Virtual Data Room is a cloud-based technology for storing confidential business information and sharing data. The platform is designed as a website and enables secure financial transactions, collaboration, and asset management. Regardless of the field, companies that are interested in storing their records securely turn to data rooms.
Such platforms enable business owners to set controlled access to sensitive information. This feature makes them stand out among similar products. The data is available to a set number of people, thus, unauthorized users will not receive the confidential information. The storage is digitally protected, so it is used to support important business and legal operations: M&A, IPO, and other transactions. Since the virtual room is software, additional features like customized security levels can be applied to basic data storage.
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Data Room Functionality
Platforms vary by vendor and purpose, although they may have similar functionality and a common concept. The importance of a particular function depends on the user’s needs and expectations, the scope of the project, and the value of the business records. The main purpose of VDR is to upload, store, and provide data to manage critical business processes. We should also note:
- Secure storage. It is provided by ISO 27001, SOC 2 II, and encryption.
- Flexible access system. Specific permissions are assigned to certain employees.
- Data backup.
- File structure preservation.
- Automatic categorization of information.
- Watermarking to ensure protection against unauthorized copying and distribution.
The platform accepts files of various forms and contents, for instance, diagrams, business letters, and contracts.
The virtual data room works simply and clearly. Intuitive functions speed up the work of users and help to achieve a positive result in solving tasks or negotiations.
Data Room for M&A: Features
Corporate finance transactions require the exchange of sensitive information. Using an online database brings positive results in negotiations, M&A transactions, real-time translation of documents, compliance monitoring, and management of other M&A processes. The data room integrates a tool that enables you to ask questions and get fast, clear, constructive answers from experts. Tracking issues and prompt resolution positively impacts the M&A process. At the same time, the full confidentiality of the process parties is preserved.
Traditional and Virtual Data Room: Differences
A physically secured and monitored room is usually located on the company’s premises. It stores confidential documents that help monitor the company’s status. Access to the data room is granted to a single employee with appropriate competence and responsibility. Disadvantages of a physical room include:
- Low level of work convenience.
- High costs for other employees (business trips).
- Possibility of fire, robbery, flooding.
The virtual data room has no above-mentioned disadvantages. The platform is a website with limited access. It is visited by a narrow circle of people who review and work with the uploaded company documentation. Since some of the records are strictly confidential, restrictions are imposed on the possibility of copying, sharing, or printing. The advantages of virtual deal room solutions include:
- 24/7 access from anywhere in the world.
- Communication (forum in the form of questions and answers).
- Possibility to negotiate simultaneously.
- Information security.
- Process efficiency.
Companies take advantage of virtual data room software for projects involving the exchange of confidential information with external parties (consultants, financial institutions, cooperating companies). These include investment, consulting, construction projects, financing, joint trade, and services. Virtual data rooms are popular in banking, medical, and biological centers, where the protection of intellectual property, personal data, and patents is essential.
Security of Online Database
In terms of system access rights and communication encryption, the deal desk and salerooms systems have the same level of protection that applies to banking services. These include:
- Communication encryption via 256-bit EV SSL protocol.
- Authorization in the system using a strong password and SMS codes.
- Compulsory password change from time to time or automatic logout after a certain period of user inactivity.
Additional mechanisms provided to protect the data room include limiting the number of IP addresses from which users log into the VDR or blocking simultaneous logins from multiple individuals using the same credentials.
Data Room Structure
A secure virtual data room features files and folders. The business owner chooses a provider that customizes the structure, depending on the project and needs. Let’s take an example. A group of banking investors use VDR for due diligence. The intended data room may contain the following folders:
- Legal.
- Financial.
- Tax.
The virtual data room space is controlled by an administrator who manages files and folders and sets access rights for users. While building the structure of an online database with the help of tools by Pandadoc, the administrator:
- Outlines a rough layout. A simple step helps visualize what the platform should look like so that navigation is logical for users.
- Creates an intuitive storage system. The step involves organizing relevant folders and subfolders for ease of use and quick retrieval.
- Adds relevant documents. It is important to ensure that the folder contains the necessary securities for smooth due diligence or collaboration.
- Opens access to specific users. This keeps valuable information out of the hands of outsiders. The business owner and employees don’t have to worry about the security of data.
The administrator should update the folders on a regular basis. Given the lengthy process of checking documents, it is important to review the archive regularly and improve the structure if necessary.
