What Is a Virtual Data Room?

Nicholas J Price
With each passing year, companies rely more heavily on computers and special software programs. More and more companies are moving to totally paperless processes. Workspaces no longer clutter up office desks and cubicles. Office spaces are now usually clear of the reams of paper, desk file organizers, paper clips, staplers and other small office supplies that used to clutter up workspaces. In many offices, the back storage room of old files has been replaced by the cloud.

The more we move away from paper, the easier it is to see the advantages of electronic document storage and electronic business solutions. Electronic solutions have brought virtual data storage rooms into the business world. Virtual data rooms are often referred to as VDRs.

What Is a Virtual Data Room?

A virtual data room is an online database where companies can store confidential information and share it with others. Think of a virtual data room as a sort of online warehouse where you can store your most important documents. Some would describe a VDR as an electronic repository or document filing system.

VDRs are typically used during financial transactions. They're highly popular for use in merger and acquisition transactions. It's critical for buyers to conduct their due diligence to secure the many documents that support their decision to acquire a company and to support the price point.

What Is in a Data Room?

Major financial transactions, such as buying and selling corporations, require the review and exchange of thousands of documents. The traditional way of managing documents is to set up a physical room where sellers and potential buyers can meet to review and discuss documents and strike a deal.

VDRs avoid the need to have a physical room for storing documents. VDRs store all kinds of documents, especially documents that materially support the business of selling a corporation. This includes such documents as:
  • Contracts
  • Employee information
  • Intellectual property documentation
  • Financial statements
  • Capitalization table
  • Corporate documents
  • Capital stock and other securities
  • Financial and tax matters
  • Property and assets
  • Material agreements
  • Customers, sales and marketing
  • Suppliers and manufacturers
  • Customer and product support
  • Regulatory matters
  • Litigation and disputes
  • Insurance
  • HR, employees and consultants
  • Press and PR
  • Related-party transactions

Why Use a Virtual Data Room?

VDRs are cost-efficient and cost-effective as compared with traditional physical data rooms. The search function makes it ultra-easy to find documents when needed. Transactions that take place in virtual data rooms are easy to set up and to update. It's easy to add documents, and it's even easier to access them when needed.

VDRs Have High-Level Security Features

Data breaches occur so often that someday the current time period may be referred to as the Era of the Data Breach. VDRs have strong reputations for having some of the highest security measures available. Companies that offer VDRs make a strong commitment to offering virtual space that has the most highly secure and sophisticated security measures that are available.

Robust security measures like advanced encryption, in transit and at rest, and multilevel authentication procedures top the list of strong security measures. Data room access is discreet, and administrators can quickly revoke user access to data rooms. Users are required to have secure user IDs and protected passwords in order to access the system.

Some VDPs have features that afford users the ability to protect documents even further. Additional features include watermarking, disabled printing and blind view. In the interest of efficiency, VDRs are easier to implement than physical data rooms and they're easier to support. Current VDRs also have more modern user interfaces than past versions of virtual data rooms.

Who Uses VDRs?

VDRs are set up with permissive use. A VDR administrator can set the permissions so that one or more users can access all documents or subsets of documents. The administrator preapproves which individuals have access to the VDR and which documents they have access to in the VDR.

In the case of a virtual data room that's being used for a merger and acquisition deal, there are usually several data rooms set up that allow the seller or its representatives to review who has been visiting the virtual data room and how often they were there. They can also view the specific dates that others entered the VDR.

Types of Businesses That Utilize Virtual Data Rooms

Virtual data rooms can be set up and used by businesses in many different types of industries, including:
  • Mergers and acquisitions
  • Fundraising
  • Initial public offerings
  • Strategic partnerships
  • Audits
  • IP asset management
  • Board communications
  • Any company that needs to do secure document sharing
  • Technology
  • Life sciences
  • Investment banking
  • Legal firms
  • Private equity and venture capital

Important Considerations for Choosing a Virtual Data Room

Because of the sensitivity of corporate documents, it's vitally important to choose a virtual data room provider that offers the strongest security. It's important not to forget that virtual data rooms sometimes interface with messaging platforms or other electronic systems that may not offer the same level of security as the virtual data room. Certain purposes, like immense amounts of data storage, require the use of data rooms over the long term. This is a good reason to consider a virtual data room that continues to provide for your document storage needs beyond the initial purpose.

Diligent Corporation designed its virtual data rooms with all of these things in mind.

Diligent Corporation uses ISO/IEC 27001 and 27002 security measures, which are the strongest available. The security experts at Diligent Corporation know the security risks that can result when low-level electronic platforms interface with platforms that have higher-level security features. That's why the Diligent Boards portal and Diligent Messenger platforms also have the high-level security features. Diligent's board portal offers many of the same features that companies are looking for in a virtual data room.

These software programs are designed to interface seamlessly with each other so that all business transactions and activities have the highest level of protection.

Diligent Corporation is committed to providing electronic tools for boards and their businesses that support best practices for good corporate governance now and for the future.
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Nicholas J. Price
Nicholas J. Price is a former Manager at Diligent. He has worked extensively in the governance space, particularly on the key governance technologies that can support leadership with the visibility, data and operating capabilities for more effective decision-making.