Virtual data rooms have already become an efficient solution for many businesses worldwide. Companies of all sizes choose virtual data room services to enhance the security of their corporate confidential documents and other sensitive data.
As of 2022, the global average cost of data breaches has reached $4.3 million. Obviously, businesses need a solid tool for keeping their data safe.
Read this short article to know everything about virtual data rooms, where they’re typically used, and what advantages they bring.
What is a virtual data room?
A virtual data room (VDR) is an online cloud-based repository where large volumes of data can be stored and distributed.
Virtual data rooms are mainly used to establish safe cooperation on the team, share sensitive documents, or conduct complex deal-preparation processes like due diligence.
| Note: Online data room, virtual deal room, digital data room, and electronic data room are synonymous with a virtual data room. |
Is there a difference between a virtual data room and cloud storage?
Though a virtual data room and cloud storage serve the same purpose (online storage for files, documents, photos, and videos), cloud storage is considered a less secure solution when it comes to storing confidential information.
Popular cloud storage platforms like Google or Dropbox are perfect for storing private photos and videos, but not business-critical documentation. This is due to the lack of security measures provided by the vendors.
On the contrary, the primary goal of virtual data room providers is to ensure high-level protection to the files you store with their software products.
Virtual data room use cases
Online data room software can be used in any type of business in any industry where a secure solution for data storage and sharing is needed.
However, there are several most common use cases described further.
Mergers and acquisitions (M&A)
To conduct an M&A deal, the buy-side and sell-side have to undergo the due diligence process, where all the required information about the target company is presented. This is where online data room software proves to be helpful.
Because the due diligence process requires sharing lots of confidential information with third parties, the best virtual data room providers ensure those documents stay protected.
Initial public offering (IPO)
When a company decides to go public, it becomes subject to certain regulations and audits on the local, state, and federal levels.
In order to attract potential shareholders, lots of sensitive documentation should be shared. And virtual data rooms provide the ability to do that safely and efficiently.
Fundraising
Due diligence is a crucial step of the fundraising process. Startups or corporations that want to attract investments in their businesses must do their best to catch potential investors’ attention.
This is easy to do with the help of an online data room as it not only ensures your data is safe from unauthorized views but also helps to structure large volumes of documentation. This way, prospective investors can find what they need in seconds, and you can rest assured your confidential information is kept private.
Board communication
Sometimes, board members want to be actively involved in all the company processes and trace every contract. This is difficult to do when board members are not in the country and come to the physical office rarely.
In this case, virtual dataroom software becomes the best solution as board members can reach it any time and from anywhere and monitor the business process. Company representatives, for their part, can upload all fresh contacts and other documents to the virtual data room in a timely manner.
Advantages of using a virtual data room
Let’s define the key benefits of implementing a virtual data room in your organization:
- Enhanced security. Modern virtual data room vendors provide a high level of document protection by taking lots of security measures. The best virtual data room providers VDRs offer such document security features as redaction, dynamic watermarking, and fence view. Reliable virtual data room providers are also ISO 27001-certified and SOC 2-compliant and use multiple data centers to ensure physical security as well.
- Round-the-clock availability. A virtual data room is primarily a cloud-based platform, which means no extra software is needed — you can reach it from any browser or mobile device 24/7.
- Wide range of features. The best VDR vendors offer a variety of documentation management, user management, document security, access control, interaction, and reporting features that help to improve business processes and accelerate important deals.
- Ability to track the progress of the deal. Tracking and reporting features in the majority of virtual data rooms provide help to keep abreast of any actions made inside the virtual data room. You can see who, when, and for how long viewed a particular document. This is especially helpful in fundraising, as it helps to identify what documents investors pay more attention to.
Takeaways
Let’s summarize what you know about virtual data rooms now:
- A virtual data room is a cloud-based repository where large volumes of data are stored and shared.
- The main difference between virtual data rooms and cloud storage platforms like Dropbox is that VDRs provide enhanced security measures that guarantee your sensitive documents are kept private.
- Virtual data rooms are widely used in mergers and acquisitions, IPOs, fundraising, and board communications.
- The key advantages of implementing a virtual data room in your business are enhanced security, 24/7 availability, tracking options, and a variety of features that improve business processes.
