A virtual data room (VDR) is an online repository of data that can be used by businesses to share critical documents with external parties in a highly-secure online environment. VDRs are typically used during financial transactions and serve as virtual “meeting” rooms where buyers, attorneys, accountants, and other professionals can safely review confidential documents. A virtual data room provides businesses with the tools to meticulously collect, organize, share, and monitor important business files during transactions.
With the omnipresence of computers in our world, practically all companies now rely on software and technology tools to run smooth and efficient businesses. Virtual data rooms are an ideal solution for companies looking to embrace a ‘paperless’ approach in regard to the storage, sharing and tracking of their business-critical information.
Virtual data rooms are most commonly used by companies during deals, such as mergers & acquisitions and fund raisings, to securely share highly-sensitive business-critical documents with multiple parties both in and outside the organization. Information stored in VDRs is often highly-sensitive and of high importance to the owners of companies; therefore, safeguarding this information is also of the highest importance.
In addition to storing financial records required for financial, tax, and legal purposes, companies also use virtual data rooms to store documents that could be considered intellectual property such as copyrighted information or trade secrets. With the constant and daunting presence of modern-day cybersecurity threats, virtual data rooms serve as the ideal solution for companies looking to ensure the absolute safety of their business-critical data.
The usage of virtual data rooms has now become the norm for modern-day financial transactions. Advances in online security over the past decade have vastly accelerated the redundancy of physical data rooms, which were proving to be both unproductive and problematic for parties involved in deals. Virtual data rooms provide companies with a highly-efficient and convenient platform to securely execute the sharing and tracking of their business-sensitive information from anywhere across the world at any time. The most prevalent uses of virtual data rooms are for the following types of deals:
One of the most frequent uses of VDRs is for due diligence during an M&A transaction. Mergers are usually preceded by a considerable amount of research which typically involves sifting through inexhaustible volumes of information. Companies interested in receiving purchase offers often find themselves in the unsettling position of having to divulge business-sensitive data to multiple third parties. Virtual data rooms provide these companies with the security and tools they need to effectively manage the process of safely sharing and tracking their documents with minimal hassle.
Companies are often confronted with scenarios where external parties have to review the company’s business-sensitive data, and not necessarily from an adversarial standpoint. For instance, multiple situations arise where companies need to share information with their lawyers, accountants, compliance auditors, etc.. VDRs provide companies with the means to share and track their business-critical information with these professionals in a highly-secure online environment.
IPOs can often be strenuous transactions for companies interested in going public. Companies who make the decision to go public are expected to maintain a considerable degree of transparency with the public and shareholders and are hence subjected to additional rules and regulations on the local, state and federal levels. For companies looking to successfully execute an IPO, this calls for extra care and caution in regards to ensuring the scrupulous management of the company’s documentation. Virtual data rooms fill this need to perfection by allowing companies to streamline the process of sharing business-sensitive data with the public and shareholders.
Fundraising is a crucial event that often dictates the growth and possible survival of companies. For companies involved in fundraising activities, ensuring the smooth and secure circulation of business-critical data between the company and its possible investors is of paramount importance. Virtual data rooms have been relied on extensively for Private Placement Memorandum (PPM) and Private Invest in a Public Entity (PIPE) distribution and other Fundraising efforts. VDRs provide leadership teams in companies with the ideal platform to effectively control and oversee the exchange of sensitive information with investors.
Companies and organizations involved in strategic partnerships are obliged to establish and maintain a secure pipeline for data distribution and exchange to ensure smooth proceedings. Virtual data rooms can relieve companies of any uncertainty around the safety and protection of the valuable information they have shared with the other organization. VDRs provide companies in strategic partnerships with a highly-efficient and secure platform that both parties can use to securely share and store data.
The need for modern-day companies to safeguard their Intellectual Property is becoming increasingly prevalent. Companies in possession of highly-sensitive intellectual property that is critical for the survival of the business are compelled to take extraordinary measures to ensure the security of this data. A virtual data room (VDR) serves as an effective means for such companies who recognize the importance of storing their intellectual property in a secure online environment specifically designed to shield sensitive-data from security threats.
In certain scenarios, board members of companies are heavily involved with the company’s leadership team and insist on maintaining a keen eye on how the business is performing. These board members can often be scattered across the globe yet still require access to the company’s sensitive data. In such cases, virtual data rooms (VDRs) provide companies and board members with a platform that allows them to accomplish precisely what they are looking for - the secure sharing of their business-critical files around the world.
The strength of a virtual data room lies, without doubt, in its security. Virtual data rooms offer unparalleled security features that are designed to shield business-critical documents and prevent the leaking of a company’s sensitive information into unwelcome hands.
VDRs are ideal and hassle-free solutions for the secure sharing and tracking of business-critical information with multiple parties during transactions. A virtual data room allows you to:
Investment bankers and business brokers use virtual data rooms for due diligence and also in marketing efforts to effectively manage the sale or fundraising efforts for their business clients.
A VDR serves as an excellent place for investment bankers and business brokers to showcase a company’s executive summary and overview information while courting interested parties. The tracking features of a virtual data room allow bankers and brokers to track user access to documents in the audit trails, providing them with excellent marketing intelligence to act on.
Attorneys and their teams rely on VDRs for multiple purposes. Among these include:
VDRs assist CPAs and accounting firms with the collection (PBC List Management), organization and management of client documents related to tax preparation and audit.
Local and Regional banks and mortgage brokers rely on VDRS to manage the collection, storage and sharing of documentation related to loan application and processing.
Funds, Private Equity firms, and Venture Capital firms use virtual data rooms to create highly-secure pipelines of information with partners, portfolio companies, auditors and other third parties.
VDRs allow small business owners and corporate project teams to store and share highly-sensitive business-critical information beyond the firewall with ease. A virtual data room can provide an excellent audit trail of who has had access to specific information, and additionally, affords the ability to provide time limits for document access.
Biotech and pharmaceutical companies are mandated to use HIPAA compliant vendors (business associates) when storing and sharing certain types of information. A HIPAA compliant VDR becomes a necessity in these situations.
Additionally, for biotech and pharmaceutical companies that are storing and exchanging clinical trial data, a virtual data room that is CFR 21 Part 11 validated is necessary.
Technology companies depend on virtual data rooms to protect intellectual property and also to securely store and share information with their partners, attorneys, accountants and auditors.
In addition to their due diligence and fundraising requirements, energy and mining companies use virtual data rooms (VDRs) to facilitate document collection and management during environmental audits and bid management.
In order to choose the right virtual data room (VDR) provider for your organization, there are 7 key things you need to look into:
There are 3 areas of security you need to assess in order to effectively compare the differences in security between virtual data room (VDR) providers: data security, feature security and physical security.
Data Security: A good VDR provider will exceed standard security compliances and provide you with advanced security measures such as virus and intrusion protection, data encryption (at rest and in transit) and network firewalls.
Feature Security: Arguably the most important aspect of security, feature security addresses not only general user access to the system, but also the fact that most data breaches occur as a product of human error. A good data room provider offers features that protect against user errors and streamline workflows. This includes flexible security features such as password complexity, change and expiration requirements, inactivity timeouts, multiple user types and access control restrictions.
Physical Security: A good virtual data room provider utilizes industry-grade data centers with adequate physical security measures like offsite data backups, data redundancy, fire protection and biometric access. A good provider also has a solid business continuity plan along with regular penetration testing.
Document access controls are another area that you must pay attention to in order to choose a VDR provider that meets your needs. Make sure to ask the following questions:
Good virtual data room (VDR) providers know and understand that controlling access to documents is just half of the puzzle; you also need tools to track user activity. Make sure to choose a provider that allows you to:
Good virtual data room (VDR) providers ensure that their clients have the exact features they need to facilitate seamless transactions. Here’s a caveat: don’t overcomplicate the process by buying all the features that a provider offers. This may compromise your user experience and encumber you with features and options that you and your users will never use.
A common characteristic among good VDR providers is they continually upgrade their services with the latest technology and security features. Good VDR providers also keenly listen to their customers and gain insights for future development from their feedback.
Good VDR providers offer transparent pricing models that meet your needs. Companies using virtual data rooms often have their own unique needs when it comes to storage space, the number of administrators and users along with specific customer support requirements.
Make sure to choose a virtual data room provider with a proven track record in facilitating transactions within your specific industry. This is not just about having confidence in the provider you choose; it’s also about ensuring efficacy. Seasoned virtual data room providers who have already supported clients in your industry will be better equipped to provide you with the features, service and support you are looking for.
And last, but certainly not least, a good virtual data room (VDR) provider has a customer support team dedicated to providing clients with the kind of rapid support they need and expect!
There are currently a host of virtual data room providers. A few have been in the industry for a long time, have established themselves in the marketplace and have proven their expertise in catering to the needs of specific niches:
It bears mentioning to the reader that this is in no means a complete list of virtual data room providers. Such a list would be exhaustive. The names mentioned above have a proven track record in facilitating transactions and their longevity in the market is a testament to their expertise within their respective niches.
For more than 13 years, Vault Rooms has been an industry-leading cloud-based virtual data room provider, proudly facilitating tens of thousands of global M&A transactions across a wide range of industries. Business brokers, investment bankers, accountants, attorneys, private equity firms, and banks can safely collect, organize, share and track business-critical documents on the Vault Rooms platform 24/7/365.
Karen Perkins is the CEO and Co-Founder of Vault Rooms, Inc. She is a troubleshooter, problem solver, and efficiency expert. Her career experiences have provided a broad foundation of skills that make her uniquely qualified to assist companies with their growth, transition, and operational improvement. She advocates for the use of simple and secure technology tools designed to make work and life easier with the Super S.M.A.R.T. Women platform. Likewise, her company, Vault Rooms, is a technology platform for the simple and secure sharing of business-critical files.
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