What is a Virtual Data Room?
A virtual data room (VDR) is the digital equivalent of a physical vault that is set up for the viewing of confidential documents that are needed to perform due diligence for mergers, acquisitions, IPOs, trials, and other legal matters.
A virtual data room is an extremely secure website where documents and other data can be uploaded for viewing by qualified users. While virtual data rooms are considered by some as an extremely secure version of file sharing services, like Dropbox or even Google Cloud, standard file sharing services do not offer the same protections as offered by a virtual data room.
Virtual Data Rooms vs. Physical Data Rooms
As mentioned previously, virtual data rooms are the digital equivalent of a physical, well-secured room where sensitive documents and other materials are stored.
Physical data rooms are many times locked rooms in a company’s headquarters or a secured room at a bank or another third-party location. These data rooms ensure that the materials stored within are kept safe from access by outside parties. Users must receive explicit permission to access these rooms, and are subject to strict rules as to what materials they can access and how long they can access them.
In this digital age, many companies have begun digitizing their sensitive information, leading to a need for secure access to said materials. Virtual data room software has taken the place of physical data rooms, allowing organizations to control who has access to their sensitive information, as virtual data rooms require a secure login for access. Organizations can control the access users have to their information, allowing them to control access on the fly, making it possible to quickly revoke access to the data at a moment’s notice.
What Are the Usage Cases For Virtual Data Rooms?
There are many usage scenarios for taking advantage of a virtual data room’s features. Usage scenarios include but are not limited to the following.
Merger And Acquisition Transactions
Mergers and acquisitions require due diligence, with both the buyer and seller requiring access to information about the deal, including information about assets, real estate, finances, and more. This information should only be made available to specific members of the involved parties. A virtual data room allows users to specify which team members in both the buying and the selling organizations, as well as any legal or financial officials involved in the transaction, have access to the info.
Initial Public Offerings (IPOs)
When a public goes public, it is important to make company data available to important stakeholders. Virtual data rooms allow companies to identify, secure, and display pertinent data to the IPO team.
Audits And Investigations
Audits and investigations make for difficult times for most companies. Identifying and sharing the required documents eats up a large amount of time and labor when the information is stored in multiple locations and/or systems. A virtual data room allows important documents to be readily available.
The Legal Industry
The legal industry is perhaps second only to the medical profession when it comes to creating mountains of documents. Virtual data rooms allow easy yet secure sharing of documents for every type of legal proceeding.
Startups
When startups are courting prospective investors, data rooms help them analyze interest. VDRs allow smaller companies like startups to determine how much time potential and current investors are spending reviewing shared company documents.
Accounting and Auditing Companies
Accounting and auditing companies can use virtual data rooms to share reports and audits with their clients over a convenient, yet secure platform.
What Are the Advantages of a Virtual Data Room?
There are several advantages of using a virtual data room over a normal file-sharing service or using your own servers to store the needed files.
- VDRs are more economical and cost-effective as you’re using someone else’s hardware. You don’t need to add additional servers to your network.
- VDRs offer improved security for document management.
- All documents can be organized on one secure device.
- Easier searching for files and folders.
- Control over who has access to data.
What Are the Security Features of Virtual Data Rooms?
Virtual data room software offers several security features. Here are some of the security features that virtual data rooms usually incorporate:
Unique User Logins
Every user who has been granted access to a virtual data room will have a unique login and password. This cannot be changed by the user, as this helps to ensure that the login and password information are not being used for any other system, making the virtual data room just that much more secure. Each user’s access is restricted to only the documents they need to do their job. Access can be quickly changed or revoked whenever necessary.
Detailed File Permissions
Users are not only restricted in what they can access, they are also restricted in how they can interact with the documents. Virtual data rooms also facilitate document version control, while also allowing administrators to set permissions for individual users and files, controlling whether a user can view, download, or edit a file.
Tracking
Virtual data rooms offer file tracking, allowing the owner or administrator of the virtual data room to view when a user logs in, which files they access, and whether or not they made any modifications to a file or added any documents to the data room.
Mass File Uploads
Most virtual data rooms allow authorized users to upload multiple files at once, permitting users to quickly and securely store large amounts of data.
Communication Tools
Some virtual data room software offers a way to communicate with other data room users. This not only makes it easier to conduct time-sensitive communications, but it’s also a secure way to document conversations.
Virtual Data Room Best Practices
Virtual data rooms provide secure access to sensitive documents that must be kept confidential. This means that virtual data room providers should follow best practices and features to provide this. These may include:
- Strict control over sensitive documents and information.
- Features to provide data organization, filing, and presentation.
- Reliable cloud system security.
- Complete monitoring of user activity.
- Efficient administration of the VDR platform.
- Integration into the business workflow.
- Reliable service and maintenance.
Virtual Data Room FAQs
What Is Due Diligence?
Due diligence is a legally binding process in which a potential buyer/investor performs an extensive review of a company’s records, information, liabilities, and assets before finalizing a purchase of or investment in the company.
What’s the Difference Between Virtual Data Rooms and Other Types of “Secure” File Sharing Services?
Virtual data rooms were designed and built specifically for due diligence and for sharing other highly sensitive information about a business. VDRs boast security and privacy features specifically designed to manage and streamline the due diligence portion of any purchase or investment in a company.
Other types of file sharing services lack the security features required for a company to share information. They may also lack the collaboration features a VDR offers, as well as the features and functionality required to streamline the deal-making process.
What Features Should I Consider When Selecting a Virtual Data Room?
A top-notch virtual data room will be built using the latest technology and will feature the latest advanced security and encryption features. The VDR should be easy to use and accessible for all involved parties. The VDR scores bonus points for having an open API, as that makes it easier to integrate it with other platforms used by your business.
The Future of Data Rooms Is Virtual
In this modern age, data is the digital equivalent of currency when it comes to value. While companies need to share essential and sensitive data, they need to also keep the data secure from hackers and other bad actors. Virtual data rooms offer features and best practices that allow organizations to best serve their investors, business partners, and potential suitors.
Contents [hide]
- What is a Virtual Data Room?
- Virtual Data Rooms vs. Physical Data Rooms
- What Are the Usage Cases For Virtual Data Rooms?
- What Are the Advantages of a Virtual Data Room?
- What Are the Security Features of Virtual Data Rooms?
- Virtual Data Room Best Practices
- Virtual Data Room FAQs
- The Future of Data Rooms Is Virtual
