Let’s start with a more basic question: How do businesses share information? First, there was physical communication, where information was primarily shared by printing documents, then mailed (remember that?) or faxed (remember that?) to the desired recipient. This is how physical data rooms originated. Interested parties in a business transaction would meet at a physical location, enter a supervised data room, and exchange and view information relating to the business. Physical data rooms were created to facilitate many different use cases for sharing business information, from conducting due diligence during a mergers and acquisitions (M&A) transaction, to raising capital, to asset sales and purchases. These physical data rooms provided a secure environment where access could be controlled and sensitive information could be shared while maintaining confidentiality. The catch? Lots of printed documents (print = $$$), you actually had to go somewhere to access information, and maintaining an audit trail was almost completely manual.
The Digital Age
Then came digital communication, where businesses could simply attach documents to an email or upload them to a flashdrive, and send to the desired recipient. However, this practice can get messy quickly. While businesses save in printing and traveling costs through digital communication, they lose controlled access to their information once the drive leaves their hands or they send the email. Sensitive information can easily be forwarded or copied to unintended recipients, and an entire deal can go south. Maintaining an audit trail is equally difficulty with such a decentralized means if communication. Tracking down a thousand emails to different parties is a logistic nightmare, yet many businesses are still using this as a primary means of sharing sensitive information.
Enter: The Cloud
Then came the magical cloud. Cloud storage has enabled people around the world to manage and share digital information cheaply and efficiently. However, document control is still at risk once information is uploaded to the cloud. There are data breaches, hacked interfaces, misconfigured technology, as well as plain old human error. The list goes on. Using a consumer-grade file-sharing service like Dropbox or OneHub is great for exchanging regular documents with parties outside your organization, but it doesn’t provide the same level of security and control that’s needed for critical business transactions. How do you know who’s seen what documents? What if you have multiple parties interested in viewing your information? How do control which groups see what? Sure, these platforms are cheap and easy to use, but you could be paying a lot more down the line if your information gets in the wrong hands or if your audit trail is incomplete.
Data Rooms Today
That’s where virtual data rooms, or VDRs, come to the rescue. Virtual data rooms employ the convenience of cloud storage and add extra layers of security to keep your sensitive information safe. The cloud enables individuals to access shared information from anywhere, be it desktop, tablet or smart phone, at any time. This makes sharing information more accessible and more convenient. By taking advantage of cloud storage, VDRs enable information to be shared easier, faster, and with more interested parties than via a physical data room.
You also have greater control over access with a VDR. An M&A deal involves numerous parties, including the selling firm or bank, prospective buyers, legal teams, and other external auditors. Each party requires access to specific sets of documents, each document needing to be treated with the utmost security. Virtual data rooms enable administrators to share specific sets of documents with the aforementioned parties through a centralized platform while maintaining security and confidentiality. Other access control features include the ability to grant and revoke access instantly (say, if an interested party pulls out of the deal), user and file-level permissions, and even Digital Rights Management, which prevents files from being printed, copied, or forwarded beyond your control.
Built-in activity tracking lets you monitor user activity in real-time and generate a full report of all actions taken within your VDR, such as file views and downloads. This tool greatly facilitates the audit process for investors, shareholders, board members, consultants, auditors, employees, and others.
All these security features, including industry-recognized security credentials, come at a premium. That’s why VDRs typically cost more than consumer-grade file-sharing services like OneHub and Dropbox. These aren’t videos of your cat playing the piano. Critical business transactions require the highest security standards and a streamlined platform to decrease the risk of information loss or user error. Otherwise you run the risk of compromising your deal. Cloud data is cheap—as demonstrated by free file-sharing services. So the true value that virtual data rooms bring is added security, controlled access, ease of use, and even customer support. If you’re in the market for a virtual data room, keep those factors in mind, and you’ll be sure to find the perfect solution.