Why Virtual Data Rooms Are Becoming a Business Standard
The increasing accessibility of virtual spaces has prompted a corporate shift from hard copy to digital documents. In fact, the widespread embracing of this technology has created the need for secure forms of sharing between various organizations. To accommodate this, the virtual data room (VDR) has risen in prominence as the top choice for hosting sensitive documents.
What They Are
The online data room is essentially a digital version of its predecessor, the physical deal room. In the past, documents were collected into a secure file room to be accessed by authorized personnel. This entailed the copying and collecting of stacks of paper, which then had to be organized. A room had to be maintained at a single location and security hired to protect the room from unauthorized access. Anyone who needed to reference materials had to physically go to the data room and then look through the paperwork.
By contrast, a VDR is a collection of files held online and protected by login security and privileges. It can be accessed from any device containing the correct software, at any location.
How They Work
Companies can contract third-party virtual data room providers to set up said room for their use. This is generally a quick process, so long as the client already has the documents converted to their preferred formats. These can be Microsoft Word, PDFs, spreadsheets or any other format that is compatible with the data room software.
The room itself may be on a standalone application or an extranet, which is a website which can be accessed via the internet. Which method is used depends on your data room provider. Once the VDR has been set up, individuals can access it to review documents by logging on.
When To Use One
Obtaining data room services is recommended whenever sensitive documents must be shared between organizations, such as:
- Joint projects
- Preparing an Initial Public Offering (IPO)
- Mergers and Acquisitions (M&A)
M&A transactions are by far the most common reason businesses use VDRs, as M&A activity has increased significantly in recent years. The huge volume of documents which must be shared in these situations makes data rooms essential, and VDRs are superior to physical options when it comes to security, efficiency and transparency.
Why They’re More Secure Than a Physical Data Room
Cybersecurity is a huge aspect of VDRs. The limited access ensures that only individuals who should be reviewing these documents can, not unlike a security guard at a building’s entrance. However, the ability to control access goes even further.
Access can be customized for each user and even terminated quickly if necessary. How users interact with documents can also be strictly controlled by limiting user privileges. This way, only certain users can upload and edit documents, and sharing abilities are usually unavailable.
Users must be authenticated by logging on with a user ID and password, and their activity is tracked for the time they remain logged into the system. Many providers also offer encryption to maintain the integrity of sensitive data, as well as secure connections and firewalls.
How They Can Increase Efficiency
VDRs greatest advantage is the efficiency they offer to companies during a complex process. They are both cheaper and more convenient than their physical predecessors.
With VDRs, there’s no travel necessary. Multiple users can access the data at once from their current locations. This is especially useful in the age of global business, when companies have headquarters all over the world but need to work as a team.
With a virtual room, there’s also no need to worry about getting to a location within a certain time frame or being limited in how long you can stay. Scheduling conflicts or unexpected traffic are no longer concerns, which means less stress and more time saved for all involved.
While setting up a VDR requires an initial investment, you can save money in the long term. Less travel means fewer travel costs and there’s no need to pay for separate security or rent a physical room. You can also save on costs associated with physical copies, such as printing or lawyer fees.
There’s no doubt that documents are better preserved digitally; hard copies age and may gradually fade, become discolored or brittle, or lost during transportation. You also have the benefit of backup servers, so you don’t have to be concerned about a disaster such as a flood, fire or weather event wiping out your data.
How They Can Facilitate Transparency
Not only do VDRs allow access to thousands of pages of documents but the software can track who is accessing which documents and for how long. Many systems also provide notifications whenever a new document is uploaded or changes are made to current documents. This can keep all parties informed of any developments in real time.
What This Means For Your Company
Overall, obtaining virtual data room services can provide a wealth of advantages to your company. If you’re seeking to engage in M&A transactions, the assurance of security and transparency that VDRs provide can give potential investors confidence that doing business with you is a smart move.
The efficiency of VDRs can also shorten the M&A timeframe. The possibility of a smoother transaction may also be attractive to bidders, as it means less time and money spent on their end.
As you attract more bidders, you also have more opportunity for profit. Setting up a VDR is about more than convenience it’s an investment that can add to your company’s value.