In today’s world of technology, most companies have, are in the process of, or at least have an aspiration to go 100% paperless, and most all companies at least rely on software and computers for day to day operations. As such, much of the previous paper documents have shifted to an online portal of entry, storage, and transfer. A virtual data room is one of these portals.
What Are Virtual Data Rooms?
Virtual Data Rooms, also called a VDR, a document filing system, or electronic repository, is simply a secure online database that a company can use to store and share confidential info. It’s most commonly used for corporate financial transactions and other sensitive and high-value corporate data and deals needing to be imputed, stored and sent securely. In a nutshell, it allows safe transport and storage of records like legal documents, tax financials, and documents on intellectual property.
Why Use Virtual Data Rooms?
Physical data rooms, that is a physical location dedicated to storing paper documents for companies, are as time consuming as they are cumbersome. They have many constraints, such as the continual need to have the actual physical space on site to sort, store, and destroy documents. VDRs take the place of these without any of the limitations and constraints. The applications are numerous, including:
1. Mergers and Acquisitions (M&A)
Due diligence within mergers and acquiring other companies is often a lengthy process that requires a great deal of research. A massive volume of documents with sensitive and private information must be furnished for the buyer’s review. The entire process of handing over such sensitive data via paper documents can leave a company vulnerable… not to mention the physical transfer itself being an exasperating process. A VDR removes such burdens and worries. Transfer is all online by the click of a button and, should the deal fail, the seller can simply terminate the buyers access to the data room.
2. Strategic Partnerships
Whether to venture out into another niche or just to provide a supplemental service, some companies choose to partner with other businesses instead of the more formal and permanent M&A approach. Even so, this will usually require a significant amount of data sharing. Having a VDR in place provides an efficient means of sharing and overseeing by both parties.
3. Fundraising
Fundraising is a vital part of growth for both small startups and conglomerates alike, and any business owner can attest that convincing supporters is rarely as simple as just asking. Most investors and sponsors want concrete proof that a significant cash investment is going to a viable cause. This requires document perusal. A VDR allows both sides the due diligence and oversight as they exchange sensitive information safely, securely, and efficiently during the fundraising
4. IPO
When a company chooses to go public, its subjecting itself to many additional state, local, and federal rules and regulations. There’s also a higher demand for transparency toward shareholders, investors, and the general public. It’s vital that any company planning an IPO practice meticulous documentation. A VDR allows companies the space and organizational capabilities to properly retain and manage such a mass index of documents.
5. Audits
Audits by accountants, legal representatives, and local officials can be particularly tricky for management. The company needs to be able to share the requested information in a timely fashion without the potential for it to be compromised. VDR allows for such selective and limited access.
6. Intellectual Property (IP) Management
All of the above is related to sharing info with external third parties. But, what about when information needs to be shared in-house amongst employees? Most companies, especially those entirely dependent upon safeguarding its IP for its success, will need a data security strategy to protect its IP from even in-house compromises. A VDR gives management a maximum security onsite storage option for IP.
7. Board Member Involvement
Companies with a sitting board often find themselves needing to communicate various facets of the company’s operations with board members that may not always be on hand to receive it. Sometimes a company’s board members can be remotely located across the world map. Sending paper documentation or information across an unsecured online account is a recipe for disaster. VDR allows a safe and secure portal where board members can be granted instant access to selected information.
VDR Provides Secure Document Sharing
The above are just a few examples of how VDR provides a company with a secure, instant, efficient, and limited-access means of both storing and transferring data to external and internal entities. Company owners can rest assured that their information will not be stolen or used without their knowledge when they have a VDR in place to protect their IP and company data. Department heads and managers will be able to confidently perform their interconenctive roles knowing exactly what information is going where and to whom.
How Do VDRs Apply To Specific Industries?
Businesses across the board have transitioned from physical storage to VDR because it’s simply a necessary tool as they conduct business in today’s technology-centered world. Not only does the business have secure 24/7 access to their corporate documents no matter where they are, but they also have a decreased chance of human error that could kill a business deal or even destroy their business. VDR providers offer businesses the control, security, expediency, efficiency, and flexibility that a paper document storage system can never afford… no matter the industry.
• Technology
Tech companies must incorporate rapid growth and innovation to stay competitive. It’s a constant round of fund raising, M&A, and then going public. This means a heavy load of document storage and transactions as the company raises venture capital, stores HR files, shares for M&A, complies with audits, protects IP, and so forth. A secure and efficient method of document storage and delivery is a must for success today.
• Life Sciences
From pharmaceutical, biotech, and medical device companies, there’s a tremendous amount of IP property to store and protect in the life sciences industries. These frequently partner out with other companies, must raise funds, conduct clinical trials, need to license IP, comply with HIPAA, and undergo M&A. A data room can facilitate such business transactions seamlessly.
• Investment Banking
From buying M&A, selling M&A, IP, strategic partnerships, to capital raising and legal rights, investment bankers need a streamlined approach to ensure due diligence and make timely, knowledgable decisions. VDRs make such comprehensive data needs a reality.
• Legal Firms
Security and confidentially is a huge issue for legal firms as they collect, store, utilize, and selectively share information. Time is also of the essence since many legal precedents are time-sensitive matters. VDRs again provide that streamlined approach that’s both secure, expedient, and malleable in information sharing.
• Private Equity & Venture Capital
Talk about mass information sharing and business transactions amongst numerous parties. The complex legal and financial matters must be handled as securely and timely as possible for the success of the company in equity investments, exits, outs, fundraising, and partner to investor communications. A VDR provider is absolutely invaluable when deals are made or busted within the difference of a few minutes time delay and lapses in security.
VDR Providers
Regardless of industry, each company will still have unique needs of their own. It’s imperative that these needs and their evolution are considered when picking a provider. Most providers have a free trial where the business can look how the price, features, security, and usability solutions apply to the company’s specific needs. Broadly speaking, there are two main types of VDRPs and a subcategory that’s generally part of the fray.
1. Traditional Virtual Data Room Providers
There are three main providers in this category – Merrill Datasite, Intralinks, and RR Donnelley.
It’s the oldest form of VDR. As such, it’s also generally considered the most cumbersome to use, or at least for industries not highly centered around M&A. These are best known for their M&A usage since they have tons of features that were specifically geared for the volume common to M&A application. While they’re the most expensive category of data room, they do allow for huge amounts of data uploads and storage. Extra users typically carry a fee and the uploads fees are typically at a per page rate.
2. Modern Virtual Data Room
The three most well known MVDRs are Firmex, SecureDocs, V-Rooms, and Ansarada. These are typically easier to use, quicker to apply, and less expensive than TVDRPs. Sophisticated data security is a higher priority with MVDRs than it is with TVDRPs. These providers utilize measures such as advanced encryption, multi-level authentication, discrete access to the data room, document watermarking, blind view of documents, and disabled printing. Ease of use through modern user interface is also prioritized. Overall, these are easier to use, more cost-effective, and have more advanced security measures than TVDRPs.
3. File Sharing and Collaboration Tool Services
Dropbox, Box, and Google Docs are the main players in this subcategory of VDRP. It’s vital to understand that these are not VDRPs. These are file sharing services and collaboration tools that operate similarly on the surface to a VDR, but are nothing of the same security and feature scope.
Collaboration tools simply allow users to share personal and/or professional document files online. The collaborative feature isn’t typical with VDR. They’re cheap, even free, services and they set up easily.
However, unlike a VDR, they have grossly lacking security measures to protect, audit, and control the documents. They also lack the professional vibe of a VDR. Using lacking security can possibly send the message to existing and potential clients, investors, and partners that the company simply isn’t up to par.
Overall, it’s a solution for business owners needing inexpensive mass transit with limited security of documents. But, for those transporting and storing valuable, confidential, sensitive data, it can be an option that leaves you exposed to high risk and gives a poor impression of the company’s security standards.
Virtual Data Room Quick Tips
• Look for clear display of all features, fees, and pricing to make the most informed decision for the company’s specific needs and wants.
• During selection, carefully examine the company’s current data needs as well as potential future ones with growth and expansion.
• Request a free trial to see if the VDR is up to standard and fits the company’s needs.
