The best use of technology is when you know how to use it optimally. For example, a virtual data room has different features for communication, data management, dealmaking, data sharing, etc., but users often don’t even explore their virtual data rooms thoroughly. Also, many still believe that online data room software is just an online database which is a wrong perception.
Here is a detailed guide on virtual data rooms, why they are better than other platforms, what are their common use cases, and how you can use them efficiently. Let’s start with the introduction to data room technology.
What is online data room software?
Online or virtual data room software is a digital document storage and online communication platform hosted by certified and secure data room services. Businesses, managers, board members, professionals, companies, enterprises, nonprofit organizations, and government institutes use virtual data rooms for data storage and centralized business communication.
Although businesses use virtual data rooms for data storage and management in the long run, the corporate sector also employs data rooms for complex deal management. Mergers and acquisitions are the earliest use case of data room software, and a major percentage of data room consumption still goes to mergers and acquisitions.
Apart from that, online data room software is a standard due diligence management tool. Companies use the virtual data room due diligence during real estate transactions, initial public offerings, capital raising, joint ventures, and strategic consolidations. Some of the best data room services for due diligence include iDeals, DealRoom, Firmroom, Intralinks, and Merrill.
What is the difference between virtual data rooms and free data sharing platforms?
The internet is flooded with free data-sharing platforms, and some of them (Dropbox, Google Drive, etc.) are good too. So what makes online data room software a better technology?
Security compliance
A standard or good-quality virtual data room is always hosted by a certified data room seller. Any certified VDR vendor must comply with ISO cyber security standards, including ISO 27001, ISO 27081, etc. Moreover, VDR service providers also have to comply with local cyber security regulations. For example, vendors in the USA must comply with FINRA, SSAE 16, SOC2, etc.
On the other hand, the majority of free data management platforms are not certified by international bodies.
Third-party integration
Virtual data rooms, by default, have no integration with third-party apps, and the platform is ad-free. You can integrate your VDR with external software, but that will be your decision to make. However, free data sharing platforms usually have third-party contracts that can jeopardize your data security.
Moreover, virtual data rooms have unique features (which will be discussed later) that you generally don’t find in free tools.
Common virtual data room uses
Any virtual data room performs three primary functions;
- Data management
- Information sharing and communication
- Deal management
Here is how companies use data rooms.
Mergers and acquisitions
In M&As, the corporate sector uses virtual data rooms for due diligence. The platform plays the role of a virtual intermediary where both parties can collaborate, share data, conduct meetings, analyze documents, and make negotiations.
As online data rooms are cloud-based tools, representatives from the buyers’ side can access them anytime, from anywhere. Also, investors, stakeholders, and board members can communicate and access documents on the same platform.
Capital raising/fundraising/IPOs
Fundraisers use virtual data rooms as a medium to communicate with potential investors, advisors, and other parties involved in the process. Investors can access documents whenever they want and ask questions to fundraisers or company representatives. Most importantly, everything remains transparent in virtual data rooms — thanks to data room audit reports.
Litigation
The legal industry is one of the biggest consumers of data room technology. Lawyers not only use the virtual data room for data management, but they keep their communications with other lawyers and their clients in data rooms because of VDRs’ impressive security systems.
Three amazing virtual data room features and their best use
- Fence view. The Fence View feature in data rooms is a great way to prevent data leaks during M&As and similar transactions. When you activate this feature on any document, the users can only view it. They cannot download, scan, print, edit, alter, save, share, or even photograph the file. However, it is an advanced feature that every VDR vendor doesn’t offer.
- Full-text search. You can find any file by entering a phrase or sentence, or keyword. The VDR will show all possible matches, and you can locate the file you are looking for.
- Remote device purging. It is one of the best and most advanced data room security features. If any data room user loses their device, the administrator can immediately disconnect/remove that device from the data room. Moreover, any documents downloaded or saved from the VDR can be purged as well.
Final words
Virtual data rooms are highly suitable for secure and voluminous data storage and sharing. That is why the global corporate world uses the virtual data room for due diligence, litigation, and deal management.
