Whether it is the private sector or public organizations, the use of virtual data rooms is increasing day by day. Professionals, consultancy firms, small businesses, corporations, and enterprises have incorporated virtual data room software in their operations for different reasons.
But wait, isn’t data room software a document repository? How can it be used for different purposes?
Read on to learn how modern-day businesses use online data room software but let’s start with the basics.
What is an electronic data room?
An electronic or virtual data room is a digital document storage facility used for storing any type of business or private documents. You can safely store your company’s financial statements, trade secrets, licenses, contracts, agreements, product prototypes, or anything important to you or your business.
The second most common use of a virtual data room is controlled data sharing. Data room administrators can add users on a temporary or permanent basis and allow them to share or access VDR documents. The important thing is that the data stays in the VDR, reducing the chances of data leaks.
The third and probably the most important use of data room software is online deal-making. Corporations have been using online data rooms for M&As, especially during due diligence, for over a decade now. In fact, many data room vendors offer specially designed due diligence data rooms for such purposes. You can read more about due diligence data room here.
Additionally, transactions like IPOs, fundraising, and real estate deals are commonly performed in the data rooms.
Top 3 uses of virtual data rooms in modern-day businesses
Auditing is a mandatory practice for public companies (at least). Some states or countries also require private corporations to get their records audited by certified auditors. Companies may have internal auditors or occasionally hire external auditors to audit their documents.
It is important to note that the annual audit is a complete verification and analysis of the company’s critical and confidential documents. Presenting its highly sensitive documents to external auditors is always a risky activity for any company because of data security threats.
How does data room software help?
Online data room software has solved this problem to a great extent by ensuring maximum data security during audits. Companies can easily store all the auditable documents in the virtual data room and segregate them accordingly.
Data room management can add external or internal auditors and control their access. Management can set privacy on confidential documents and may restrict auditors from downloading, editing, printing, copying, scanning, or photographing any file. In simple words, VDRs give companies complete control over their documents.
When auditors can access data remotely, they won’t have to visit the company’s premises, allowing them to save the auditing teams’ travel and residence expenses.
Due diligence is a prominent and one of the most critical parts of mega-scale business transactions, including mergers and acquisitions, initial public offerings (IPOs), fundraising, and real estate sale/purchase.
How does a virtual data room help?
Mergers and acquisitions consist of data sharing on a grand scale as one business intends to acquire the target company. During due diligence, project teams from acquiring companies verify and analyze all important documents (employees’ records, financial statements, contracts, agreements, lawsuits, leases, certificates, licenses, etc.) of the target company.
The due diligence process takes time, and acquiring a company needs easy access to documents. Virtual data rooms are used to store all required documents centrally and give remote access to the acquiring company.
However, it is important to note that the target company can control the flow of data in the virtual data room. That said, the management can give customized access to project teams and restrict them from accessing, copying, editing, printing, downloading, or copying any particular document.
Similarly, the data room’s built-in communication tools make sure that both parties can communicate safely and centrally. The communication can take place via audio and video conferencing, Q&As, group chats, private chats, polls, etc.
Some of the best data rooms for due diligence include DealRoom, Merrill Datasite, iDeals data rooms, and Firmex data rooms.
Virtual data room usage saw a massive increase during Covid-19 lockdowns when companies introduced work-from-home culture. Employees were asked to collaborate via online routes and this is where data rooms became a trustable option.
Businesses used data rooms as data repositories and virtual workspaces. Employees were able to access business data and share it with each other. They were able to arrange business meetings, hold brainstorming sessions, and make important decisions using virtual data rooms.
Businesses also use data room services to coordinate with their partners, investors, stakeholders, and other parties directly or indirectly connected to them. The good thing is that businesses are still sticking to an online work culture as it helped them save money and was well received by the employees.
Apart from being used as secure data repositories, modern-day businesses and professionals use virtual data rooms for secure data sharing and online communication. Data room software is also commonly used for auditing, due diligence, real estate transactions, fundraising, and deal-making.
