Using Virtual Data Room Software for Due Diligence

Virtual data room software is gaining more popularity by the day, as they’ve become a one-stop solution for due diligence-related procedures. If you’re wondering why virtual data room software is gradually becoming ubiquitous, you’re about to discover why. Also, since companies and businesses undergo due diligence for different reasons, you’re about to find out how VDRs can provide industry-specific benefits for due diligence.

Why businesses use virtual data room for due diligence?

The due diligence process can be quite tedious, and the last thing any business would want to do is to waste time and money while at it. While a business may conduct due diligence for different reasons, a virtual data room software helps to make the due diligence process more efficient by streamlining preparation into a one-time event rather than a lengthy continuous one.

There are so many things a company has to consider during due diligence. Thanks to technology, a virtual data room encompasses all of these needs, and takes the stress off when using physical data rooms.

Security of business data

Most VDR providers understand how sensitive your business data is and the extent of damage that a data leak can cause to your company. That’s why they provide maximum security on the VDR system. Businesses can trust that there would be no data breach or unauthorized access to confidential documents as most VDR providers are ISO-certified. In the case of a physical data room, best efforts are made to ensure data is protected but these methods are not as effective as the security provided by online data rooms.

Maximum information control

A VDR allows you to effectively control how your data is used by others. No one can access, edit, or download a document during due diligence without your permission. You’re in charge of what you share with the due diligence team, as it concerns them.

Audit collaboration

During due diligence auditors can collaborate effectively using a VDR. They can share information where necessary, ask questions using the Q&A feature, and send direct messages. Some VDR providers offer video conferencing features, hence participants to the process can engage online from any location using the VDR software.

Parallel user access

The software enables a parallel user-access, allowing the team to work from different locations at the same time. This hastens the deal process, helping the due diligence team work faster, achieve more effective results, and come to considerable conclusions in good time.

Easy file management

All files are indexed within the system for easy access. This makes it easier for teams to locate files that are particular to them during due diligence. The VDR also allows an owner to exercise control over the shared files, as it applies to the due diligence team. Owners can provide group or individual access to a sub-category of files, while leaving out the aspects that don’t concern a group’s role in the due diligence process.

Your documents are safe

Using a virtual data room for the due diligence, you protect your corporate documents. VDR providers implement the most reliable 256-bit encryption to keep hackers away. Also, data rooms are packed with security features. First of all, there is two-factor authentication that will prevent unauthorized access. Additionally, the manager of the virtual due diligence data room can set different levels of access for users and control their actions.

Since due diligence is held often, it is crucial to protect data from different projects. And VDRs are great for this mission. Users, invited to one project, can’t access documents from another. Also, you can set an expiration date for their accounts so that they become inactive when the project is over.

The software is simple

It will take you literally minutes to set up a virtual data room for due diligence. Its interface is usually very straightforward so that even the least tech-savvy users can understand how to interact with it. But if someone faces any issues – the support team is available 24/7. You can even get a dedicated project manager who will go through processes along with you. Therefore, you have nothing to worry about because you can always get help instantly.

The teamwork is streamlined

With a data room, due diligence goes faster and more smooth. All the invited users will get notifications once a new document is uploaded or an existing one is changed. It allows parties to react quickly and respond to changes in no time. Moreover, users can leave notes and comments on documents – it serves as an additional communication tool.

A Q&A section is a nice collaboration instrument, as well. Here parties can ask questions to get quick answers. To speed up due diligence in advance, managers can gather all the frequently asked questions in advance and answer them. Thus, at the beginning of due diligence, invited parties to have already more information to work with.

Choosing a data room provider for your industry

Since due diligence cuts across different industries, a data room user might want to be sure the Virtual data room software is tailored to meet industry requirements. So you might want to ask your data room provider questions about how the software is designed with features, work flows, and possible use cases of the VDR. This way, it’s possible to ensure that the VDR is customized to meet the industry requirements.

Financial services

A financial service data room for an insurance company, stock brokerage, or bank will need to detail specific features. Since these facilities often go through different aspects of due diligence from time to time, large storage capacity is an important feature for this process.  A VDR service provider for this industry, must be able to provide a large storage capacity for due diligence, and the ability to ensure long-term use.

If anything at all, the VDR must be compliant with the industry standards and requirements. Since users of the due diligence data room will but across experts from different fields, it’s also important that the software is user-friendly and easy to navigate.   

Biotech

Whether to license a new product or for a clinical trial of a project, due diligence software is required to make the process seamless. However, biotech due diligence is important as it involves confidential documents, intellectual properties, and health records. It’s important that a virtual data room provider for this industry will be compliant to the highest security standards to ensure that there’s no data breach. 

Energy

Investments in renewable energy are on the rise so it’s not surprising that more mergers, IPOs, and licensing deals are also rising, increasing demand for due diligence in the industry. A virtual data room provider should be able to support the storage requirements and file formats that these deals involve. The software should also operate at a reasonable speed, and take less time to load, which if otherwise may frustrate the due diligence process. Hence, space and speed are a few things to look out for when choosing a virtual data room for due diligence.

Information technology

Due diligence in the IT industry is increasing by the day with startups seeking more investment opportunities and M&A deals. A due diligence data room software for this industry has to be user-friendly and should include in-built features that eliminate the need for plug-ins. This would make the due diligence process seamless and widen investor reach. 

Infrastructure

The engineering industry is a dynamic one, and data rooms are important to manage finance documents across different projects, share files in the case of mergers, or when a real estate company is seeking to raise capital or go public. It’s important that your data provider support all file types used in the industry aside from office files, such as DWG, DXF, RVT, etc. It eliminates the need for other plug-ins that might lead to data leaks, while using the virtual data room.

How to structure virtual data room for due diligence?

Now that you’ve decided what due diligence virtual data room vendor is right for you, you should ensure that your data room is rightly structured to ensure nothing is missed. 

  1. Find the right data room provider. Of course, that’s if you’re yet to decide. You’ll have to make a decision early enough. As long as the features and functionality of the VDR meet your industry needs and the provider is security compliant, you can move on to the next step.
  2. Determine the due diligence stage you are in. If you’re trying to do a first-time test run, you should estimate how much information you’re sharing, especially if it’s a teaser for investors to determine if they’re willing to follow through.
  3. Ensure files are properly named and structured. Use existing file naming conventions to arrange and organize the files to avoid mix-ups. Index the files alphabetically or according to your industry-specific technique. 
  4. Group your files in the order of importance to your business operations. Group them into a few top-tier folders consisting of different document sub-categories, depending on their similarity.
  5. Validate your VDR security. Give yourself the control to manage user access and permissions. Determine how you want each user to interact with each file, especially if you want to control printing and downloading.
  6. Add stakeholders to the data room. Ensure they are properly grouped depending on what side of the deal they are, and their importance to the due diligence process. Recheck their accesses and permissions to double-check oversights.
  7. Run internal due diligence. Test your VDR beforehand by running pre-due diligence due diligence. This allows you to access your VDR from a user’s point of view. It also helps to spit slips and omissions, so they can be fixed early enough.

Due diligence data room checklist

The due diligence checklist is more like a to-add list, which you use to ensure that all important documents are added to your online data room for due diligence. Using a checklist helps to ensure that there are no oversights in preparing for data room due diligence. It also allows you to prepare the virtual data room index on time.

Here are the important documents to include on your checklist for virtual data room due diligence. 

  • Business information documents. These documents describe the incorporation of the company, such as permits and trade licenses.
  • Financial information documents. These documents will give a potential buyer a look on how the business has fared financially in a minimum of three years.
  • Revenue information documents. These are documents detailing the revenue stream of the company, including contracts, and sales structure.
  • Human Resources (HR) documents. These are documents regarding the work and people culture of the organization.
  • Intellectual Property (IP) documents. These include all documents relating to intellectual property, trademarks and copyright of the corporation.
  • Legal documents. This describes all important legal documentation concerning the company, such as articles of incorporation, by-laws, minutes of meetings, powers of attorney, government litigation, etc.