalization of those files also means that there will be no need to print them out into the physical form factor, and risk potential security issues connected to misplaced data, or breaches of confidentiality. And if you are not satisfied with the service a virtual data room provides, you can stop subscribing, and find a more fitting software solution out of many available on the market. 

Bank-grade data and access security

The files held in the virtual data room space are also inaccessible to people without proper permission settings. Through a combination of security features built into the software solution itself, and tools given to the user for permission assignment, a virtual data room is an almost impenetrable storage for all the sensitive files your company might have.

By employing security protocols known from the banking industry, and adding to it the possibility of putting users into permission groups, a VDR is the safest file store repository a business might wish for. It is hard to misplace documents in a space so structurally advanced.

Bank-grade encryption, algorithms that scramble the data if someone were to enter the space unattended, or tools that turn parts of the text into obscure strings of signs for the sake of data safety — those are only few of the mechanisms that aid the safety of an online file repository. 

And if a user becomes a security risk, blocking his permission settings to view files is easily done from within the solution. If some files get printed, the software solution generates an automatic watermark with the personal details of the person who accessed them, adding another layer of safety to the documents taken away from the digital space.

Organization of data in folder trees

The virtual data room space is also filled with templates, structures, and ready-to-use folder trees that will make the whole process of document organization much easier. And if there isn’t a template that fully suits the file organization of your company, it is easy enough to import a folder tree into the virtual data room space. VDRs are being constantly developed, so there might be even newer and more optimized ways of sorting files in that space. 

But if you choose to go with a ready-made solution, the software will show you how to put the files in that structure. The interface is usually quite similar to the one found in popular operating systems on computers worldwide, which makes it an even easier task. And if you are in the process of digitizing the documentation of your company, it is best to follow tried and tested solutions that can be found within the virtual data room setting.

The files being completely digitized means that they can also be found through a search engine built in the solution itself. This reduces the time it would usually take someone while looking for a particular file in the thousands of documents a company stores in a data room.

Secured, permission-based access 

The permission settings not only make the virtual data room a lot safer as a space, but they also contribute to the workflow optimization of the company. If people know exactly which files they need to work on, they get to their tasks much faster, and can work on them more efficiently.

Being bombarded with new additions to the work folders would disturb the focus, and by showing them only files related to their work will result in a crystal clear objective. And requesting access to additional files can also be done from within the space, making it much easier for administrators and file managers to know what kinds of needs the workers might have, and what data they are using to fulfill current objectives.

Information is the currency of today’s world, and keeping it in a secure storage space, with comfortable and safe access, is a way to ensure that no unauthorized person will lay their eyes on precious corporate data.

This can also be applied to client facing projects. Showing the third party only the files they need to access is a reasonable activity. The client should only see the necessary documentation, and if there is a problem with that, permission settings can be widened, and more of the virtual data room can become accessible.

Ability to co-edit the documents

If the documents are being worked on, everyone involved is aware of the edits in real time. The files uploaded into the space can also be worked on, and simple modifications can be made within the software solution. And if someone wants to recall an earlier version of one of the files in the space, they can do that inside of the virtual data room using version control. Through this tool, anyone can make the changes they need, and notify others where they influenced the data. 

The edit itself might not be complicated, but it can save a lot of time.This is unlike a physical data room, where the edited documentation would have to be reprinted in order to be presentable.

If the third party notices an error in the documents in the virtual data room, you can change them on the spot, without additional waiting time from both sides. It is through those additional, digital-only tools, that make the whole process of using a virtual data room a convenient addition to business dealings. 

Collaboration

Business isn’t done in seclusion, and collaboration tools are also available to the people using virtual data room solutions. Thanks to them, people know where they are headed, and what kind of work still needs to be done.

Collaboration can be aided in two ways in a secure data room setting: internally and externally. Internal collaboration is connected to the way people interact with the documentation within your organization. External collaboration includes all of the 3rd parties that want to be involved with the company.

Internal collaboration is connected to the way people interact with the documentation within your organization. They can let each other know what kinds of things they added, they can leave comments on the files, and work out a solution that fully fits their agenda, and helps with understanding underlying processes of data acquisition and repurposing inside of the company. 

External collaboration includes all of the 3rd parties that want to be involved with the company. This means that all the remarks someone might have about the documentation inside of secure data rooms can be addressed by both of the sides, without having to physically meet and discuss every little detail inside of the file repository. The whole process also benefits from the Q&A functionality that is also available for both of the sides, which also facilitates a faster feedback loop, and revision processes. 

Lack of physical venue

One of the biggest pros of a virtual data room needs to be the lack of physical space. With the development of software solutions that can make business dealings easier, there is no real need to meet up in a physical location if it isn’t absolutely necessary.

An old-school data room has a couple of issues that secure, digital data rooms address. First off, a physical space costs money to maintain. Secondly,  those spaces are not safe from natural disasters.

As mentioned earlier, a physical space costs money to maintain. You need to employ staff that will be there at all times, check who enters the space and who leaves, and a bodyguard that will make sure that nobody steals anything from the space. Those employees could be working on some other important project, or just manage the file sharing service space, but from the comfort of an office space and not some remote location picked for security reasons. 

The second factor is that those spaces are not safe from natural disasters. Buildings have a half life, and some might have mold in the corners of the room that might be discovered way too late, and corrupt the files in the filing cabinets. This is a clear advantage of the virtual space, as bacteria and nature do not have a direct impact on the quality of data stored there. 

Who uses virtual data room software?

As evident by the above mentioned points, there are many reasons why someone would opt for virtual data room solutions. Those are reasons connected to the internal operations of a company, to the way they are concluding business operations, and the safety of their most sensitive files. But what are the actual industries where the virtual data room tool is being put to use? Who uses virtual data rooms?

M&A dealmaking

The business world wouldn’t be able to grow at the current pace, if it weren’t for the collaborative efforts of companies worldwide. Mergers and acquisitions are done daily, and oftentimes result in breakthroughs, optimization of already present processes, and integration of software solutions on a much larger scale. The world of dealmaking was previously contained in physical data rooms, and the teams of both companies needed to spend much of their time traveling to that space, and working on the data, before presenting it to each other.

  • Easier preparation. Thanks to the help of the online data room business, this is no longer necessary. All of the edits and access can be gained online, and physical spaces are reserved for the most pressing matters that cannot be dealt with virtually. The finalization of the transaction can be done in a physical setting, but the preparation for it no longer requires sitting in cramped space, with stacks of paper piling around the interested parties.
  • Better communication. If the third party has some problems with the documentation, they are now able to make comments inside of the virtual data suite, and give the team appropriate guidance on what still needs clarification, or what kinds of documents are still lacking from the online file depository. This also gives the people working on the files feedback for future deals, so the whole preparation process is even more streamlined.
  • Useful file management tools. The files themselves are also organized in such a way that the people accessing that space shouldn’t have a problem finding what they are looking for. With a clear tag system, and a folder structure that supports brevity, the interested company will navigate through the space without any issues. And if there is a problem, they can signalize it within the software solution, and all the people that are involved in the process will get a notification that someone needs help.
  • Reporting functionality. And after they are done roaming around the online file repository prepared for the deal itself, the company that prepared all of the documents can see what files were accessed the most and how much time has been spent on them. Those data points are important, as it helps define the focus of the client, and it is a physical documentation of what truly was the most important to the client himself. Some companies even rely on data room banking to do their calculations and see if the deal is viable. 

Companies that consider M&A deal making are already in the later stages of business development. But can an online file repository be utilized by businesses at the start of their industry journey? Can startups use this solution while looking for some additional funds to help their ideas flourish?

Startups

While engaging with the business world, startups might have issues finding people who will believe in their ideas. They might have the next big thing planned, but without the necessary funding, plans will still just be plans. This is why they need to find a way of swaying people onto their side, without having to do activities that are a complete mismatch with their company’s ethos.

  • Before the investment. Owing to the possibilities that a virtual data room for startups enables, those companies have the opportunity to show what they are doing, and do that from within a solution that provides them with both the necessary safety, and required accessibility. It is through that file repository that they are able to share the most sensitive data they have, show their possible patents, and their plans for expansion, without having to fear a breach of confidentiality, or a hacking attack from outside.

    The potential investor has access to all of the necessary files, and the startup can directly control what they are showing to the people. With the available permission settings, they can oversee the access, and revoke the rights if the investor seems like someone untrustworthy. If the potential investor sees something unclear, or lacks some kind of data point, they can make that comment within the software solution. The team will later have a much easier time recalling what still needs to be addressed after a meeting is done.
  • Gauging interest. Similarly to the case of M&A dealmaking, startups can also gauge the interest of investors. Through graphs inside of the virtual data rooms they can exactly see who has spent what amount of time on browsing through the online file repository. Having those data points helps in pinpointing what kinds of documents are the most important for the client. Those graphs facilitate the preparation for the next meeting.
  • Consistent updates. The best data room for startups can also be used after the investor has given the company the money. Through constant updates in the file repository, the investor has a chance to see how his money is put to work, and what kinds of advancements the company was able to make with this money influx. Each business relationship should be built on trust, and this is just one out of many ways of building that kind of trust. 

And after a company grows and grows with the investors money, it might at one point reach a stage where it is profitable to be incorporated by another company, or it might even reach levels where it can incorporate another company into itself. Virtual data rooms are built with collaboration in mind, and it facilitates startups trying to fundraise, as well as companies that want to enter the world of M&A dealmaking. 

However, there are also other, less obvious industries where virtual data rooms can be helpful. 

Non-profit organizations

Organizations that are created with the sole purpose of helping others are scattered all over the world. They were not founded to create a revenue stream for the people employed in the organization, but to make actionable change on the planet. Be it helping children from disadvantaged homes, animal rescue, or some other pro environmental cause, there is a high chance that there already is an organization that deals with that exact problem on the planet. But organizations like that also need outside help to support themselves. 

  • Convincing the investors. This is why, similarly to startups, they benefit from using online data rooms to get additional funds to help their cause. By inviting people into their own secure deal room they have a higher chance of convincing potential investors that their activities are the ones that will incur change in the areas that the organization targets. The board of the nonprofit can show what kinds of activities the nonprofit has already accomplished, and what kinds of rights they have to do this kind of activity.
  • File safety. It is important that the files stored in virtual data room solutions are safe, because they include highly sensitive personal information concerning the cause the organization wants to help out with. Leaking that kind of data would mean that families, certain locations would be available to the public, which might result in additional problems.

    After the investor is granted access to those sensitive files, they can always take a look and give their own comments on the contents. They can annotate, signalize parts that are unclear, and ask for more details in that regard. The nonprofit knows what files they need to work on to make them intelligible for present and future investors.
  • Being held accountable. And if they decide to back the nonprofit, they can also observe the ongoing changes. The nonprofit can give real time updates inside of the virtual data rooms, giving insight into new breakthroughs or drawbacks. Nonprofits need to take extra care of the money of their investors, because they cannot directly profit from it, and they need to illustrate the use, so they can be held accountable if something goes wrong.

A virtual data room also has all the necessary infrastructure to keep the nonprofit operational, and support their inner workings. Collaboration tools that have been earlier mentioned are also put to use in that setting, and the bigger the organization grows, the more important that space becomes, collecting all the necessary rights and deeds that have been collected throughout the years of proactivity. 

Science development

The world of science is constantly trying to come up with the next big thing. The worldwide pandemic has shown us that scientists worldwide are capable of coming up with solutions to world threatening problems. However, their research, testing, and all the experiments cannot be stored in a place that lacks safety. This is why some research and development departments opt for virtual data rooms to safeguard documents that might change the fate of humanity. 

  • Avoiding data leaks. Built with security in mind, virtual data rooms are the perfect file repository for scientific discoveries. Protected by bank grade protocols, algorithms that make accessing that data after breaking in almost impossible, and permission settings that can be altered by the administrators of the virtual data room, this is a place where the data security counts the most. And even though the access can be given to anyone who seems trustworthy, it can be just as easily revoked, making control over who sees those documents easy.
  • Controlled access. And the people who gain access can also be controlled within the virtual data room by putting them into permission groups, and only allowing them to glimpse into the whole structure of the virtual data room. They are only allowed to see the files that they absolutely need to see inside of a virtual data room. 

This results in less misunderstandings in the workplace, while at the same time ensuring that everybody knows where they are going. When people have access to only the files they are supposed to have access to, it makes the organization of projects almost streamlined. 

Virtual data room software with innovation in mind

That process is on the far opposite of data room investment banking, as it is not geared towards immediate profit, but innovation. We are all aware that breakthroughs in science do not happen in seclusion, and sometimes to create a truly groundbreaking discovery, different companies need to group together. 

This is also possible within a virtual data room. Sharing research, brainstorming ideas, annotating already created documents can all be achieved inside virtual data rooms. Scientists can come to their conclusions much faster while aided by a clear file structure, comments from a variety of scientific authorities and an instantaneous communication suite that allows for additional creativity.

The most common use cases of a virtual data room solution

The previously mentioned points were pretty detailed explanations of some of the most common uses of virtual data rooms in selected industries. However, there are many other instances that benefit from the use of a virtual data room. 

Due diligence 

When a company thinks about joining forces with another one, they need to go through a due diligence process. This means that they will need to show all of their documentation, files connected to their business. Any debts they might have, any possible profits they might gain, everything connected to the health of the business needs to be shown before a decision about joining hands can be made. Both of the companies require data points that will make them more confident in their decision.

By using all the tools available inside of the virtual data room, companies can go through the process almost problem free. There are even virtual data rooms that specialize in that particular area of business. Due diligence is a stressful process, but aided with the templates, and annotation capabilities, it should take shorter than if it were done the traditional, physical way. 

Audit

There might be a chance that the business will need to be audited by special authorities. A virtual data room is the perfect place to show all the necessary documentation without risk of data leaks, or breaches of confidentiality. An audit can be even more stressful than a due diligence process, but the more files are put into the system, and being sorted in a way that will be accessible to the parties investigating the whole situation, the easier it should be to deal with. 

The audit can also cause the company to finally get to sorting out all of the necessary documentation found inside of the virtual data room itself. If the business is operated in a law compliant manner, the company should have nothing to worry about, and if it is not, then it should be easier to pinpoint where the error has been made, to not make the same mistakes in the future. A lot can be gained from a properly ordered documentation system put into practice inside of a virtual data room software.

Regulatory compliance 

Another important area in which virtual data room solutions are widely used is regulatory compliance. Just as with the due diligence process, or auditing proceedings, regulatory compliance is an area that needs exceptional attention to detail. Putting all of the files into a preselected template, and being able to show all of the SOPs connected to the overall strategy of the company is something that wasn’t as easily done with regular data rooms. 

It is important to have a tool that directly supports the newest changes in laws and regulations, and is crucial in making sure that novelty is already put into motion in the company. Government officials who are tasked with overseeing that process, rely on the data submitted to them by the company, which means that virtual data room software can make that process simple. With secure file sharing of sensitive documents, virtual data room solutions can support any regulatory compliance process a company goes through.

Physical data room services originally used to assist in that process, but secure virtual data rooms simplify it even further. Confidential files are important for the operating capacities of the company, and thanks to the help of tools found within an online data room, it is much easier to measure up to regulatory compliance requirements.

Litigation

Litigation is stressful. It is one of those business processes that can scare even the biggest companies in the world. Following the law is important, and by using a virtual data room proving that the company doing just that becomes very easy.

If a company is under scrutiny of a litigation officer, a virtual data room might make his job a lot easier. All of the files would be easily accessible, and the communication process between all of the involved parties would flow appropriately. Thanks to comments, annotations in files, and questions that can be left on the documents stored within virtual data room software, the officer has an easier job in deciphering what went wrong, and when. 

And if nothing went wrong, then they have proof that the whole company has been operating in the limits of law. Sometimes people are suspicious of the business activity of their competitors, and this is why they choose to go extremes and involve lawyers to prove a point. Virtual data room software can be an aid here too. 

IPO

When a company goes public, it needs to make sure that all of the data connected to the operations it is making is widely available. Preparation of those documents usually starts months ahead, and with the amount of paperwork such a process entails, it is almost impossible to complete without the help of some specialized tools. 

Virtual data room software can help the company before the initial public offering, during the first sale, and even after the company is public.

  • Before an IPO takes place. Organizing all of the documentation is a time-consuming process, and by using the available templates, access settings, and comment functionality, it can be streamlined by the in-house administration teams. Built in chat functionality, or even the ability to edit the documents in the virtual data room itself is a great help when it comes to dealing with such a difficult process as an IPO.
  • During an IPO. When the IPO goes through and all of the required documents are accepted by the regulatory offices, the people who want to buy a share would also like to look at the paperwork, and how the company has been operating for the last couple of years. This can also be done thanks to a virtual data room.
  • After the IPO. And after the IPO is done, and the company is fully public, those virtual data room services can support the file sharing, and underline the most important business proceedings a company might have. 

Procurement projects

A company is built out of the need to change something. Procurement projects are a way of pushing that change further, and a secure virtual data room might be one of those tools that will push the future projects into an even more effective and productive state.

A secure virtual data room can store all the needed documents in an easy to understand structure, that helps project managers know exactly what kinds of information can be found where. This, in turn, facilitates better organization of workflow, as people involved in projects aren’t lost in some elaborate filing system. 

Working on those files to make the project succeed is also facilitated by the comment, and Q&A functionality in the virtual data room, which makes the company operate much more efficiently. If there are mistakes in the files, they can be easily corrected inside of the secure virtual data room. 

Strategic partnerships 

Companies working together towards a common goal want to operate with safety in mind. If they are both sharing sensitive and confidential data, they need to take extra precautions. Those extra precautions can be addressed through the use of a virtual data room. 

By giving individuals and groups access to some of the most confidential data, in an effort to facilitate a breakthrough in the industry, a lot of trust is needed. But if that trust is broken, both parties can easily restrict access and disband the cooperation. 

However, if they still trust each other, the virtual data room can provide much space for development. Ranging from the built in chat functionality, to even elaborate reporting tools, data room software is the perfect solution to sustain a strategic partnership. 

Reporting 

Virtual data rooms can be used to store data, but it can also give you data points about the activities that are happening inside of the online file repository. People accessing sensitive documents, working on data, and just browsing through the thousands of PDFs that can be stored there are all tracked, and can later be accessed via the reporting tool. 

Data points like how much time has someone spent on a file, or from where they accessed the documents can be significant when planning the next step in a company’s development. This also helps with ensuring the appropriate security measures, not only relying on the data room algorithms, but also on human judgment. 

Board meetings 

There is not a more important internal meeting than a gathering of the board. Apart from using special board portal software, a board can be aided by a virtual data room. 

Before a meeting takes place, the agenda of the meeting can be uploaded to the virtual data room space, and shared with the board members. During the meeting it can be easily accessed by the interested parties, and after the meeting takes place, the meeting minutes can be uploaded into the virtual data room services. Online data room providers have built their tool with functionality in mind, and board meetings also have been on the mind of their creators.

Intellectual property management 

With the help of data encryption, digital documents connected to the world of intellectual property can be safely stored in a secure online repository. Only authorized users would be able to access those documents by proxy of careful document control, ensuring additional data security.

Digital rights management is also an area which benefits from the use of a virtual data room, in both the matter of storage and increased, and controlled accessibility. 

Virtual data rooms for your business

Online deal rooms have already helped companies worldwide in their business dealings. Through the help of the tools built-in the virtual deal room, companies can better control the flow of information, and aid both internal and external processes connected to project management. See what kind of solutions are available on the market today, and pick one suitable for your business needs.