Like so many aspects of doing business, data rooms have long since made the transition from analog to digital to virtual. These aren’t just format changes, each step has been an evolutionary shift that opens up new features, new levels of accessibility, new use cases and — perhaps most importantly — new possibilities for business and private equity firms. We’re proud to say that CapLinked’s secure virtual data rooms (VDRs) serve over 250,000 professionals from across more than 75 countries, but the data rooms before us traveled a long road to get there — let’s explore the journey to the present, and what that means for your business as an investor.

Origination of Physical Data Rooms

Before we can answer the question, “what is a virtual data room,” it’s key to orient ourselves with a bit of crucial context. 

Let’s start with the basics: 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 recipients. That’s where physical data rooms originated. People involved in a business transaction would meet at a physical location and enter a supervised data room where they’d exchange and view information relating to the business at hand. Physical data rooms facilitated all sorts of use cases for sharing business info, from conducting due diligence during mergers and acquisitions (M&A) to raising capital to asset sales and purchases. 

The catch? There were a few. Lots of printed documents ended up costing lots of cash; you actually had to go somewhere to access information, and maintaining an audit trail was almost completely manual.

Going Digital

With the rise of digital communication, businesses, and private equity firms could simply attach documents to an email or upload them to a flash drive and deliver them at will. However, practices like this can get messy quickly and can be open to vulnerability. While going digital cut back on printing and travel costs, businesses lost controlled access to their files and information once it left their hands and ended up on someone else’s hard drive. Likewise, maintaining an audit trail is difficult with a decentralized means of communication and tracking down thousands of emails to different parties is a logistical nightmare. Yet, many businesses still rely on old-school digital sharing as a primary means of distributing sensitive information.

Enter The Cloud

Fortunately, the magic of the cloud helps alleviate those nightmares. Cloud storage — in which data is saved on an off-site location and can be accessed online by anyone with proper permission  — enables people around the world to manage and share digital information cheaply and efficiently. Fantastic as it is, though, cloud storage isn’t a magic bullet: Document control is still at risk once information is uploaded to the cloud. 

The reality is that data on the cloud is subject to breaches, vulnerability, hacks, misconfigured technology and just plain old human error, among other failings. That’s where virtual data rooms (VDRs) come to the rescue.

What Is a VDR?

A VDR is an online repository for the secure storage and distribution of digital documents. At their core, virtual data rooms employ the convenience of cloud storage while layering on security features to keep your sensitive information safe. The cloud enables individuals to access shared information from just about any online device — be it a desktop, tablet or smartphone — at any time. By taking advantage of cloud storage, VDRs empower users to share information more easily, more quickly, more securely and across more interested parties than either physical data rooms or traditional digital sharing methods allow for.

Features of VDR for Businesses

VDR access control features include the ability to grant and revoke access instantly (say, if an interested party pulls out of the deal), as well as manage user and file-level permissions. You can even use a VDR to customize each file’s digital rights management (DRM) properties, which are file-level security features that prevent data from being printed, copied or distributed beyond your control.

Built-in activity tracking lets you monitor user activity in real-time and generate full reports of all actions taken within your VDR, including file views and downloads. Tools like this greatly facilitate the audit process for investor parties, shareholders, board members, consultants, employees and others.

In practice, let’s explore just three ways that the features of virtual data rooms make them indispensable to doing business today: 

They’re Where the Action Happens

VDRs are where deals are made — which means they’re where money is made. Airtight security features make VDRs the perfect place for high-powered meetings, due diligence processes, and big money deals.

They’re Intuitive

We live in two worlds. The intuitive digital world is somewhere between Web 2.0 and Web 3.0, a world based on data, documents and clean interfaces. On the flip side, we’re still dealing with remnants left over from the last century, gunking up the works with clunky, unintuitive platforms and awkward interactions. With a VDR, you’ll experience less pain with each business transaction. When you don’t have to navigate outdated technology, your pathway to better business deals (and more money) is set. 

They’re Convenient

Not only do we all want convenience, we’ve come to expect it. When online interactions aren’t convenient we get angry. When you get your deals done in the right virtual space, you’ll keep pace with new business. And you’ll conveniently close the deals that matter.

8 Use Cases for Virtual Data Rooms

With so much sensitive information under siege today, protecting private documents has become an absolute essential for businesses of nearly every size, across the spectrum of industries. Let’s start with a few examples from every corner of the business world:

1. Lawyers

High-stakes legal battles make access to information absolutely vital for lawyers. It’s not uncommon for law firms to house documents in large, expensive physical data rooms, manned by additional staff. VDRs eliminate these needs and make it easier to track document sharing.

2. Merger and Acquisition Departments

When M&A deals are on the table, mountains of paperwork require review by both parties before anything is signed. Before the advent of secure file sharing, this meant extensive travel, with sensitive documents confined to the locale where they were stored. Now, digital spaces enable the safe review and negotiation of business transactions from the convenience of each side’s office, and should a merger fall through, access to data can simply be withdrawn. That’s why they call them virtual deal rooms, too.

3. Accountants and Auditors

Accountants review four key financial statements in business: balance sheets, retained earnings, cash flow and income statements. Each one contains sensitive data that could be detrimental in the hands of competitors. VDRs provide secure document sharing that enables companies to collaborate instantly with accountants — information can be shared promptly without running any risk of falling into the wrong hands. 

Auditors play a slightly different role, examining tax records in addition to financial paperwork. Their job often involves a lot more travel, so a VDR simplifies this process, too, by accommodating an on-the-go lifestyle.

4. Chief Financial Officers (CFOs)

The primary job of a chief financial officer is to know the numbers of the business, which requires the orchestration of all the documents that accountants and auditors wind up reviewing. Retaining management over these files is far easier with a VDR, as data is always precisely where the CFO needs it to be.

5. Corporations

Whether branches are corporate-owned or bought by franchisors, corporations operate beyond the bounds of geography. Despite that physical distance, though, it’s necessary to share policy updates, upcoming strategy plans, input from franchise operators and much more across the slate of businesses within a collaborative VDR.

6. Investment Banking

Investment bankers thrive in the nitty-gritty details of potential deals — sensitive information that both investors and sellers may not be interested in letting out into the wild. A reliable virtual data room makes each complex deal that much simpler. Investment banks frequently use VDRs for buy-side M&As, sell-side M&As, raising capital, issues of rights and strategic partnerships. 

7. Small Businesses

When you’re getting your business up and running, or even just maintaining a successful small business, space is often limited. Even so, you’ll want to keep an archive of financial records within a VDR in case an auditor ever needs to review your company’s history. 

8. Tech Companies

Tech moves fast in every way, from initial conception to raising funds to going public to getting acquired. Technology companies have to stay on their toes, and flying from Silicon Valley to New York City repeatedly to deal with physical data rooms is something that no one has the patience for. There must be a better way. And there is with VDRs.

Ultimately, virtual data rooms have the potential to benefit nearly any business owner. Document storage is a necessity across enterprises; securing that data from unwanted eyes is of equal importance. You can close deals in the safe and convenient venue of a VDR without ever having to set foot outside of your workplace or home office. 

Other Ways to Leverage Virtual Data Rooms

You know who’s using VDRs, and the list runs the gamut of enterprises. But how are these diverse businesses leveraging the power of virtual data rooms? Let us count the ways: 

  • Fundraising: Fundraising is as much of a scaling necessity as it is a headache for businesses. Long before the finish line’s in sight, you’ve got to hurdle through reams of paperwork, piles of due diligence and a whole lot of inspecting financial records that is made easy with a VDR.
  • Initial public offering (IPOs): An IPO invites nonstop scrutiny from every direction. Not only are you under the lens of investors, but your information is also being combed through by regulatory and statutory bodies who need to make sure that you’re dotting every “i” and crossing every “t.” A VDR ensures that you get through the process with all of your documentation well managed, intact and accounted for.
  • Intellectual Property (IP) Management: IP is something that calls for constant lock and key — especially as you deal with buyers who may want to purchase them. By using a VDR, you can make sure that only the appropriate people view your shared documents, and that they’re safely stored.

Call on CapLinked – Your Virtual Data Room Provider

What is a VDR? Now you know. And now you know why they’re so essential to doing business in a post-digital world. The true value that virtual data rooms offer lies in added security, controlled access, ease of use and even the human touch of accessible customer support from your virtual data room provider. If you deal in data — and if you’re in business, you certainly do — it’s hard to put a price tag on any one of these factors. And the included peace of mind? That one’s priceless. Sign up for a free trial to experience the benefits of CapLinked VDRs.