Virtual data rooms are powerful tools that are used by investment bankers, business owners, lawyers, and many other professionals, working in fields related to IP management, private equity, intellectual property, life sciences, and more. Many strategic partnerships are supported by the advanced functionality of data rooms and collaboration tools to complete complex financial transactions.
VDR software is on the rise, and practically every company considers moving all transactions into the digital space. But to make the right choice for your project, you must first get to know the basics of what virtual data rooms are and how they work.
This guide will go over the fundamentals of online data room procedures, VDR benefits, setup tips, and other helpful insights for new virtual data room users.
Data room and virtual data room definitions
The data room meaning has changed drastically over the last two decades. Traditionally, data rooms represented physical spaces containing confidential data such as company documents, data of the internal employees, their contracts, intellectual property information, etc.
Virtual data rooms are cloud platforms for storing data and secure document sharing. Confidential business information can be stored in a secure virtual data room and shared with multiple parties. This is extremely important for intellectual property management and secure file sharing, as it gives you a platform for
As businesses grew more global and digital, physical file storage became less convenient. Accessing the sensitive data in such rooms was very time and effort-consuming, significantly slowing down decision-making during high-stake deals.
The introduction of virtual deal room software allowed the companies to process the same actions digitally in a safe and controlled environment. An electronic data room facilitates much faster transaction processing through data centralization and automatization.
A virtual data room (VDR) is a collection of software solutions for secure data exchange during many types of business transactions. VDRs are also referred to as:
- Virtual data room
- Virtual deal room
- VDR software
- Online data room
- Digital data room
- Electronic data room
Is the deal room the same as the virtual data room?
Although file storage largely contributes to what is a virtual data room, VDRs are far more than just digital repositories. Various collaborative features, security advancements, and integrations allow you to process different transactions, including:
- Restructuring, and more
That’s why most experienced users refer to VDR software as virtual deal rooms. And as you will learn further, some features of virtual data rooms, such as access control and the ability to process multiple files, actually changed the approach to modern deal handling in more than one way.
How does a virtual data room work?
The exact application of your electronic data room will depend on the provider. But there are also a few shared basics that unite how all VDRs operate.
- Hardware. Powerful and ultra-secure server facilities are the foundation of any online data room product. Some providers build and maintain their own data facilities. Others outsource the server capacity from third-party businesses such as Microsoft Azure or Amazon Web Services.
- Software. Virtual deal room vendors develop or outsource a series of instruments that will support both basic and advanced VDR functions. The provider’s team also stays responsible for technical support throughout your experience with the product.
From the practical perspective, a virtual data room is a digital portal with tools for uploading and managing confidential documents, interacting with internal and external users, navigating complex deal flows, and maintaining effective corporate governance.
VDR basics: Key takeaways
Here is a brief recap of what data room software and how it operates.
- Virtual data rooms create a digital space for storing and managing sensitive documents with an option of simultaneous access by multiple users.
- VDR software is a widespread solution for high-profile transaction processing due to enhanced security and feature variety.
- Online data room providers combine ultra-secure hardware with sophisticated software to deliver their products.
- There are digital data room solutions for any industry and business size.
How to set up a virtual data room?
The virtual data room setup process can take between 15 minutes and a week. The final installation and configuration time depends on the following factors:
- The VDR software provider you chose
- Your company’s size and industry
- The length and type of the upcoming project
This way, for a small business owner that needs a data room for a single transaction, the setup process will be as fast and simple as it gets. In some cases, the electronic data room provider will offer pre-set templates that further streamline the initial document management organization and role-specific access privileges.
On the other hand, a large corporation will have a lot more users and corporate data to upload and arrange. During the setup process, the provider will help create a convenient and understandable folder structure, configure user rights, and establish productive workflows.
Below are examples of step-by-step virtual deal room setup instructions based on the business size and project length.
Small businesses and short-term projects:
- Select the virtual data room provider that meets your requirements.
- Contact the chosen provider via their official website.
- Pass the basic user verification with the help of the vendor’s technical support team.
- Get access to your virtual deal room.
- Receive digital data room training for yourself and your team, if necessary.
- Start using your VDR software.
Medium and large businesses, government agencies, corporations, and long-term projects:
- Select the virtual data room provider that meets your requirements.
- Contact the chosen provider via their official website.
- Communicate your virtual deal room requirements and expectations and negotiate the most comfortable service-providing solution.
- Get a service agreement contract tailored to your specific requests. Go over the contract and send the signed copy back to the provider.
- The VDR software provider will set up your virtual data room based on the contract details.
- Get access to your virtual deal room and receive software training for yourself and your team, if necessary.
- Start using your data room.
How to prepare a virtual data room for use?
Once you gain access to your virtual data room, the next step is to organize it in the most convenient and effective way. The factors to consider in this process include:
- Role descriptions and the typical work order within your company
- Document categories and subcategories
- Levels of user access privileges.
For example, if you are going to use virtual data rooms to process an M&A transaction, you can divide the digital space according to different deal stages, such as pre-marketing, due diligence, and post-transaction integration.
In some cases, you can request a free due diligence document checklist from your provider to simplify and speed up the file upload process.
Regardless of the project type, a standard VDR software preparation will involve the next six steps:
Step 1: Gather the data
Collect all the necessary documents and establish a comprehensive file naming system.
Step 2: Customize your virtual data room
Give the tool a more branded look by incorporating your company’s colors, fonts, and logos.
Step 3: Create a folder structure
Visualize the most practical folder and subfolder system for the upcoming project. Leverage off tools like labels, categories, and access levels.
Step 4: Upload the files
The providers of advanced virtual data rooms ensure a fast and easy file upload, regardless of how many confidential documents you have. The key features in this process are drag-and-drop uploading and automatic indexing.
Step 5: Manage your virtual deal room users
Create user groups and set access permissions accordingly. Depending on the provider, you can assign access privileges on document, individual, and group levels.
Step 6: Invite the users
Consider using the View-As tool to ensure each person has been assigned the correct level of access. Then use the invitation tool to let the rest of the collaborators inside the VDR.
An intuitive user interface and proactive customer service play a significant role in how easy it will be to prepare your VDR software for usage. Pay particular attention to how easy it is to navigate the data room tool during the provider selection process.
Pro tip: Take full advantage of the free trial period as you get your virtual data room ready. Unlike a free demo, trial periods grant users the instrument’s full capacity and allow you to perform several tasks before the payment cycle starts.
How to choose your virtual data room provider?
A well-selected VDR software provider will become your ultimate guide throughout your experience with the platform. Experienced vendors offer a lot more than tool installation and technical support. Depending on the software providing company and your agreement with it, you might also receive additional instruments, professional guidance, and tailored solutions.
At the same time, winging digital data room provider selection can cost the whole project’s success. For example, an insufficient toolset will lead to issues with user performance, while unapproachable customer support can result in human errors and security breaches.
With the current option variety, finding the fitting provider can be challenging. There are numerous factors to consider, from your company’s unique expectations to the specific VDR benefits and technicalities. But the selection will go more smoothly if you understand the fundamental things that differentiate all virtual data room providers.
The main differences between data room providers
Here are the key aspects that make all the difference between various data rooms offered by the leading vendors on the market.
Although the time spent on the market is not always directly proportional to the product’s quality, seasoned virtual deal room providers typically have more to offer. This includes additional services, advisory, and a better vision of which solution will suit your case.
Areas of expertise
Many providers choose to specialize in specific industries or projects. For instance, some electronic data room solutions support M&A transactions for large enterprises, meaning that the set of tools and services will be adapted to that exact scale.
Any virtual data room is a collection of technologies and algorithms that can vary in levels of complexity. Some providers continuously deliver innovative approaches. Others satisfy their clients’ needs with established instruments.
VDR software prices range depending on the provider’s target market, solutions offer, and cost formation model. In some cases, digital data room companies provide pre-set packages with publically disclosed pricing, while others calculate the quotations based on every client’s requirement.
Essential virtual data room features
To get the most out of your virtual data room, you will need sufficient functionality. Below are the six general feature categories that summarize all the basic instruments you will need along the way.
1. Document management. Efficient file sharing starts with straightforward and secure document organization. Your online data room must facilitate fast and simple document sharing, uploading, downloading, and rearranging.
Versatile format support
2. Security. Data protection tools include an entire segment of multi-leveled solutions, from the ability to restrict access to specific users to configuring document security. The ultimate set of your provider’s security features defines how your confidential data will be handled and shielded from potential attacks.
Certifications and compliances such as ISO 27001, SOC 2, and HIPAA
Granular permission setting
Remote access revocation
3. Usability. All users should have an equally convenient and productive experience while using the VDR software. This covers things like an intuitive interface, built-in translation to multiple languages, and compatibility with all operating systems and devices.
Single sign-on for multiple projects
Mobile applications for iOS and Android
4. User management. A good virtual deal room will provide all the necessary tools for dividing users into groups, assigning them to projects, and configuring access permissions to each specific role.
Bulk user invitations
5. Reporting. On the one hand, reports are an extension of security features of virtual data room as they allow supervising the activity inside the data room and preventing document mishandling. But at the same time, the activity and file tracking functionality is an excellent tool for insightful decision making.
Detailed audit trails
6. Customization. An online data room represents your company to investors or any other interested parties. That’s why adjusting the software to your brand’s appearance and arranging the content in the most optimal way can largely contribute to the project’s success.
Interface design customization
Most common data room software use cases
VDR software can be implemented in a virtually limitless number of scenarios. A correctly-configured virtual data room can support the activity of an educational non-profit, a middle-sized real estate firm, and even a global enterprise.
With that said, several areas heavily rely on the VDRs’ confidential data management capabilities. They are:
Mergers and acquisitions are always complex and involve many people and sensitive documents. M&A data room software allows M&A professionals to navigate the deal better and react to any query a lot faster.
A digital data room can significantly simplify time-consuming due diligence procedures by organizing large data volumes and allowing third-party experts to access necessary information without putting the rest of the files at risk.
Going public is just as complex and effort-requiring as processing an M&A deal. VDRs facilitate fast and safe data exchange, offer extensive control over sensitive data, and support transparent communication.
Creating several virtual data rooms using a single electronic data room tool allows you to consider several investors simultaneously and improve the internal financial handling.
An online data room offers a big-picture overview of all your assets, their performance, and respective collaborating teams. Similarly, real estate and legal firms use VDRs to manage accounts and strategize.
Some companies use VDR software for internal organization, including board communications, HR procedures, and task management. Due to virtual data rooms’ versatile capacity, the stakeholders can centralize all the processes in one space and take more informed actions.
The advantages of virtual data room software
The combination of basic and advanced features, unlimited application approaches, and tailored offers for virtually any business makes virtual data room software an irreplaceable element of modern deal-making. The most prominent VDR benefits include:
- High-level security. Data room security exceeds the safekeeping mechanisms of most file-handling software. If you go with the right provider, the chances of data leaks or breaches are extremely low.
- Convenience. A digital data room eliminates the need for physical relocation during anything from department meetings to global mergers. With VDRs, you can exchange sensitive data, collaborate on tasks, and possess high-stake deals faster and easier than ever.
- Improved workflows. Activity centralization and transparency improve the overall accountability of all contributing parties. If your virtual data room is organized well, each user will have a clear vision of their tasks and communicate with the rest of the team in a more streamlined way.
- Faster deal closing. Decision-makers tend to process transactions faster due to the variety of online data room features, utmost security, and enhanced convenience.
- Cost reduction. Maintaining a virtual deal room is a lot cheaper than storing corporate data in a physical space. The same goes for the costs associated with in-person meeting organization, which involves travel, accommodation, printing, and more.
Virtual data room vs cloud-storage tools
Some inexperienced VDR software users believe that a publicly available service such as Google Drive or Dropbox can fulfill the same functions. However, there are two distinct differences between a virtual data room and a genetic cloud-storage solution:
- Data and user security. Data rooms employ advanced mechanisms to safeguard your confidential data. Typical cloud storage cannot perform at the same capacity, resulting in significant leaks.
- Feature specialization. A virtual data room is a platform for handling corporate transactions. This means you will have access to a very particular collection of services and instruments. And a cloud storage solution usually consists of rudimentary data exchange functions.
Additionally, established VDR providers often give access to an accessible and proactive customer service team, allowing users to solve any issue on the go. Meanwhile, getting a hold of a large cloud-storage solution representative is nearly impossible due to the sheer amount of users.