A virtual data room is abbreviated as VDR and is also referred to as a Virtual Deal Room. It is defined as an online repository of information for storing and distributing shared documents, and can be used during business transactions such as mergers and acquisitions and private equity and venture capital funding. They have historically been thought of a only a big company tool, but they can be a great tool for startups and small businesses as well. Any company dealing with business transactions and deals with other companies benefit from VDRs.
Using a virtual data room, authorized users can gain access to documents needed for these types of business interactions using secure log-in details provided by the vendor. The data room makes it possible for the parties involved to view information about the business in a controlled environment where confidentiality is highly valued.
In recent times, virtual data rooms have been used to replace traditional physical data rooms. This is for security, cost and efficiency reason. Compared to a physical data room, a virtual data room will reduce the bidding process by about a month when creating business deals.
Choosing a virtual data room
When you’re creating a checklist, the purpose for which you will be using the virtual data room should act as a guide. Generally, virtual data rooms are uniquely designed to help create deals. Some have more special features that are not found others. Here are some features that you should consider:
Make sure you get the value for what you pay for. Value and cost go hand in hand. When thinking about the price you pay for your data room, you need to ask yourself the following questions:
What is the price inclusive of? Do not just go for the cheaper price. You might end up realizing that some items are not included e.g. training and 24/7 support.
Will you be paying per page or per megabyte? With these two options, the price could vary considerably depending on how many visual elements will be included and the size of the shared documents.
Who will be doing the uploading to the servers? When it’s the vendor’s responsibility, this will change the amount that will be needed to pay.
There have been numerous reported cases of breaches and hacks affecting different companies. The data room that you choose has to give you high levels of security. It should also protect your IP address and your shared documents.
Closely check all the elements of security such as encryption, rights management, access to data control and hosting. Other things you should look out for include activity tracking, automated watermarking, and that access expiry/revocation features are set up.
It is really important that you have sufficient control over your documentation to keep it secure from the outside world. Also, the system should be updated frequently to guard against any external attacks.
Look for VDR services that will deliver appropriate results. A data room that is easy to set up would come in handy for those who do not have an IT team to set it up for them. There is no need spending a lot of time trying to get a data room to work while you should be focusing on starting the due diligence and closing deals.
The level of service you receive should be a major factor to consider. The VDR should offer support to you and your clients around the clock.
There are a number of things that entail good service. They include:
- Support – A service level agreement should be put in place to dictate exactly what kind of support will be provided e.g. full project management or technical support. You also need to inquire if this support will be 24/7.
- Reliability – A system failure will cause you so much loss and you want to avoid it by all means. This is why you need to investigate how reliable the virtual data room is and the availability of the documents to your clients.
- Reputation – Do thorough background checks on all your prospective providers before you get into any form of partnership. This will help you choose a provider that has some form of stability with regard to their corporate backing and client list. There is no need to risk being involved with a company that will die after a couple of years.
Finding a virtual data room that is appropriately priced and also provides all the above feature is quite challenging. You will find that some data rooms have fixed prices depending on the resources offered, while others set their charges on the basis of usage either per page, per user or per megabyte.
Various virtual data providers in the market claim to make processes easier for you. It is very important to do thorough comparisons while reviewing their proposals. This is to help you know what different elements the vendors actually provide. Insist on a free trial to test all of the offered features.
Get a provider that not only meets all your requirements but also goes above and beyond to offer high levels of services. For big companies or small, a reliable VDR provider will prove to be extremely valuable to managing your shared documents.