Those who own information own the world. But nowadays the main task of any businessman – and particularly dealmakers – is not just to obtain valuable information, but to keep it safe from malicious third parties.
Previously, this was accomplished with the help of physical data rooms – huge rooms full of papers and equipped with round-the-clock security. Now, in the technology era, all you need is an internet connection and reliable virtual data room software.
Why do companies switch to virtual data rooms?
A virtual data room (VDR) is a digital on-demand solution that provides companies with a secure way of storing, managing, and sharing confidential and sensitive information – information that can be anything, from a client’s personal data to the company’s financial statements.
The main difference between virtual data rooms and other software for sharing information online – such as email, instant messaging, and free file-sharing platforms – is that the latter only offers low data protection. Virtual data rooms on the other hand have highly-developed features that ensure private data cannot be leaked, stolen, or lost.
Currently, more and more businesses from various industries, like IT and e-commerce, actively incorporate data room software into their daily operations – especially any M&A transaction and due diligence process. For the time being, the sectors that most use virtual data rooms are banking, financial services, and insurance (BFSI), and experts predict that this group will dominate VDR usage until 2026.
What’s the reason for such popularity? The answer lies in one of the top priorities of any deal maker – ensuring a high level of data security. Dealmakers want to be able to fully rely on the software they use to store and exchange data and to communicate with other parties. They also want convenience – so, software that’s easy to use for all people involved.
Let’s dive deeper into the benefits of virtual data rooms to find out why they are crucial to any M&A transaction and due diligence process.
Top 8 virtual data room benefits
When a company needs to exchange documents that contain sensitive data, online data rooms offer it a series of advantages – both over physical data rooms and over non-secure digital file-sharing platforms.
1. Top-level data security
Virtual data rooms allay all the security concerns that trouble dealmakers during an M&A deal, an initial public offering (IPO), a fundraising round, a due diligence process for a joint venture, or any other transactions that involve sharing sensitive data. VDR security features usually include:
- Robust data encryption in transit and at rest: even if hackers should succeed in accessing data room files, encryption prevents them from gaining access to confidential information.
- Customizable watermarks: users with dubious intentions are discouraged from sharing a file without authorization when they realize every document page is watermarked with their own personal data.
- Remote shred: when the admin revokes a user’s access to the data room, he can also revoke his access to any documents the user has already downloaded to his own device.
2. Access security
Besides ensuring that documents can’t be shared outside the platform, virtual data rooms also prevent unauthorized people from seeing them inside the platform. Here are some of the features that ensure virtual data room access security:
- Granular user permissions: this ensures only users authorized by the data room admin can view, edit, download or print documents stored in the VDR.
- Two-factor authentication: even if someone should gain access to a user’s device, they won’t be able to log onto the user’s VDR account.
- Time and IP access restriction: to further increase security, the admin can decide to restrict the hours the virtual data room is accessible to a specific user, as well as the IP with which that user logs onto the VDR.
- Fence view: in case there’s the risk an authorized user might want to surreptitiously photograph a document stored in the data room – or the risk anyone could peek over a user’s shoulder and see confidential information on the screen – this viewing mode only allows the user to see a few lines of a document in turn.
- Physical location protection: the best VDR providers protect the physical space where the servers with their clients’ data are located. Measures like restricted access, protection against fire and natural disasters, and backup in a different location, all ensure that stored data cannot be lost or stolen.
3. Accelerated process
As opposed to a physical data room, a VDR significantly cuts down the amount of time needed for any deal or due diligence process. Starting with the preparation and leading to the post-closing integration, data room software speeds up every step of the process.
A physical data room requires dealmakers and other interested parties to spend hours traveling to the secure place where the documents are stored. Then they have to spend a long time examining piles of documents. And the data room administrator has to spend time printing and updating documents.
In contrast, an electronic data room eliminates the need to travel and makes it possible to share and view important documents in a digital format with only a couple of clicks. It takes no more than a few minutes for admins and users to upload and download all required documents, add new team members, and have access to several files simultaneously.
Besides, many modern VDRs have features – such as auto-indexing and full-text searches – that greatly reduce the time stakeholders need to find important data among large volumes of information.
Some electronic data rooms even have artificial intelligence features, which make processes such as the automatic renaming of files and folders become more precise and efficient over time.
4. Reduced costs
When using physical data rooms, all necessary steps not only take time but also increase costs. During preparation and throughout the deal process, businesses incur significant expenses in order to share information. These include travel and accommodation for both sides, printing and transporting documents, and the cost of maintaining the physical data room.
In contrast, the best virtual data rooms are cost-effective solutions. They not only eliminate the expenses listed above but also help close a deal faster – which means even fewer costs. Instead of spending time and money on dozens of complex steps necessary to share data with interested parties, you can pay a single fee for using data room software that takes care of everything.
5. 24/7 communication and support
Communicating with colleagues is no longer challenging. Before VDRs were around, using a physical data room made connecting with co-workers more cumbersome. Now, this is easy as pie in the virtual space. A virtual data room ensures interested parties can be in touch at any time, wherever they are.
Moreover, virtual data rooms include several tools that optimize the communication process. If dealmakers have any queries, there’s a Q&A section. If they would like to discuss specific points of the deal, the virtual data room provides them with a live discussion area. If the deal involves people who speak different languages, most reputable VDR software providers offer multi-language support to accommodate them.
When clients need something fixed in their data room, the best VDR providers offer them several options of support. Depending on the VDR provider and the plan you choose, you may have chat, email, or phone support, during business hours or even 24/7.
6. Easy usage
Virtual data rooms vary a lot in appearance and usability. The best data rooms have a clearly understandable interface so that admins and users can quickly learn how to use them. Some data room providers also offer their product as a mobile app, which makes it more accessible for users who are constantly on the move.
Because all the data-sharing process occurs within a single platform, a virtual data room is a much more intuitive and easy-to-use solution for sharing information than email or messaging. There’s no need for users to rifle through past emails or messages trying to find that attached file they missed. There’s no need for the admin to send out new versions to dozens of people every time a document is updated, or manage duplicate requests.
When it comes to data room software, each company has its own needs and expectations. That’s why the best data rooms provide their customers with customizable plans. This way, the customer can find the combination of elements – number of admins and external users, storage space, number of data rooms, duration of the project, etc. – that most suits them.
Regarding customization of the data rooms themselves, some data room providers allow customers to create an easily recognizable virtual space for their company. VDR admins can add their branding logo and colors to their data rooms, making them immediately recognizable by users, and increasing the professionalism of the interface.
8. Control over the data
Some virtual data room providers – but not all of them – allow data room admins to easily create activity reports. For instance, with a few clicks, the data room admin can find out exactly what each user has been doing inside the data room – even down to how many seconds that user spent viewing a specific document page.
This serves a double purpose: on the one hand, it’s one more factor that discourages users from leaking information since afterward the data room admin can easily find out who did it. And secondly, this allows the admin to gauge the interest each bidder or buyer is showing in a deal – and thus, to give more time and attention to the people who are more likely to actually take part in the business transactions at hand.
Full data room activity reports, which include activity from the admins as well, can be very useful when the company is conducting audits on specific transactions.
Virtual data room software is a solution that can significantly simplify and speed up any transaction that involves sharing sensitive data. However, it’s important to mention that not all data room providers offer the complete list of features mentioned in this article.
To find the provider that will meet all your expectations, it’s better to search for it among the best data rooms available on the market. Check out our main page for a comparison of our top picks, so you can be sure to choose the best data room for your business.