We imagine the idea for document management solutions occurred on a summer afternoon in the early 70’s. Let’s set the scene:
- A law clerk is preparing documentation for a multi-million-dollar M&A deal heads to the file room with a list of items to locate.
- The clerk unlocks the file room door and sneezes as paper dust wafts out.
- The overhead fluorescent light flickers and then goes out as the clerk searches through binder after binder.
- 90 minutes later, the clerk staggers out of the file room carrying an 18-inch stack of binders and says, “There’s got to be a better way!”
Computer technology improved rapidly through the 60’s and 70’s, and storage was a key area of development. Sony introduced CD-ROMs (compact disc – read-only memory) in 1984. These could store more information than the ‘floppy discs’ of the 70’s and early 80’s. Innovation continued, and external hard drives and flash drives replaced CD’s.
Our law clerk now has fewer binders to carry. But the due diligence process is still complicated. The clerk must search through several drives to find the right files, hoping none were corrupted, scratched or even worse, left behind on the seat of a taxi. While trying to recover data from damaged storage devices, the clerk thinks again, ‘There’s got to be a better way.’
The Cloud and Virtual Data Rooms
Cloud computing, a term coined in 1996 by Compaq Computer executives, shifted file access from desktops and devices to the internet. Google CEO Eric Schmidt brought the term to a broader conference audience in 2006 when talking about putting data services and architecture on servers. Within a year, Microsoft, Amazon and IBM began marketing cloud-computing initiatives.
Virtual data rooms originated about the same time as Google’s presentation. A few companies lay claim to being first to market. We like to think the law clerk in our example was involved in the first VDR development efforts.
Since 2006, VDRs have eliminated the tree-sacrificing, labor-intensive due diligence efforts of earlier decades. The result? Shorter deal cycles and increased valuations.
The early days of VDRs weren’t easy. Providers had several challenges to overcome:
- Educating clients about the value of VDRs as a solution for file storage
- Reassuring about the security controls around sensitive data, now in a digital form
- Obtaining legal credentials for digital files
- Transitioning clients from paper to digital, including the time and labor to scan and upload paper files
- Creating stable environments for large amounts of documentation
The ramp-up in acceptance of VDRs has been steady. IBIS reports Virtual Data Room revenues totaled more than $800 million in 2017 from more than 300 providers. Annualized growth rates reached almost 8% between 2012 and 2017. Predictions for the future show VDRs will generate more than $1.1 billion by 2022.
Virtual Data Rooms Offer Speed, Security and Versatility
Today, VDR providers like CapLinked are revolutionizing business transactions. Access from anywhere, with any device, at any time is now possible. CapLinked provides secure data management tools and storage environments, saving clients time and money.
VDRs have evolved into online meeting rooms for everyone involved in a deal. Cooperation between parties becomes simpler since VDR tools are available to use throughout the deal journey, not just for due diligence activities.
Security protocols around opening, sharing, and printing documents create a detailed activity trail for participants and auditors. Now, blockchain-based technologies are emerging to enhance VDR security. CapLinked recently partnered with Civic Technologies to harness Civic’s decentralized identity-verification tools.
Virtual data room applications are being extended beyond M&A activity to include lending, equity, and venture transactions. While investment banks, law firms and financial organizations are key customers, VDRs have also been used in biotech, energy, pharmaceutical, and telecommunications sectors.
Interested in learning how CapLinked’s VDR services can facilitate your next deal or streamline your workflows? Contact our team for more information about starting your free trial.