This article is intended for professionals who wish to learn more about virtual data rooms. Perhaps you’re new to investment banking or transactional law, and your coworkers keep mentioning “the VDR.” Perhaps you’re a business owner considering selling your firm, and your M&A adviser has suggested that you use a virtual data room to aid with the bidding and due diligence process. We’ll explain what a virtual data room is, what it’s used for, who needs it, and why in the sections below.
Everything You Need to Know About Virtual Data Rooms
A virtual data room is defined as “an online repository of information used for document storage and secure documents sharing.” These documents may be sorted, shared, and tracked, all while remaining under the authority and discretion of the data room administrators. Virtual data rooms are perfect for supporting complicated projects and business processes that require secret documents to be shared with other parties outside of the firewall.
VDRs have established themselves as a reliable method of transmitting sensitive financial documents, intellectual property, and legal case files, among other things.
A virtual data room also offers extensive activity tracking, allowing customers to see who has viewed which documents. This comprehensive information on users and document activity is especially useful during sell-side M&A transactions or fundraising since it helps users to measure the degree of interest shared papers are generating with bids or potential investors, in addition to assisting with security audits.
Data rooms were physical rooms where papers for due diligence were kept and shared before the cloud and Software-as-a-Service (SaaS). Anyone working on an M & A deal who needed to see important papers had to schedule time in advance and physically visit the data room.
Physical data rooms were formerly utilized to keep track of document disclosure.
As document storage and sharing moved online and from physical to electronic files in the early 2000s, virtual data rooms arose. VDRs were a less expensive and time-consuming way of securely storing and distributing critical corporate records.
Although VDRs were intended and are still used for due diligence, they are increasingly trusted for a wide range of use cases that need secure document exchange. Below, we’ll go over the many uses for a VDR in more detail.
What Are the Benefits of Using a VDR?
The most important benefit of a VDR is the peace of mind that comes with knowing that your sensitive information—financial and HR information, intellectual property, and your clients’ legal documents) — will not be seen by third parties until you give them permission. For efficient and secure document sharing, the ability to upload huge numbers of documents, track and audit user and document activity, and configure particular user rights is critical.
The following industries make extensive use of VDRs:
- VDRs are used by investment banks and consultants to keep M&A deals moving and to expedite mergers and acquisitions due diligence.
- Litigation – For commercial transactions and litigation, legal companies employ VDRs to communicate sensitive documents with their clients, legal teams, and other parties.
- Corporate – When companies need to communicate sensitive documents outside of their firewall, they can rely on a VDR to do it securely and efficiently.
- Funds and Private Equity Firms – To communicate and interact with limited partners, auditors, and portfolio businesses, funds and PE firms frequently employ a VDR solution.