06, April 2022

What is a virtual data room?

A virtual data room (VDR) is a secure cloud solution, where you can store and share confidential documents and files. VDRs are typically used during complex transactions, such as the due diligence process preceding a merger or acquisition, as it serves as a powerful tool to review, share, and disclose company information. 

Secure data rooms exist as data storage that can be accessed by numerous parties simultaneously. Sensitive corporate information can be shared with clients, potential investors, experts, and leadership in a controlled environment. Using online deal rooms reduced the physical paperwork, clutter, and waste involved in due diligence processes.  

The key features of an electronic data room usually include the following.

Security features

The best virtual data room provider is concerned about providing top enterprise-grade data security. That’s why they comply with strict international security standards like ISO 27001, SSAE 16, and ISAE 3402 because they are a good benchmark for high-quality security standards. 

Besides, providers offer a wide variety of advanced security features like access control, encryption, customizable permission settings, digital watermarking, two-factor authentication, and more. Thanks to advanced permissions you can share files in a secure manner. 

Artificial Intelligence

As a business deal often involves a ton of paperwork, in day-to-day communication all files are being shared back and forth. Artificial intelligence features will keep everything organized, so you can be sure that documents are not duplicated. AI can also be a great feature when it comes to finding the right document. 

Customer support 

Providers usually offer 24/7 customer service to help you fix any issue you may have during your experience using a VDR. You can easily reach out to customer support at any time and get a quick solution to your issues regarding the data room.

Document management

Data room offers a wide range of features for efficiently managing sensitive documents. This functionality is essential for good data management, as it allows you to index, organize, and structure files in the most suitable way for you.

Activity tracking

You can track all activity within your virtual data room, as it has the main dashboard where you can see all documents and changes made. There are also reporting features available, so you can analyze reports and based on them make further decisions on what should be improved. 

Nowadays, VDR providers offer sophisticated and reliable solutions for managing an entire deal process and efficient data storage. You can easily share sensitive documents like financial reports, intellectual property, case files for litigation, and more without the worry of data leakage. 

Virtual data room vs. Physical data room

Due to the globalization of business, virtual data rooms have become an attractive alternative to physical data rooms. Virtual data room service is considered more secure than physical document storage due to the low risk of file loss or destruction. Moreover, virtual data rooms are easy to use due to a user-friendly interface — accessible and immediately available.

The main differences between a virtual data room and a physical one include the following.

Cost difference

Physical data rooms should be rented or bought and after that, they require proper maintenance and security. 

This means a huge money investment is needed towards rent, upkeep, and security of a physical data room. Also, the physical documents stored in this type of data room are not easily accessible and need a lot of work to be supervised. And parties involved in a project need to travel to the location to review the documents, which imposes additional costs.

A virtual data room is a cloud-based virtual solution, which is much cheaper than maintaining a physical data room. It also allows you to access documents from anywhere in the world, which saves a lot of time and money.

Convenience

Finding the right document in a physical data room with printed documentation can be challenging and time-consuming. Whereas in a digital data room files are stored virtually, making their organization, referral, or edit much easier. Everything can be done remotely and at your own pace.

Before committing to a certain VDR you can get a free trial and try out all features and see whether they fulfill your business needs and requirements. You can also learn more about whether there are any hidden fees or costs, so when you actually get a VDR you know exactly what you’re paying for.

Efficiency

Online data rooms give you the opportunity to reach a vast number of bidders in a short period of time. In a traditional data room, bidders would have to schedule an appointment to get access to the room and needed files. In a VDR, bidders would all have access to the room simultaneously, shortening the deal time significantly and bringing better results.

Better document control

In a virtual dataroom you get full control over your documents. Moreover, it reduces the risk of human error as it allows only a specific user to access a certain file. This is done to ensure the right third parties view the right files at the right time. With VDR’s top security measures and functionality, you can be sure all proprietary data is stored in a safe place. 

Traditional data rooms are usually physically secured, guarded, and closely monitored. A physical data room requires additional security efforts, which may be costly. It’s good that the documents can only be viewed by people with the right permission. However, that doesn’t guarantee that the files won’t be lost or destroyed. 

Ability to track all activity

Everything within the VDR has an audit trail, which is difficult to do in a physical data room. A traditional data room doesn’t let you keep track of who has viewed a certain document, while an online data room offers daily reports of user activity on every document. You will also have an electronic record and activity reports that allow you to track and audit the changes in the files.

Communication and collaboration

Another advantage of an online data room is that your communication with clients or investors can be detailed and confidential. There is a Q&A section, where you can answer specific questions, attach relevant materials, restrict access to certain questions, and more. 

Why choose VDRs over traditional physical data rooms

VDRs offer many advantages over traditional data rooms, which also serve as reasons why many companies across different industries are transitioning from physical data rooms to virtual ones. 

Among the main benefits of the VDR, here are the key points to be highlighted.

Low setup and operational costs

Running a virtual data room is much cheaper, as you only need a secure computer system and internet access. Physical data rooms require much more expenses and time invested to be able to operate properly.

Global accessibility

With secure sharing, you can give access to files with confidential business information to trusted people, so they can review them at any time. Anybody around the world can access the documents stored in the virtual data room. It gives more opportunities, as investors from different countries can access vital company documents to make a well-informed decision. 

Global accessibility opens up more possibilities for the company and increases competition among potential buyers and all interested parties. This is very important during the mergers and acquisitions processes. 

Preservation of documents

VDR serves as an online warehouse that ensures all everyday files, as well as highly confidential documents, are securely stored for as long as the company needs them. In traditional data rooms maintaining documents can be difficult, as paper documents tend to wear out and tear. This won’t happen to digital files. The information stored online is not affected by natural causes like fire and storms, which is often the problem with physical data rooms though.

What are virtual data rooms used for?

Virtual data rooms can be used for any project or deal, which requires dealing with a large volume of files and sharing them with third-party professionals. In the VDR the data has to be well structured so it clearly communicates its company’s professionalism.

You also need to make sure that admins are responsive so that when the third party has any additional requests or notes, they can be quickly resolved. Here are some of the most common uses for the best virtual data rooms:

  • Secure storage of confidential information and valuable data
  • A safe sharing of sensitive data between internal and external stakeholders
  • Digital rights management and tracking project progress based on updates and activity reports
  • Tracking shares, edits, and requests for certain documents

The most common use cases of the VDRs

VDRs are used across many industries including life science, investment banking, law, finance, tech, and more for legal and financial transactions, deals,  fundraising, audits, and other projects. Among VDR clients are advisors, legal teams, investors and auditors, and more. The data rooms are used by thousands of companies and enterprises like banks, healthcare providers, law firms, etc. 

Here are some of the most common uses of virtual data rooms.

1. Initial Public Offering (IPO)

The IPO is a complicated task that requires going through a significant amount of paperwork. Going public means that your company now should show better transparency than ever with the public, state, and the shareholders.

Since a lot of third parties, like attorneys, investment bankers, and others will be involved in the IPO process, virtual data room software is an amazing tool to assist you. Storing confidential information in data room software ensures the security and integrity of the documents and prevents access by third parties who are not participating in the transaction.

2. Mergers and Acquisitions (M&As)

Mergers and acquisitions processes are where virtual data room services are used the most. Online repositories offer a secure controlled environment for due diligence, which is a must during the finalization of the deal. 

M&A involves large amounts of data, containing both confidential and sensitive information. That’s why data room solutions are essential for facilitating business during the process of acquisition by a large entity or merging with another company, as they typically require a ton of due diligence.

Virtual data room providers offer software that makes it easy for buyers to review and exchange documents without the need to travel to a certain location. The review process becomes much cheaper and more efficient.

3. Partnerships

A VDR service is a powerful tool to be used for managing partnerships. Businesses can use the software when they enter a new market or start a new venture with other companies. 

Strategic partnerships are beneficial for businesses. However, they require a lot of document exchange. Luckily, virtual data room software fulfills this need and helps tremendously by allowing file sharing with confidential business information between firms while keeping it secure.

4. Conducting audits

A good VDR provider offers a secure platform, where you can share confidential data for auditors or legal teams to audit company policies, financial statements, procedures, and accounts. Here it’s necessary to have the company’s data stored in a secure place with additional features that allow file sharing.

5. Fundraising

Many startups use a VDR  service for raising funds. This process is not easy and requires good preparation and organization. Besides convincing potential investors that your product or service is worth investing in, you also need to share private financial documents and other details about the business operations that may be relevant for them. 

There are several fundraising rounds, during which businesses often use a VDR data room to facilitate information sharing with stakeholders, investors, and prospects. 

The virtual data rooms are currently a must for almost all businesses that need to handle their company documents. No matter whether you deal with the due diligence process or just use a data room for document management, you will notice how easier it is to deal with complex tasks and loads of files. 

This software is not only about data storage; it also provides all the necessary tools for file organization, effective collaboration, and communication within teams, making the workflow smoother than ever.