Thought Leadership  •  November 16, 2021

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Virtual Data Room 101: Everything You Need To Know

Virtual deal rooms (VDRs) are secure online environments that store confidential information necessary to complete the largest and most complex financial transactions.

What makes a VDR different than other online file storing systems? VDRs offer a number of unique benefits that are required when undergoing complex transactions. Strict security and control permissions are available to ensure that each of the many parties that are granted access to the repository can be given specific levels of access and keeps unauthorized personnel from accessing highly confidential data, manipulating the data or copying the data for use outside of the data room. VDRs also have robust audit trails to monitor the actions of each participant in the VDR.

Virtual data rooms offer the convenience of online access with the strict privacy and security that deals require. They provide a wide range of features. They're flexible to support various types of deals across all industries. As you learn more about virtual data room benefits and get a virtual data room checklist of features, you'll better understand how these operate and why they're essential.

Why Do You Need VDR in Today’s World?

The market is hot, and companies that are ready to go with a VDR have first mover advantage. When a VDR is waiting, your business can be ready and proceed with a deal without any delays that might cause you to lose advantage.

Competitive data rooms — such as Venue — offer simple setup to accommodate the speed necessary in today's hot market environment. Getting started in Venue is as easy as bulk uploading documents. Organizing uploads with file folders enables seamless navigation during the due diligence phase. After the initial upload, Venue promotes fast deal-making through a simple workflow feature.

The security, simplicity and responsiveness of a VDR have shifted expectations. Now, parties expect deals to proceed in a VDR.

The checklist shows more benefits of using a robust VDR such as Venue. It explains the best features to identify when selecting a VDR for the current environment.

How Do You Use VDRs?

There are differences between an IPO and a SPAC/de-SPAC process. Mergers and acquisitions bring distinct structures. Yet virtual data rooms are used through the deal-making process, no matter what type of deal you are trying to make.

Regardless of the specifics, deals require a secure place to gather necessary documentation, perform due diligence and generate reports.

While this would have happened in a physical conference room in years past, now the reality is that most companies do the hard work online. They need a private, secure place to go, where everything is organized intuitively.

The VDR supports that role, but it isn't just used for deals. Virtual data rooms have also occurred in other uses, such as a virtual due diligence session. Other times when you might want a VDR include:

  • Intellectual property management
  • Fundraising
  • Audits
  • Clinical Trials
  • Partnerships
  • Licensing

What Are The Capabilities of a Good Virtual Data Room?

Not all virtual data rooms are created equal. The most important virtual data room features for which to look are these:

Safety and Security

Given the confidential nature of deal-making, security is top of mind. A secure virtual data room will keep backups in the cloud and off-site, so data can be recovered if anything is lost.
The software will have secure features, such as encryption during data transfer and storage, which helps prevent data theft, and automated virus scanning to keep the system safe.

Control

Large teams play a role in deal-making, but not everyone on the team needs access to all features of the VDR. A good VDR will have access control features that enable you to set user permissions. This lets you control who has access to documents. People will also need the ability to edit, print or save documents during the due diligence process. For transparency's sake, you may also wish to use watermarks that indicate who printed or downloaded a document.

The right corporate VDR makes it simple to set and edit permissions throughout the life cycle of the deal.

Ease of Use

A good VDR should be easy to use, so you aren't wasting valuable time trying to decipher it.
The right VDR will also have strong support features, so you can get help when needed. Deals don't respect 9-to-5 hours. To stay on track, regardless of the curve balls that develop along the way, make sure that a VDR provider always offers 24/7/365 support.

Reporting and Custom Solutions

A strong VDR such as Venue offers flexible solutions that cater to all industries and deal types and support the generation of comprehensive reports.

Reporting features enable you to stay on track when juggling multiple deals on concurrent timelines. They also help you understand something critical to the success of the deal: knowing what the other side values most, so you can tailor discussions accordingly.

Artificial Intelligence

Artificial intelligence (AI) should be a top desired feature for a VDR.

Think of the massive amounts of documentation that come together during the deal phase. Would you rather assign a new hire to review all the papers for comprehensiveness or let an intelligent machine do the work on your behalf?

Not only can an AI check for errors such as duplicates or missing files, it can help you recall a phrase you saw somewhere with features such as full-text search.

File Sharing vs. Virtual Data Room Security

Deals require the exchange of sensitive data. If data were to get into the wrong hands, companies could be severely compromised.

While there are plenty of free document sharing options available on the market, these do not usually offer the robust level of security needed for these deals. This is why companies often turn to virtual data rooms, rather than adopt an existing cloud technology with which stakeholders are familiar.

Security features to look for in a VDR include watermarking, 256-bit encryption, multifactor authentication, permissions control and invitation delays to protect access, and baked-in infrastructure security. Venue offers all these features and more.

Who Uses VDRs and Why?

VDRs are used across a range of industries to support all kinds of deals. Roles most likely to interact with VDRs include executives, financial teams, analysts, compliance managers and other professionals.

The virtual data room serves these users' needs through functions, such as:

  • Due diligence
  • Compliance, audits and regulatory reporting
  • RFP & procurement
  • Corporate project teams
  • Legal firms and litigation
  • Intellectual property management
  • Portfolio reporting

The Future of Deals Is Virtual

In times when physical travel is still fraught and remote work is the norm, deal-makers would be wise to adapt their deal-making processes to include virtual data rooms. VDRs are a solution that can accommodate the robust due diligence needed to power M&As and move deals toward closing quickly.

If you understand the use case for VDRs and the top features that protect security and promote efficiency, you can identify the best VDR partner — before your next deal. This way, you can preserve your competitive advantage and feel confident in your choice of partner for all your data room needs. To learn more about Venue and how it can support your next deal, contact us.

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joseph

Joseph Seitz

Marketing Analyst, DFIN