Virtual Data Rooms are a fantastic tool if you want to securely store confidential documents online, with the benefits of collaboration and more. 2022 promises to be an interesting year for the M&A space, in which data rooms are often used.
Business has been moving more and more online for a while now, but the COVID-19 pandemic has well and truly pushed digital technology right to the forefront of everyone’s minds. With a sudden shutdown in ‘normal’ business travel, courier services and face-to-face meetings, the world looked to the internet like never before.
What many people (C-suite leaders and project managers found) was that there were already some great technologies out there that could replace or even improve on the old ways of doing things – like Virtual Data Rooms (VDRs).
In this article, we’re going to talk about what VDRs are, how they work, and, most importantly, how they help to streamline and improve business operations.
Let’s start with the basics.
In simple terms, a VDR (or virtual data room, sometimes also known as a deal room) is a highly secure website using an online database, in which organisations can store and share confidential information. This electronic repository can be set up so users can review content, but with restrictions – like ‘do not copy this’, or ‘do not print’.
VDRs have a myriad uses, but are particularly used for financial transactions or for complex deals like mergers and acquisitions, where people are selling or buying companies and where due diligence needs to be followed. Companies frequently use data rooms to store and share documentation used in complex and confidential transactions.
They are ideal for supporting complex projects and business processes that require the secure disclosure and sharing of confidential documents with third parties outside your business, really for any documents needed for financial, legal and tax matters, HR information, intellectual property, or any material that needs to be retained and stored securely, and only accessed by people who have permission.
Because they can be securely accessed from anywhere, they allow 24/7 access but minimise the risk of human error that can kill a deal or threaten a business.
Who uses Virtual Data Rooms?
Data rooms are used by a broad range of industries, where they’ve replaced the more traditional physical data room, but they are particularly popular with C-suite leaders and project managers in the legal and financial sectors, and with life science companies – anywhere where the need to securely store and share sensitive and confidential data is key:
- Investment banks and their advisors use VDRs to keep merger and acquisition deals moving and streamline due diligence.
- Legal sector firms use data rooms to share documents with their in-house teams, clients and third parties.
- Private Equity and venture capital firms will use a VDR to share confidential information with partners, auditors, and portfolio companies.
- Life Sciences organisations including biotech and pharmaceutical firms use data rooms to share clinical data and intellectual property without the risk of data breaches or leaked information.
In any situation in which you need to securely share documents externally with service providers, prospective investors, or other interested parties, (or internally with key employees), using a VDR with strong security measures makes this process easier and faster, and removes the worries about information being stolen, inappropriately shared or accidentally left lying around for prying eyes to see.
Mergers and acquisitions
VDRs are ideal for storing and sharing the vast quantities of data and research involved in M&A due diligence. They allow companies engaged in M&A to participate in negotiations and allow secure viewing of valuable, confidential data. As print and download privileges are restricted, if a deal falls through, access to the data room can simply be terminated without the worry of there being copies sensitive data out there.
Fundraising is key for businesses of all sizes, and persuading investors to hand over their cash involves reams of data and documents to satisfy due diligence. Using a VDR allows you to share sensitive data both ways, giving leadership more control and confidence.
The decision to go public puts companies under intense scrutiny, with prospective shareholders demanding high levels of transparency, and a compliance with a new raft of rules and regulations required. VDRs are ideal for systematic handling of all the document management and steps you’ll need to go through.
Even if you’re not formally merging with or acquiring another business, you could well find yourself partnering – either to expand your range of goods or services or in an entirely new venture. A VDR could prove invaluable, for secure sharing and protection of the information involved, taking some of the worry off.
There are plenty of circumstances in which an external audit of your company’s data might be needed, and your leadership team will need to be able to lawyers, accountants or auditors secure access to confidential and sensitive business information. A VDR will allow you to share any documents you have, without compromising security.
Start-ups, in particular, often depend for their survival on having a data security strategy which safeguards valuable intellectual property (IP). Using a VDR to store any and all IP-related documentation allows access as needed, but with maximum security and peace of mind.
With board members not always able to make visits to the office, but needing access to critical information, the challenge can be to ensure fast but secure document sharing. One of the best and most flexible ways to manage this is through storing business intelligence in a VDR, which allows you to limit access to those who need it, when they need it.
Simply put, a VDR is ideal for C-level execs who need to share confidential information.
Why are data rooms better than the alternatives?
Some people ask me “Why not simply use Dropbox?”
The thing is that Virtual Data Rooms will give you a lot of advantages over Dropbox or generic cloud apps. The most important is probably the security levels you get, but let’s look at some of the key benefits:
- Enhanced security and control over your confidential and sensitive information
With a VDR, you’ve got granular security, so you can give different teams different levels of access to the various levels of the site of the data room. That granular access means that you really control what people can see, giving you complete peace of mind that your (or your clients’) confidential information is safe.
So you might say, “I’ve got this guy buying my company. His core team get access to everything. His bankers just can see the banking section, and his engineers can just see the engineering section.”
As well as restricting access, you can monitor the time people are spending looking at things in your data room, and you can also restrict their ability to do things like print the screen, screen grab or download and copy documents. So unlike Dropbox, where, once someone has access to content, they can pretty much do as they want with it, your content can be highly secured and monitored.
This can be really important when you’re talking about a firm’s lifeblood and you want to make sure that access is strongly restricted and things aren’t being sent on, for example, to your competitors.
It’s also hassle-free, which means people will actually use it. The security will work anywhere and users won’t need a specific installation or dedicated software. So your security is the same whether people are working in an office behind a firewall, or from anywhere – something that’s shown up as an issue recently with more people working remotely or from home. It’s also easy for people to make mistakes (such as sending an email to the wrong recipient!), but with a data room you have much more control over security, helping to mitigate any risks.
- Control over document usage and sharing
VDRs allow you to set the security measures at the right level – so the right people can access the information, but because you can prevent them from printing or downloading information, there’s little risk of accidental sharing or leaking of confidential information due to human error.
These customisable permission settings allow complete control over who can access any document within the data room – either at a group of individual level. You can either set an expiry date for a document before sharing it, or revoke access remotely at any point.
- Monitoring document usage in a VDR
VDRs are really strong on compliance and due diligence, providing you with a log or audit trail for everything that’s happened.
You can see every document that’s been downloaded, and download complete activity reports. This can be really vital if there’s a query after deal.
If someone says, for example, “Oh, you didn’t tell us about that wind farm problem,” you can reply, “well, let’s check on the audit trail. I can see that you or your expert downloaded that document on the 3rd of December, 2017.”
So you can use that compliance trail to show that not only have you actually disclosed the necessary documents, but also that someone has accessed them, and when.
- Keeping everything together
Complex deals or processes can require sharing of thousands of documents, and clear organisation and ease of access is vital.
VDRs provide a simple way to organise, manage and search for files, as well as managing version control, which can save your VDR admins a huge amount of time and hassle.
Another benefit of using a VDR is the Q&A feature, which allows you to merge all questions and answers into one secure, central place. In a complex transaction this can save you a lot of confusion in terms of which questions have been asked and answered.
It also means that at the end of the transaction, you have one easily auditable database, usually an Excel sheet, of all questions, and all the responses your team has made. So that’s a great way to make sure nothing has been missed. And you’re not going to find ‘that’ question later on, that someone asked by email and which was (or wasn’t) answered but that you didn’t know about.
- Speeding up doing business
Using a Virtual Data Room is faster for complex transactions like mergers and acquisitions, because you don’t have to fly people in to look at paperwork. The due diligence process can take a lot of time, but with a reliable VDR that makes it easy to access all documents, you can save a lot of time. It’s also more economical because you don’t have to produce and send out multiple copies of paperwork, and because your buyers can pull together teams from all around the world really quickly, you can get more people interested in accessing your data together at the same time, and your deal tends to run more quickly and smoothly.
So in something like an auction sales situation, where you’ve got multiple bidders interested in the thing you’re selling, it’s quite easy to run two or three different bidders at once.
- Push your brand
Another advantage over using something like Dropbox is that you can actually set up a branded VDR site that really pushes either you firm’s or your client’s brand.
How is a data room charged for?
Pricing varies between different providers. Older, or more traditional, vendors of VDRs often charge by page (or even by Kilobyte!), which can make pricing unpredictable – and watch out for the hidden extras.
More modern providers publish pricing, and usually offer a single, predictable monthly payment or fixed project fee.
How Projectfusion can help
Projectfusion offers security and simplicity through a totally secure data room which protects your business and meets all your compliance and due diligence requirements. Our ISO27001 accredited system gives you a full audit trail and custom roles, with the choice of UK, EU or US hosting. Our UK-based team provides 24/7 support with in-app response times of 2 minutes, and we provide unlimited training for your internal users. Right now you can use our data rooms for free! Read more here, or feel free to call Angus or Jamie on +44 20 7183 1245 if you’d prefer a verbal introduction to the process.
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