Virtual Deal Room
for Private Equity and Venture Capital

Private equity and venture capital transactions are often highly complex. While there may be fewer legal documents involved than if the companies were public, there is still much to review during the due diligence process to validate or confirm certain details for the transaction to proceed.

Indeed, dozens and sometimes hundreds of professionals might be involved, including bankers, lawyers, accountants, advisors, consultants and others, tasked with reviewing the target company’s financial, legal and operating documents to ensure a smooth transition to new ownership or a new set of investors.

However, without the proper technology and systems in place, the private equity and venture capital transaction due diligence process can be severely hampered, reducing the transaction window and slowing down the timeline during which investors are expected to provide liquidity to the company seeking funding.

The right tools not only support the process of reviewing financial and legal documents but also provide more speed, transparency and managerial oversight, injecting value to a process that has long been considered slow, laborious and prone to administrative errors.

Why CapLinked:

What is A Virtual Deal Room?

A virtual deal room is a secure, cloud-based document-management platform. It hosts all the documents, content and resources necessary for teams of financial, legal and business-operations professionals to evaluate whether a transaction should move forward.

The digital platform is necessary so today’s distributed teams of internal and external professionals can easily and intuitively review all the relevant documents to obtain a complete picture of the financial and operational state of the company seeking capital.

A virtual deal room is a virtual location where stakeholders can access transaction-related documents at scale. Multiple professionals can access, review and comment on documents simultaneously, without the need to wait on others. A virtual deal room is accessible via multiple endpoints, browsers and platforms. It includes advanced security and identity management that provide the speed, accessibility and privacy needed to support complex, time-sensitive transactions.

Benefits of a Virtual Deal Room for Investors

There are innumerable benefits for investors and private equity or venture capital firms considering a virtual deal room to support their transactions.

Security

Virtual deal rooms meet the strictest of standards for security and compliance. This makes things much more efficient because the review teams, whether at the company seeking capital or at the investment firms evaluating the company for funding, will not need to engage an additional IT or security resource.

Further, remote, distributed teams will not need to worry about the security settings of their own devices, browsers, operating systems or applications — the virtual deal room covers it all for added peace of mind.

Standards for virtual deal rooms include:

Cost-Effectiveness

A virtual deal room is the most cost-efficient option for investors to conduct due diligence. Regardless of the location of participants involved in the document review, travel expenses are eliminated and there is no longer a need to collaborate face-to-face. Additionally, with a virtual deal room, there is no longer a need to pay for administrative personnel to coordinate meetings or physically manage and secure the documents.

The document-management solution is cloud-based and delivered as a service, and therefore easy to set up, even for those working independently from home. Like all software-as-a-service, it is delivered to whomever needs it for the duration of the project. Organizations pay subscriptions based on the number of seat licenses, and if custom solutions are needed, a provider will work on a set of options and features that best meets the needs of the team.

Accessibility

Documents are available online via any device, platform or operating system.

Because the software is delivered as a service — via a web browser and a secure login, often with multi-factor authentication — reviewers do not need to purchase new devices, download special software or upgrade their systems to access the documents uploaded to the deal room.

The administrator provides access as needed, though it is normally 24/7 until access is revoked.

Built-In IT

In addition to security, the review teams do not need to consult with their own IT resources to ensure their systems and software are compatible with the deal room.

Further, browsers and operating systems are known to push upgrades at rather inconvenient times. So as not to disrupt the document-evaluation process, the virtual deal room provider handles and delivers all version upgrades, security updates and services as needed.

Common Use Cases for a Virtual Deal Room for Investors

Aside from due diligence performed for private equity and venture capital transactions, there are several other use cases for a virtual deal room in which high-volume, sensitive document review is performed.

Financial Documents

Accounting statements, in most formats, can be shared via the deal room for evaluation by third parties.

Multiple Portfolio-Company Filings

Investors can use the deal room to manage the documents for several of their portfolio companies simultaneously, each with its own partition and set of access rights.

Deal Management

Investment bankers can host the documents necessary for a transaction, and securely manage access for potential investors and their advisors.

Secure Document Sharing

Professionals involved in a transaction are able to not only upload their own documents for review by others, but also access the documents provided by others.

Fundraising

Investment bankers and private equity professionals can present a client company’s financials securely to several, if not dozens of potential investors, and their advisors who are potentially interested in providing capital. Access for these outside investors can be easily turned on and off.

Due Diligence: Sell-Side and Buy-Side

Both companies involved, in addition to their bankers, lawyers, accountants and other advisors, can push all important documents necessary to complete the due diligence process of the transaction.

Document Management

The administrator of the virtual deal room is able to upload, download, annotate, grant/revoke access rights, change settings (e.g., view, download, upload), manage users and oversee other digital administrative features.

Fund Management

Management of the funds received, including bank and treasury statements and proof of transactions, can be facilitated by the virtual deal room.

Investor Reporting

After a transaction has taken place, a virtual deal room can provide ongoing support, delivering investors the financial documents they need on a quarterly or more frequent basis.

Why Regular Cloud-Storage Platforms Are Insufficient

Regular cloud-storage platforms are insufficient to handle the high-volume access and security needs of investors and company owners involved in a private equity or venture capital transaction. There are several features they generally lack.

Multiple Personas

While administrators of a virtual deal room can upload all the documents necessary for review, they should also have the ability to create different access levels or rights for the various individuals and teams who are expected to evaluate the documents. Content needs to be tailored and unique for each individual, or for the entire team.

Simplicity

While advanced security measures are needed, the deal room should also be simple and intuitive. Administrators should easily be able to make updates, such as removing or adding documents or granting permissions to certain individuals, and users should not need hours of training before evaluating documents. The deal room should be ready for use out of the box.

Tracking

The deal room should provide a mechanism to track who has accessed which document, along with additional information regarding the time and duration of that access. This can help in uncovering any unusual or suspicious activity, such as attempts to send or share a document to an unauthorized individual, so appropriate measures can be taken and compromise or misuse can be avoided.

Document Control

A deal room also ensures no document can be altered, copied or shared without the explicit permission of the document owner or the administrator overseeing the deal room. If a participant needs a different level of access, the administrator needs to then decide whether access should be granted.

Communication, Annotation and Q&A

The ability to add comments to or annotate documents should be built into the deal room. This facilitates the review process and doesn’t force investors or partners to leave the platform to send a message or make a comment. These features add speed to the document-review process, and thus efficiency.

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Must-Have Features of a Virtual Deal Room for Investors

There are particular must-have features for a virtual deal room for investors and others involved in a private equity or venture capital transaction.

EZ Q&A

As with editing documents directly in the virtual deal room without needing to download and re-upload, the ability to ask and answer questions and make comments or annotations right in the documents is important.

This feature enables reviewers to stay focused on the documents at hand. Leaving the platform to communicate via another platform, such as email, text message, or Slack, is not only inefficient but also risky, as sensitive conversations shared via an unsecured connection could expose the transaction to outsiders.

Customizable Permissions for User Groups

To facilitate the authorization process, a virtual deal room should include the ability for administrators to grant permissions not only at the individual level but also at the group level. This can be beneficial for larger teams with outside consultants who only need access to certain documents.

However, the granularity of access is still one of the benefits of a deal room; if 100 people each need 100 different access levels, the deal room can accommodate that.

Security: Digital Rights Management/Watermarking

Enterprise-level security, including digital rights management and watermarking of documents, is crucial to maintaining the privacy and confidentiality of the shared and reviewed documents within the virtual deal room.

Activity Tracker

A virtual deal room should enable administrators to track all actions and changes made within the workspace. These activities might include document views, downloads, uploads, permission changes and pages viewed.

This is critical because it helps administrators determine which documents are being accessed, which are not and which ones require review, comment or sign-off for the due diligence process to continue. The administrator can also report on which documents have or have not been accessed to ensure that the review process is on track to be completed on time.

Document Control and Management

Documents can often number in the thousands of pages, so the virtual deal room must be able to accommodate uploading and sharing of large volume of documents.

Further, the system must be able to accommodate edits in and comments to the documents right in the platform. Without this feature, participants would have to download the documents to their devices, open them in their native program (e.g., Word or Excel), make changes and then re-upload them to the virtual deal room. This is not only inefficient and time-consuming; it is also risky, as sensitive documents can easily be compromised once they exit the platform.

Over 250,000 professionals from 75+ countries and nearly half of the Fortune 1000 companies use CapLinked.

How CapLinked Helps Investors

CapLinked knows virtual deal rooms. The company has facilitated hundreds of transactions in the areas of mergers and acquisitions, private equity, and venture capital, helping bankers, lawyers, accountants, investors and company owners conduct the due diligence and document review necessary in complex transactions.

CapLinked understands that while basic enterprise document sharing is familiar to most business professionals, the advanced features of a virtual deal room might be unfamiliar, and so they might need an introduction.

CapLinked often suggests that a company or investor group ask a few colleagues to serve in a test group, assigning task roles, sharing test documents and asking team members to make comments or annotations in the documents.

Consider a free trial of Caplinked, during which you will receive:

1 workspace
500 MB of storage (about 500 files or 5,000 pages)
2 Admin accounts
Enterprise-grade file encryption
Custom dynamic watermarking
FileProtect (digital rights management)

Summary

While private equity or venture capital transactions are highly complex, their associated due diligence and document review don’t have to be.

By leveraging a cost-effective, scalable virtual deal room solution, organizations and their advisors can review documents at scale and as needed, accelerating the review process and ensuring that transactions proceed on schedule and close on time.

The right tools in place are on their own a level of professional services, in digital format, adding incremental value to transactions while providing security, privacy and peace of mind.

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Virtual Deal Room for Private Equity and Venture Capital