A VDR or a virtual data room is an online database that individuals or companies can use to store or share data and information that can be used in financial deals. Data rooms can also be used as a document filing or an electronic repository system. VDRs are becoming more and more integral for businesses, especially in industries that rely on specialized software for day-to-day operations or for transitioning to a paperless platform. Today, more and more offices that rely on thousands of paper documents can shift to online record-keeping and filing.
The Contents of a Data Room
Data rooms are primarily used as a neutral space for sensitive and/or critical corporate data during business mergers and deals. The data stored in a VDR holds highly private files that’s considered to be very important or critical to the company. Aside from data rooms being used as online record keeping platforms needed for legal, financial and tax matters, they may also be used for mundane purposes such as storing files and documents that they’d like to keep private and safe from prying eyes. A good example of highly sensitive documents include Intellectual Property items, i.e., copyrighted works, trade secrets that need to be protected while being conveniently accessible at the same time.
Due to the fact that data is now considered a valuable commodity and there’s a growing need to keep it in a secure location, the virtual data room was born.
The Benefits of a Virtual Data Room
Having access to a VDR during a financial transaction has become the norm, which inevitably replaced the inferior physical data room. Physical rooms had limitations- they were inconvenient and time-consuming. Over the course of the decade, online security had improved and the physical room became outdated. In its place was the virtual deal room where businesses could securely share pertinent information and exercise due diligence from anywhere in the globe.
Uses of VDR
Document Sharing. Business will one or another need a secure platform where they can share documents, files and data with their prospective investors, service providers, clients and third parties. Internally, the company will need a secure network where they can share files among one another. A virtual data room has come a long way- it now has excellent security measures already installed to keep hostile entities from seeing or accessing the sensitive information. The nature of a data room is quicker and easier accessing of what the employees, clients or prospective individuals need without worrying about the data being compromised.
Board Communications. Some board members actively get involved within their organization’s operation and leadership tasks. The problem is, the board member doesn’t always have access to the pertinent information due to being far from the physical offices or they do not have the leisure of visiting the document location as frequently as they should. This becomes more apparent if the organization in question is a multi-national entity where the leadership and board members are located all around the world. A virtual data room provides the type of access they need to instantly view documents or share files with fellow members.
IP Management. Data rooms are used to protect the Intellectual Property of a company. In cases where the organization needs a highly secure data platform that allows them to share sensitive data to external companies, a VDR will prove to be the perfect fit. In fact, experts recommend startups to establish a data room to secure all IP-related files in a maximum security standard. The organization’s legal counsel and founders will have peace of mind knowing that the most important documents are kept safe and secure.
Audits. Auditors, accountants and legal counsel will be able to see a company’s data thru VDR in order to review it off-site. The leadership can simply store the information and documents the external reviewing parties need in order to conduct the necessary audit without bringing it out and risking unauthorized viewing. The storage sizes of a data room is such that a company can store all their documents and share it for audit reasons as needed.
Strategic Partnerships. Mergers are the most common reasons why companies get a VDR, but there are other instances where a data room is needed in a mutual venture between two organizations. In cases where a partnership is in progress, it’s not unusual to see a huge amount of sensitive data being shared between two entities. A VDR creates a neutral, peaceful atmosphere for both leaders as they take a look at each other’s valuable data without worrying about security breach.
IPOs. These are generally onerous situations as the company in question is set to go public while meeting the necessary rules and regulations at a state and federal level. Transparency with the public is a necessity, and a virtual data room is an excellent resource for when you need to launch and survive the IPO. Data management and retention is a must-have and is something a VDR has in spades.
Fundraising. Fundraisers are a necessary element in growth, especially in medium-sized to larger enterprises. Convincing investors to give up huge sums of money is no easy task, but a VDR can certainly help in these situations. The sharing of data and documents is a well-known part of a fundraising campaign, and what better way to do it than having them access a data room? The leadership on both sides will be more comfortable knowing that a data room provides more control and security in document exchanges.
Merger and Acquisitions. One of the most common uses of a data room is for due diligence in an M&A. Merging and acquisition requires a lot of research on both sides; even if an organization is thinking about purchasing a company, the handing of sensitive data is a difficult task. A virtual data room solves the problem by giving the parties what they need in a safe and secure platform while negotiations are being held. In the event that a merger doesn’t take place, the VDR can simply be destroyed without losing confidential information.
Data rooms can be used internally for C-level employees to share documents among themselves, for the HR to safely store employee information and for project managers who need various business files located in different operation stages.